[Title 26 CFR ]
[Code of Federal Regulations (annual edition) - April 1, 2007 Edition]
[From the U.S. Government Printing Office]
[[Page i]]
26
Part 1 (Sec. 1.1551 to End)
Revised as of April 1, 2007
Internal Revenue
________________________
Containing a codification of documents of general
applicability and future effect
As of April 1, 2007
With Ancillaries
Published by
Office of the Federal Register
National Archives and Records
Administration
A Special Edition of the Federal Register
[[Page ii]]
U.S. GOVERNMENT OFFICIAL EDITION NOTICE
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[[Page iii]]
Table of Contents
Page
Explanation................................................. v
Title 26:
Chapter I--Internal Revenue Service, Department of
the Treasury (Continued) 3
Finding Aids:
Table of CFR Titles and Chapters........................ 639
Alphabetical List of Agencies Appearing in the CFR...... 657
Table of OMB Control Numbers............................ 667
List of CFR Sections Affected........................... 685
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Cite this Code: CFR
To cite the regulations in
this volume use title,
part and section number.
Thus, 26 CFR 1.1551-1
refers to title 26, part
1, section 1551-1.
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[[Page v]]
EXPLANATION
The Code of Federal Regulations is a codification of the general and
permanent rules published in the Federal Register by the Executive
departments and agencies of the Federal Government. The Code is divided
into 50 titles which represent broad areas subject to Federal
regulation. Each title is divided into chapters which usually bear the
name of the issuing agency. Each chapter is further subdivided into
parts covering specific regulatory areas.
Each volume of the Code is revised at least once each calendar year
and issued on a quarterly basis approximately as follows:
Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1
The appropriate revision date is printed on the cover of each
volume.
LEGAL STATUS
The contents of the Federal Register are required to be judicially
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie
evidence of the text of the original documents (44 U.S.C. 1510).
HOW TO USE THE CODE OF FEDERAL REGULATIONS
The Code of Federal Regulations is kept up to date by the individual
issues of the Federal Register. These two publications must be used
together to determine the latest version of any given rule.
To determine whether a Code volume has been amended since its
revision date (in this case, April 1, 2007), consult the ``List of CFR
Sections Affected (LSA),'' which is issued monthly, and the ``Cumulative
List of Parts Affected,'' which appears in the Reader Aids section of
the daily Federal Register. These two lists will identify the Federal
Register page number of the latest amendment of any given rule.
EFFECTIVE AND EXPIRATION DATES
Each volume of the Code contains amendments published in the Federal
Register since the last revision of that volume of the Code. Source
citations for the regulations are referred to by volume number and page
number of the Federal Register and date of publication. Publication
dates and effective dates are usually not the same and care must be
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instances where the effective date is beyond the cut-off date for the
Code a note has been inserted to reflect the future effective date. In
those instances where a regulation published in the Federal Register
states a date certain for expiration, an appropriate note will be
inserted following the text.
OMB CONTROL NUMBERS
The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires
Federal agencies to display an OMB control number with their information
collection request.
[[Page vi]]
Many agencies have begun publishing numerous OMB control numbers as
amendments to existing regulations in the CFR. These OMB numbers are
placed as close as possible to the applicable recordkeeping or reporting
requirements.
OBSOLETE PROVISIONS
Provisions that become obsolete before the revision date stated on
the cover of each volume are not carried. Code users may find the text
of provisions in effect on a given date in the past by using the
appropriate numerical list of sections affected. For the period before
January 1, 2001, consult either the List of CFR Sections Affected, 1949-
1963, 1964-1972, 1973-1985, or 1986-2000, published in 11 separate
volumes. For the period beginning January 1, 2001, a ``List of CFR
Sections Affected'' is published at the end of each CFR volume.
CFR INDEXES AND TABULAR GUIDES
A subject index to the Code of Federal Regulations is contained in a
separate volume, revised annually as of January 1, entitled CFR Index
and Finding Aids. This volume contains the Parallel Table of Statutory
Authorities and Agency Rules (Table I). A list of CFR titles, chapters,
and parts and an alphabetical list of agencies publishing in the CFR are
also included in this volume.
An index to the text of ``Title 3--The President'' is carried within
that volume.
The Federal Register Index is issued monthly in cumulative form.
This index is based on a consolidation of the ``Contents'' entries in
the daily Federal Register.
A List of CFR Sections Affected (LSA) is published monthly, keyed to
the revision dates of the 50 CFR titles.
REPUBLICATION OF MATERIAL
There are no restrictions on the republication of textual material
appearing in the Code of Federal Regulations.
INQUIRIES
For a legal interpretation or explanation of any regulation in this
volume, contact the issuing agency. The issuing agency's name appears at
the top of odd-numbered pages.
For inquiries concerning CFR reference assistance, call 202-741-6000
or write to the Director, Office of the Federal Register, National
Archives and Records Administration, Washington, DC 20408 or e-mail
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ELECTRONIC SERVICES
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mail, [email protected].
[[Page vii]]
The Office of the Federal Register also offers a free service on the
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site for public law numbers, Federal Register finding aids, and related
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register. The NARA site also contains links to GPO Access.
Raymond A. Mosley,
Director,
Office of the Federal Register.
April 1, 2007.
[[Page ix]]
THIS TITLE
Title 26--Internal Revenue is composed of twenty volumes. The
contents of these volumes represent all current regulations issued by
the Internal Revenue Service, Department of the Treasury, as of April 1,
2007. The first thirteen volumes comprise part 1 (Subchapter A--Income
Tax) and are arranged by sections as follows: Sec. Sec. 1.0-1.60;
Sec. Sec. 1.61-1.169; Sec. Sec. 1.170-1.300; Sec. Sec. 1.301-1.400;
Sec. Sec. 1.401-1.440; Sec. Sec. 1.441-1.500; Sec. Sec. 1.501-1.640;
Sec. Sec. 1.641-1.850; Sec. Sec. 1.851-1.907; Sec. Sec. 1.908-1.1000;
Sec. Sec. 1.1001-1.1400; Sec. Sec. 1.1401-1.1550; and Sec. 1.1551 to
end. The fourteenth volume containing parts 2-29, includes the remainder
of subchapter A and all of Subchapter B--Estate and Gift Taxes. The last
six volumes contain parts 30-39 (Subchapter C--Employment Taxes and
Collection of Income Tax at Source); parts 40-49; parts 50-299
(Subchapter D--Miscellaneous Excise Taxes); parts 300-499 (Subchapter
F--Procedure and Administration); parts 500-599 (Subchapter G--
Regulations under Tax Conventions); and part 600 to end (Subchapter H--
Internal Revenue Practice).
The OMB control numbers for Title 26 appear in Sec. 602.101 of this
chapter. For the convenience of the user, Sec. 602.101 appears in the
Finding Aids section of the volumes containing parts 1 to 599.
For this volume, Cheryl E. Sirofchuck and Carol A. Conroy were Chief
Editors. The Code of Federal Regulations publication program is under
the direction of Frances D. McDonald, assisted by Ann Worley.
[[Page 1]]
TITLE 26--INTERNAL REVENUE
(This book contains part 1, Sec. 1.1551 to End)
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Part
chapter i--Internal Revenue Service, Department of the
Treasury (Continued)...................................... 1
[[Page 3]]
CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY
(CONTINUED)
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Editorial Note: IRS published a document at 45 FR 6088, January 25,
1980, deleting statutory sections from their regulations. In Chapter I
cross references to the deleted material have been changed to the
corresponding sections of the IRS Code of 1954 or to the appropriate
regulations sections. When either such change produced a redundancy, the
cross reference has been deleted. For further explanation, see 45 FR
20795, March 31, 1980.
SUBCHAPTER A--INCOME TAX (CONTINUED)
Part Page
1 Income taxes (Continued).................... 5
Supplementary Publications: Internal Revenue Service Looseleaf
Regulations System.
Additional supplementary publications are issued covering Alcohol and
Tobacco Tax Regulations, and Regulations Under Tax Conventions.
[[Page 5]]
SUBCHAPTER A_INCOME TAX (CONTINUED)
PART 1_INCOME TAXES--Table of Contents
RELATED RULES
Sec.
1.1551-1 Disallowance of surtax exemption and accumulated earnings
credit.
1.1552-1 Earnings and profits.
Certain Controlled Corporations
1.1561-1T General rules regarding certain tax benefits available to the
component members of a controlled group of corporations
(temporary).
1.1561-2 Determination of amount of tax benefits.
1.1561-2T Determination of amount of tax benefits (temporary).
1.1561-3T Allocation of the section 1561(a) tax items (temporary).
1.1563-1T Definition of controlled group of corporations and component
members (temporary).
1.1563-2 Excluded stock.
1.1563-3 Rules for determining stock ownership.
1.1563-3T Rules for determining stock ownership (temporary).
1.1563-4 Franchised corporations.
PROCEDURE AND ADMINISTRATION
INFORMATION AND RETURNS
Returns and Records
Records, Statements, and Special Returns
1.6001-1 Records.
1.6001-2 Returns.
Tax Returns or Statements
1.6011-1 General requirement of return, statement, or list.
1.6011-2 Returns, etc., of DISC's and former DISC's.
1.6011-3 Requirement of statement from payees of certain gambling
winnings.
1.6011-4 Requirement of statement disclosing participation in certain
transactions by taxpayers.
1.6011-4T Requirement of statement disclosing participation in certain
transactions by taxpayers (temporary).
1.6011-5T Required use of magnetic media for corporate income tax
returns (temporary).
1.6012-1 Individuals required to make returns of income.
1.6012-2 Corporations required to make returns of income.
1.6012-2T Corporations required to make returns of income (temporary).
1.6012-3 Returns by fiduciaries.
1.6012-4 Miscellaneous returns.
1.6012-5 Composite return in lieu of specified form.
1.6012-6 Returns by political organizations.
1.6013-1 Joint returns.
1.6013-2 Joint return after filing separate return.
1.6013-3 Treatment of joint return after death of either spouse.
1.6013-4 Applicable rules.
1.6013-6 Election to treat nonresident alien individual as resident of
the United States.
1.6013-7 Joint return for year in which nonresident alien becomes
resident of the United States.
1.6014-1 Tax not computed by taxpayer for taxable years beginning before
January 1, 1970.
1.6014-2 Tax not computed by taxpayer for taxable years beginning after
December 31, 1969.
1.6015-0 Table of contents.
1.6015-1 Relief from joint and several liability on a joint return.
1.6015-2 Relief from liability applicable to all qualifying joint
filers.
1.6015-3 Allocation of deficiency for individuals who are no longer
married, are legally separated, or are not members of the same
household.
1.6015-4 Equitable relief.
1.6015-5 Time and manner for requesting relief.
1.6015-6 Nonrequesting spouse's notice and opportunity to participate in
administrative proceedings.
1.6015-7 Tax Court review.
1.6015-8 Applicable liabilities.
1.6015-9 Effective date.
1.6016-1 Declarations of estimated income tax by corporations.
1.6016-2 Contents of declaration of estimated tax.
1.6016-3 Amendment of declaration.
1.6016-4 Short taxable year.
1.6017-1 Self-employment tax returns.
Information Returns
1.6031(a)-1 Return of partnership income.
1.6031(b)-1T Statements to partners (temporary).
1.6031(b)-2T REMIC reporting requirements (temporary). [Reserved]
1.6031(c)-1T Nominee reporting of partnership information (temporary).
1.6031(c)-2T Nominee reporting of REMIC information (temporary).
[Reserved]
1.6032-1 Returns of banks with respect to common trust funds.
[[Page 6]]
1.6033-1 Returns by exempt organizations; taxable years beginning before
January 1, 1970.
1.6033-2 Returns by exempt organizations (taxable years beginning after
December 31, 1969) and returns by certain nonexempt
organizations (taxable years beginning after December 31,
1980).
1.6033-3 Additional provisions relating to private foundations.
1.6033-4T Required use of magnetic media for returns by organizations
required to file returns under section 6033 (temporary).
1.6034-1 Information returns required of trusts described in section
4947(a)(2) or claiming charitable or other deductions under
section 642(c).
1.6035-1 Returns of U.S. officers, directors and 10-percent shareholders
of foreign personal holding companies for taxable years
beginning after September 3, 1982.
1.6035-2 Returns of U.S. officers and directors of foreign personal
holding companies for taxable years beginning before September
4, 1982.
1.6035-3 Returns of 50-percent U.S. shareholders of foreign personal
holding companies for taxable years beginning before September
4, 1982.
1.6036-1 Notice of qualification as executor or receiver.
1.6037-1 Return of electing small business corporation.
1.6037-2T Required use of magnetic media for income tax returns of
electing small business corporations (temporary).
1.6038-1 Information returns required of domestic corporations with
respect to annual accounting periods of certain foreign
corporations beginning before January 1, 1963.
1.6038-2 Information returns required of United States persons with
respect to annual accounting periods of certain foreign
corporations beginning after December 31, 1962.
1.6038-2T Information returns required of United States persons with
respect to annual accounting periods of certain foreign
corporations (temporary).
1.6038-3 Information returns required of certain United States persons
with respect to controlled foreign partnerships (CFPs).
1.6038A-0 Table of contents.
1.6038A-1 General requirements and definitions.
1.6038A-2 Requirement of return.
1.6038A-3 Record maintenance.
1.6038A-3T Record maintenance (temporary).
1.6038A-4 Monetary penalty.
1.6038A-5 Authorization of agent.
1.6038A-6 Failure to furnish information.
1.6038A-7 Noncompliance.
1.6038B-1 Reporting of certain transfers to foreign corporations.
1.6038B-1T Reporting of certain transactions to foreign corporations
(temporary).
1.6038B-2 Reporting of certain transfers to foreign partnerships.
1.6039-1 Statements to persons with respect to whom information is
furnished.
1.6041-1 Return of information as to payments of $600 or more.
1.6041-2 Return of information as to payments to employees.
1.6041-3 Payments for which no return of information is required under
section 6041.
1.6041-4 Foreign-related items and other exceptions.
1.6041-5 Information as to actual owner.
1.6041-6 Returns made on Forms 1096 and 1099 under section 6041;
contents and time and place for filing.
1.6041-7 Magnetic media requirement.
1.6041-8 Cross-reference to penalties.
1.6041-9 Coordination with reporting rules for widely held fixed
investment trusts under Sec. 1.671-5.
1.6041A-1 Returns regarding payments of remuneration for services and
certain direct sales.
1.6042-1 Return of information as to dividends paid in calendar years
before 1963.
1.6042-2 Returns of information as to dividends paid.
1.6042-3 Dividends subject to reporting.
1.6042-4 Statements to recipients of dividend payments.
1.6042-5 Coordination with reporting rules for widely held fixed
investment trusts under Sec. 1.671-5.
1.6043-1 Return regarding corporate dissolution or liquidation.
1.6043-2 Return of information respecting distributions in liquidation.
1.6043-3 Return regarding liquidation, dissolution, termination, or
substantial contraction of organizations exempt from taxation
under section 501(a).
1.6043-4 Information returns relating to certain acquisitions of control
and changes in capital structure.
1.6044-1 Returns of information as to patronage dividends with respect
to patronage occurring in taxable years beginning before 1963.
1.6044-2 Returns of information as to payments of patronage dividends.
1.6044-3 Amounts subject to reporting.
1.6044-4 Exemption for certain consumer cooperatives.
1.6044-5 Statements to recipients of patronage dividends.
1.6045-1 Returns of information of brokers and barter exchanges.
1.6045-1T Returns of information of brokers and barter exchanges
(temporary).
1.6045-2 Furnishing statement required with respect to certain
substitute payments.
[[Page 7]]
1.6045-2T Furnishing statement required with respect to certain
substitute payments (temporary).
1.6045-3 Information reporting for an acquisition of control or a
substantial change in capital structure.
1.6045-4 Information reporting on real estate transactions with dates of
closing on or after January 1, 1991.
1.6045-5 Information reporting on payments to attorneys.
1.6046-1 Returns as to organization or reorganization of foreign
corporations and as to acquisitions of their stock.
1.6046-1T Returns as to organization or reorganization of foreign
corporations and as to acquisitions of their stock
(temporary).
1.6046A-1 Return requirement for United States persons who acquire or
dispose of an interest in a foreign partnership, or whose
proportional interest in a foreign partnership changes
substantially.
1.6046-2 Returns as to foreign corporations which are created or
organized, or reorganized, on or after September 15, 1960, and
before January 1, 1963.
1.6046-3 Returns as to formation or reorganization of foreign
corporations prior to September 15, 1960.
1.6047-1 Information to be furnished with regard to employee retirement
plan covering an owner-employee.
1.6049-1 Returns of information as to interest paid in calendar years
before 1983 and original issue discount includible in gross
income for calendar years before 1983.
1.6049-2 Interest and original issue discount subject to reporting in
calendar years before 1983.
1.6049-3 Statements to recipients of interest payments and holders of
obligations to which there is attributed original issue
discount in calendar years before 1983.
1.6049-4 Return of information as to interest paid and original issue
discount includible in gross income after December 31, 1982.
1.6049-5 Interest and original issue discount subject to reporting after
December 31, 1982.
1.6049-5T Reporting by brokers of interest and original issue discount
on and after January 1, 1986 (temporary).
1.6049-6 Statements to recipients of interest payments and holders of
obligations for attributed original issue discount.
1.6049-7 Returns of information with respect to REMIC regular interests
and collateralized debt obligations.
1.6049-7T Market discount fraction reported with other financial
information with respect to REMICs and collateralized debt
obligations (temporary).
1.6049-8 Interest and original issue discount paid to residents of
Canada.
1.6050A-1 Reporting requirements of certain fishing boat operators.
1.6050B-1 Information returns by person making unemployment compensation
payments.
1.6050D-1 Information returns relating to energy grants and financing.
1.6050E-1 Reporting of State and local income tax refunds.
1.6050H-0 Table of contents.
1.6050H-1 Information reporting of mortgage interest received in a trade
or business from an individual.
1.6050H-1T Information reporting of mortgage interest received in a
trade or business from individuals after 1985 and before 1988
(temporary).
1.6050H-2 Time, form, and manner of reporting interest received on
qualified mortgage.
1.6050I-0 Table of contents.
1.6050I-1 Returns relating to cash in excess of $10,000 received in a
trade or business.
1.6050I-2 Returns relating to cash in excess of $10,000 received as bail
by court clerks.
1.6050J-1T Questions and answers concerning information returns relating
to foreclosures and abandonments of security (temporary).
1.6050K-1 Returns relating to sales or exchanges of certain partnership
interests.
1.6050L-1 Information return by donees relating to certain dispositions
of donated property.
1.6050L-2T Information returns by donees relating to qualified
intellectual property contributions (temporary).
1.6050M-1 Information returns relating to persons receiving contracts
from certain Federal executive agencies.
1.6050N-1 Statements to recipients of royalties paid after December 31,
1986.
1.6050N-2 Coordination with reporting rules for widely held fixed
investment trusts under Sec. 1.671-5.
1.6050P-0 Table of contents.
1.6050P-1 Information reporting for discharges of indebtedness by
certain entities.
1.6050P-2 Organization a significant trade or business of which is the
lending of money.
1.6050S-0 Table of contents.
1.6050S-1 Information reporting for qualified tuition and related
expenses.
1.6050S-2 Information reporting for payments and reimbursements or
refunds of qualified tuition and related expenses.
1.6050S-3 Information reporting for payments of interest on qualified
education loans.
1.6050S-4 Information reporting for payments of interest on qualified
education loans.
1.6052-1 Information returns regarding payment of wages in the form of
group-term life insurance.
[[Page 8]]
1.6052-2 Statements to be furnished employees with respect to wages paid
in the form of group-term life insurance.
1.6060-1 Reporting requirements for income tax return preparers.
Signing and Verifying of Returns and Other Documents
1.6061-1 Signing of returns and other documents by individuals.
1.6062-1 Signing of returns, statements, and other documents made by
corporations.
1.6063-1 Signing of returns, statements, and other documents made by
partnerships.
1.6065-1 Verification of returns.
Time for Filing Returns and Other Documents
1.6071-1 Time for filing returns and other documents.
1.6072-1 Time for filing returns of individuals, estates, and trusts.
1.6072-2 Time for filing returns of corporations.
1.6072-3 Income tax due dates postponed in case of China Trade Act
corporations.
1.6072-4 Time for filing other returns of income.
1.6073-1 Time and place for filing declarations of estimated income tax
by individuals.
1.6073-2 Fiscal years.
1.6073-3 Short taxable years.
1.6073-4 Extension of time for filing declarations by individuals.
1.6074-1 Time and place for filing declarations of estimated income tax
by corporations.
1.6074-2 Time for filing declarations by corporations in case of a short
taxable year.
1.6074-3 Extension of time for filing declarations by corporations.
Extension of Time for Filing Returns
1.6081-1 Extension of time for filing returns.
1.6081-2T Automatic extension of time to file certain returns filed by
partnerships (temporary).
1.6081-3 Automatic extension of time for filing corporation income tax
returns.
1.6081-3T Automatic extension of time for filing corporation income tax
returns (temporary).
1.6081-4T Automatic extension of time for filing individual income tax
return (temporary).
1.6081-5 Extensions of time in the case of certain partnerships,
corporations and U.S. citizens and residents.
1.6081-5T Extensions of time in the case of certain partnerships,
corporations, and U.S. citizens and residents (temporary).
1.6081-6T Automatic extension of time to file estate or trust income tax
return (temporary).
1.6081-7T Automatic extension of time to file Real Estate Mortgage
Investment Conduit (REMIC) income tax return (temporary).
1.6081-8 Automatic extension of time to file certain information
returns.
1.6081-9 Automatic extension of time to file exempt organization
returns.
1.6081-10T Automatic extension of time to file withholding tax return
for U.S. source income of foreign persons (temporary).
1.6081-11T Automatic extension of time for filing certain employee plan
returns (temporary).
Place for Filing Returns or Other Documents
1.6091-1 Place for filing returns or other documents.
1.6091-2 Place for filing income tax returns.
1.6091-3 Filing certain international income tax returns.
1.6091-4 Exceptional cases.
Miscellaneous Provisions
1.6102-1 Computations on returns or other documents.
1.6107-1 Income tax return preparer must furnish copy of return to
taxpayer and must retain a copy or record.
1.6107-2 Form and manner of furnishing copy of return and retaining copy
or record.
1.6109-1 Identifying numbers.
1.6109-2 Income tax return preparers furnishing identifying numbers for
returns or claims for refund filed after December 31, 1999.
1.6115-1 Disclosure requirements for quid pro quo contributions.
Regulations Applicable to Returns or Claims for Refund Filed Prior to
January 1, 2000
1.6109-2A Furnishing identifying number of income tax return preparer.
TIME AND PLACE FOR PAYING TAX
Place and Due Date for Payment of Tax
1.6151-1 Time and place for paying tax shown on returns.
1.6153-1 Payment of estimated tax by individuals.
1.6153-2 Fiscal years.
1.6153-3 Short taxable years.
1.6153-4 Extension of time for paying the estimated tax.
1.6154-1 Payment of estimated tax by corporations.
1.6154-2 Short taxable years.
1.6154-3 Extension of time for paying estimated tax.
1.6154-4 Use of Government depositaries.
1.6154-5 Definition of estimated tax.
[[Page 9]]
Extensions of Time for Payment
1.6161-1 Extension of time for paying tax or deficiency.
1.6162-1 Extension of time for payment of tax on gain attributable to
liquidation of personal holding companies.
1.6164-1 Extensions of time for payment of taxes by corporations
expecting carrybacks.
1.6164-2 Amount of tax the time for payment of which may be extended.
1.6164-3 Computation of the amount of reduction of the tax previously
determined.
1.6164-4 Payment of remainder of tax where extension relates to only
part of the tax.
1.6164-5 Period of extension.
1.6164-6 Revised statements.
1.6164-7 Termination by district director.
1.6164-8 Payments on termination.
1.6164-9 Cross references.
1.6165-1 Bonds where time to pay the tax or deficiency has been
extended.
COLLECTION
General Provisions
1.6302-1 Use of Government depositaries in connection with corporation
income and estimated income taxes and certain taxes of tax-
exempt organizations.
1.6302-2 Use of Government depositaries for payment of tax withheld on
nonresident aliens and foreign corporations.
1.6302-3 Use of Government depositaries in connection with estimated
taxes of certain trusts.
1.6302-4 Use of financial institutions in connection with income taxes;
voluntary payments by electronic funds transfer.
1.6361-1 Collection and administration of qualified State individual
income taxes.
ABATEMENTS, CREDITS, AND REFUNDS
1.6411-1 Tentative carryback adjustments.
1.6411-2 Computation of tentative carryback adjustment.
1.6411-3 Allowance of adjustments.
1.6411-4 Consolidated groups.
1.6414-1 Credit or refund of tax withheld on nonresident aliens and
foreign corporations.
1.6425-1 Adjustment of overpayment of estimated income tax by
corporation.
1.6425-2 Computation of adjustment of overpayment of estimated tax.
1.6425-3 Allowance of adjustments.
ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE PENALTIES
1.6654-1 Addition to the tax in the case of an individual.
1.6654-2 Exceptions to imposition of the addition to the tax in the case
of individuals.
1.6654-3 Short taxable years of individuals.
1.6654-4 Waiver of penalty for underpayment of 1971 estimated tax by an
individual.
1.6654-5 Payments of estimated tax.
1.6654-6 Nonresident alien individuals.
1.6654-7 Applicability.
1.6655-1 Addition to the tax in the case of a corporation.
1.6655-2 Exceptions to imposition of the addition to the tax in the case
of corporations.
1.6655-2T Safe harbor for certain installments of tax due before July 1,
1987 (temporary).
1.6655-3 Short taxable years in the case of corporations.
1.6655-5 Addition to tax on account of excessive adjustment under
section 6425.
1.6655-7 Special rules for estimating the corporate alternative minimum
tax book income adjustment under the annualization exception.
1.6655(e)-1 Time and manner for making election under the Omnibus Budget
Reconciliation Act of 1993.
1.6662-0 Table of contents.
1.6662-1 Overview of the accuracy-related penalty.
1.6662-2 Accuracy-related penalty.
1.6662-3 Negligence or disregard of rules or regulations.
1.6662-4 Substantial understatement of income tax.
1.6662-5 Substantial and gross valuation misstatements under chapter 1.
1.6662-5T Substantial and gross valuation misstatements under chapter 1
(temporary).
1.6662-6 Transactions between persons described in section 482 and net
section 482 transfer price adjustments.
1.6662-6T Transactions between parties described in section 482 and net
section 482 transfer price adjustments (temporary).
1.6662-7 Omnibus Budget Reconciliation Act of 1993 changes to the
accuracy-related penalty.
1.6664-0 Table of contents.
1.6664-1 Accuracy-related and fraud penalties; definitions, effective
date and special rules.
1.6664-2 Underpayment.
1.6664-3 Ordering rules for determining the total amount of penalties
imposed.
1.6664-4 Reasonable cause and good faith exception to section 6662
penalties.
1.6664-4T Reasonable cause and good faith exception to section 6662
penalties.
1.6694-0 Table of contents.
1.6694-1 Section 6694 penalties applicable to income tax return
preparer.
1.6694-2 Penalty for understatement due to an unrealistic position.
1.6694-3 Penalty for understatement due to willful, reckless, or
intentional conduct.
[[Page 10]]
1.6694-4 Extension of period of collection where preparer pays 15
percent of a penalty for understatement of taxpayer's
liability and certain other procedural matters.
1.6695-1 Other assessable penalties with respect to the preparation of
income tax returns for other persons.
1.6695-2 Preparer due diligence requirements for determining earned
income credit eligibility.
1.6696-1 Claims for credit or refund by income tax return preparers.
1.6709-1T Penalties with respect to mortgage credit certificates
(temporary).
JEOPARDY, BANKRUPTCY, AND RECEIVERSHIPS
1.6851-1 Termination assessments of income tax.
1.6851-2 Certificates of compliance with income tax laws by departing
aliens.
1.6851-3 Furnishing of bond to insure payment; cross reference.
THE TAX COURT
Declaratory Judgements Relating to Qualification of Certain Retirement
Plans
1.7476-1 Interested parties.
1.7476-2 Notice to interested parties.
1.7476-3 Notice of determination.
1.7519-0T Table of contents (temporary).
1.7519-1T Required payments for entities electing not to have required
year (temporary).
1.7519-2T Required payments--procedures and administration (temporary).
1.7519-3T Effective date (temporary).
General Actuarial Valuations
1.7520-1 Valuation of annuities, unitrust interests, interests for life
or terms of years, and remainder or reversionary interests.
1.7520-2 Valuation of charitable interests.
1.7520-3 Limitation on the application of section 7520.
1.7520-4 Transitional rules.
1.7701(l)-0 Table of contents.
1.7701(l)-1 Conduit financing arrangements.
1.7701(l)-3 Recharacterizing financing arrangements involving fast-pay
stock.
1.7702-0 Table of contents.
1.7702-2 Attained age of the insured under a life insurance contract.
1.7702B-1 Consumer protection provisions.
1.7702B-2 Special rules for pre-1997 long-term care insurance contracts.
1.7703-1 Determination of marital status.
1.7704-1 Publicly traded partnerships.
1.7704-2 Transition provisions.
1.7704-3 Qualifying income.
1.7872-1--1.7872-4 [Reserved]
1.7872-5T Exempted loans (temporary).
1.7872-15 Split-dollar loans.
1.7874-1T Disregard of affiliate-owned stock (temporary).
1.7874-2T Surrogate foreign corporation (temporary).
PUBLIC LAW 74, 84TH CONGRESS
1.9000-1 Statutory provisions.
1.9000-2 Effect of repeal in general.
1.9000-3 Requirement of statement showing increase in tax liability.
1.9000-4 Form and content of statement.
1.9000-5 Effect of filing statement.
1.9000-6 Provisions for the waiver of interest.
1.9000-7 Provisions for estimated tax.
1.9000-8 Extension of time for making certain payments.
RETIREMENT-STRAIGHT LINE ADJUSTMENT ACT OF 1958
1.9001 Statutory provisions; Retirement-Straight Line Adjustment Act of
1958.
1.9001-1 Change from retirement to straight-line method of computing
depreciation.
1.9001-2 Basis adjustments for taxable years beginning on or after 1956
adjustment date.
1.9001-3 Basis adjustments for taxable years between changeover date and
1956 adjustment date.
1.9001-4 Adjustments required in computing excess-profits credit.
DEALER RESERVE INCOME ADJUSTMENT ACT OF 1960
1.9002 Statutory provisions; Dealer Reserve Income Adjustment Act of
1960 (74 Stat. 124).
1.9002-1 Purpose, applicability, and definitions.
1.9002-2 Election to have the provisions of section 481 of the Internal
Revenue Code of 1954 apply.
1.9002-3 Election to have the provisions of section 481 of the Internal
Revenue Code of 1954 not apply.
1.9002-4 Election to pay net increase in tax in installments.
1.9002-5 Special rules relating to interest.
1.9002-6 Acquiring corporation.
1.9002-7 Statute of limitations.
1.9002-8 Manner of exercising elections.
PUBLIC DEBT AND TAX RATE EXTENSION ACT OF 1960
1.9003 Statutory provisions; section 4 of the Act of September 14, 1960
(Pub. L. 86-781, 74 Stat. 1017).
1.9003-1 Election to have the provisions of section 613(c)(2) and (4) of
the 1954 Code, as amended, apply for past years.
1.9003-2 Effect of election.
1.9003-3 Statutes of limitation.
1.9003-4 Manner of exercising election.
1.9003-5 Terms; applicability of other laws.
[[Page 11]]
CERTAIN BRICK AND TILE CLAY, FIRE CLAY, AND SHALE; REGULATIONS UNDER THE
ACT OF SEPTEMBER 26, 1961
1.9004 Statutory provisions; the Act of September 26, 1961 (Pub. L. 87-
312, 75 Stat. 674).
1.9004-1 Election relating to the determination of gross income from the
property for taxable years beginning prior to 1961 in the case
of certain clays and shale.
1.9004-2 Effect of election.
1.9004-3 Statutes of limitation.
1.9004-4 Manner of exercising election.
1.9004-5 Terms; applicability of other laws.
QUARTZITE AND CLAY USED IN PRODUCTION OF REFRACTORY PRODUCTS; ELECTION
FOR PRIOR TAXABLE YEARS
1.9005 Statutory provisions; section 2 of the Act of September 26, 1961
(Pub. L. 87-321, 75 Stat. 683).
1.9005-1 Election relating to the determination of gross income from the
property for taxable years beginning prior to 1961 in the case
of clay and quartzite used in making refractory products.
1.9005-2 Effect of election.
1.9005-3 Statutes of limitation.
1.9005-4 Manner of exercising election.
1.9005-5 Terms; applicability of other laws.
Tax Reform Act of 1969
1.9006 Statutory provisions; Tax Reform Act of 1969.
1.9006-1 Interest and penalties in case of certain taxable years.
MISCELLANEOUS PROVISIONS
1.9101-1 Permission to submit information required by certain returns
and statements on magnetic tape.
1.9200-1 Deduction for motor carrier operating authority.
1.9200-2 Manner of taking deduction.
1.9300-1T Reduction in taxable income for housing Hurricane Katrina
displaced individuals.
Authority: 26 U.S.C. 7805, unless otherwise noted.
Section 1.1561-2T also issued under 26 U.S.C. 1561.
Section 1.6011-4T also issued under 26 U.S.C. 6001 and 6011(a).
Section 1.6011-4T also issued under 26 U.S.C. 6011.
Section 1.6013-6 also issued under 26 U.S.C. 7701(b)(11).
Section 1.6015-1 also issued under 26 U.S.C. 6015(h).
Section 1.6015-2 also issued under 26 U.S.C. 6015(h).
Section 1.6015-3 also issued under 26 U.S.C. 6015(h).
Section 1.6015-4 also issued under 26 U.S.C. 6015(h).
Section 1.6015-5 also issued under 26 U.S.C. 6015(h).
Section 1.6015-6 also issued under 26 U.S.C. 6015(h).
Section 1.6015-7 also issued under 26 U.S.C. 6015(h).
Section 1.6015-8 also issued under 26 U.S.C. 6015(h).
Section 1.6015-9 also issued under 26 U.S.C. 6015(h).
Section 1.6031(a)-1 also issued under section 404 of the Tax Equity
and Fiscal Responsibility Act of 1982 (Public Law 97-248; 96 Stat. 324,
669) (TEFRA).
Sections 1.6035-1 through 1.6035-3 also issued under 26 U.S.C. 6035
(a), (d), and (e).
Section 1.6038-2 also issued under 26 U.S.C. 6038.
Section 1.6038-3 also issued under 26 U.S.C. 6038.
Section 1.6038A-1 also issued under 26 U.S.C. 6038A.
Section 1.6038A-2 also issued under 26 U.S.C. 6038A.
Section 1.6038A-3 also issued under 26 U.S.C. 6038A and 7701(l).
Section 1.6038A-4 also issued under 26 U.S.C. 6038A.
Section 1.6038A-5 also issued under 26 U.S.C. 6038A.
Section 1.6038A-6 also issued under 26 U.S.C. 6038A.
Section 1.6038A-7 also issued under 26 U.S.C. 6038A.
Section 1.6038B-1 also issued under 26 U.S.C. 6038B.
Section 1.6038B-1T also issued under 26 U.S.C 6038B.
Section 1.6038B-2 also issued under 26 U.S.C. 6038B.
Section 1.6041-1 also issued under 26 U.S.C. 6041(a).
Section 1.6041-2 also issued under 26 U.S.C. 6041(d).
Section 1.6041-3 also issued under 26 U.S.C. 62 and 6041(a).
Section 1.6042-3 also issued under 26 U.S.C. 6045.
Section 1.6043-4 also issued under 26 U.S.C. 6043(c).
Section 1.6045-1 also issued under 26 U.S.C. 6045.
Section 1.6045-2 also issued under 26 U.S.C. 6045.
Section 1.6045-3 also issued under 26 U.S.C. 6045.
Section 1.6045-4 also issued under 26 U.S.C. 6045.
Section 1.6046A-1 also issued under 26 U.S.C. 6046A.
Section 1.6049-4 also issued under 26 U.S.C. 6049 (a), (b), and (d).
Section 1.6049-5 also issued under 26 U.S.C. 6049 (a), (b), and (d).
[[Page 12]]
Section 1.6049-5T also issued under 26 U.S.C. 6049.
Section 1.6049-6 also issued under 6049(a), (b), and (d).
Section 1.6049-7 also issued under 26 U.S.C. 860G(e), 1275(c) and 26
U.S.C. 6049(d)(7)(D).
Section 1.6050E-1 also issued under 26 U.S.C. 6050E.
Section 1.6050H-1 also issued under 26 U.S.C. 6050H.
Section 1.6050H-1T also issued under 26 U.S.C. 6050H.
Section 1.6050H-2 also issued under 26 U.S.C. 6050H.
Section 1.6050I-1 also issued under 26 U.S.C. 6050I.
Section 1.6050I-2 also issued under 26 U.S.C. 6050I.
Section 1.6050K-1 also issued under 26 U.S.C. 6050K.
Section 1.6050M-1 also issued under 26 U.S.C. 6050M.
Section 1.6050P-1 also issued under 26 U.S.C. 6050P.
Section 1.6050P-2 also issued under 26 U.S.C. 6050P.
Section 1.6050S-1 also issued under 26 U.S.C. 6050S(g).
Section 1.6050S-2 also issued under 26 U.S.C. 6050S(g).
Section 1.6050S-3 also issued under 26 U.S.C. 6050S(g).
Section 1.6050S-4 also issued under 26 U.S.C. 6050S(g).
Section 1.6061-2T also issued under 26 U.S.C. 6061.
Section 1.6065-2T also issued under 26 U.S.C. 6065.
Section 1.6081-2T also issued under 26 U.S.C. 6081.
Section 1.6081-4T also issued under 26 U.S.C. 6081.
Section 1.6081-6T also issued under 26 U.S.C. 6081.
Section 1.6081-7T also issued under 26 U.S.C. 6081.
Section 1.6081-8 also issued under 26 U.S.C. 6081(a).
Section 1.6081-9 also issued under 26 U.S.C. 6081(a).
Section 1.6081-10T also issued under 26 U.S.C. 6081.
Section 1.6081-11T also issued under 26 U.S.C. 6081.
Section 1.6302-1 also issued under 26 U.S.C. 6302(c) and (h).
Section 1.6302-2 also issued under 26 U.S.C. 6302(h).
Section 1.6302-3 also issued under 26 U.S.C. 6302(h).
Section 1.6302-4 also issued under 26 U.S.C. 6302(a), (c), and (h).
Section 1.6411-4 also issued under 26 U.S.C. 6402(i) and 6411(c).
Section 1.6662-6 also issued under 26 U.S.C. 6662.
Section 1.6695-1 also issued under 26 U.S.C. 6060(b) and 6695(b).
Section 1.6695-2 also issued under 26 U.S.C. 6695(g).
Section 1.6851-2 also issued under 26 U.S.C 6851(d).
Section 1.7520-1 also issued under 26 U.S.C. 7520(c)(2).
Section 1.7520-2 also issued under 26 U.S.C. 7520(c)(2).
Section 1.7520-3 also issued under 26 U.S.C. 7520(c)(2).
Section 1.7520-4 also issued under 26 U.S.C. 7520(c)(2).
Section 1.7701(l)-1 also issued under 26 U.S.C. 7701(l).
Section 1.7701(l)-3 also issued under 26 U.S.C. 7701(l).
Section 1.7702-2 also issued under 26 U.S.C. 7702(k).
Section 1.7872-5T also issued under 26 U.S.C. 7872.
Section 1.7872-15 also issued under 26 U.S.C. 1275 and 7872.
Section 1.7874-1T also issued under 26 U.S.C. 7874(c)(6) and (g).
Source: Sections 1.1401-1 through 1.1403-1 contained in T.D. 6691,
28 FR 12796, Dec. 3, 1963, unless otherwise noted.
RELATED RULES--Table of Contents
Sec. 1.1551-1 Disallowance of surtax exemption and accumulated
earnings credit.
(a) In general. If:
(1) Any corporation transfers, on or after January 1, 1951, and
before June 13, 1963, all or part of its property (other than money) to
a transferee corporation,
(2) Any corporation transfers, directly or indirectly, after June
12, 1963, all or part of its property (other than money) to a transferee
corporation, or
(3) Five or fewer individuals are in control of a corporation and
one or more of them transfer, directly or indirectly, after June 12,
1963, property (other than money) to a transferee corporation, and the
transferee was created for the purpose of acquiring such property or was
not actively engaged in business at the time of such acquisition, and if
after such transfer the transferor or transferors are in control of the
transferee during any part of the taxable year of the transferee, then
for such taxable year of the transferee the Secretary or his delegate
may disallow the surtax exemption defined in section
[[Page 13]]
11(d) or the accumulated earnings credit of $150,000 ($100,000 in the
case of taxable years beginning before January 1, 1975) provided in
paragraph (2) or (3) of section 535(c), unless the transferee
establishes by the clear preponderance of the evidence that the securing
of such exemption or credit was not a major purpose of the transfer.
(b) Purpose of section 1551. The purpose of section 1551 is to
prevent avoidance or evasion of the surtax imposed by section 11(c) or
of the accumulated earnings tax imposed by section 531. It is not
intended, however, that section 1551 be interpreted as delimiting or
abrogating any principle of law established by judicial decision, or any
existing provisions of the Code, such as sections 269 and 482, which
have the effect of preventing the avoidance or evasion of income taxes.
Such principles of law and such provisions of the Code, including
section 1551, are not mutually exclusive, and in appropriate cases they
may operate together or they may operate separately.
(c) Application of section 269(b) to cases covered by section 1551.
The provisions of section 269(b) and the authority of the district
director thereunder, to the extent not inconsistent with the provisions
of section 1551, are applicable to cases covered by section 1551.
Pursuant to the authority provided in section 269(b) the district
director may allow to the transferee any part of a surtax exemption or
accumulated earnings credit for a taxable year for which such exemption
or credit would otherwise be disallowed under section 1551(a); or he may
apportion such exemption or credit among the corporations involved. For
example, corporation A transfers on January 1, 1955, all of its property
to corporations B and C in exchange for all of the stock of such
corporations. Immediately thereafter, corporation A is dissolved and its
stockholders become the sole stockholders of corporations B and C.
Assuming that corporations B and C are unable to establish by the clear
preponderance of the evidence that the securing of the surtax exemption
defined in section 11(d) or the accumulated earnings credit provided in
section 535, or both, was not a major purpose of the transfer, the
district director is authorized under sections 1551(c) and 269(b) to
allow one such exemption and credit and to apportion such exemption and
credit between corporations B and C.
(d) Actively engaged in business. For purposes of this section, a
corporation maintaining an office for the purpose of preserving its
corporate existence is not considered to be ``actively engaged in
business'' even though such corporation may be deemed to be ``doing
business'' for other purposes. Similarly, for purposes of this section,
a corporation engaged in winding up its affairs, prior to an acquisition
to which section 1551 is applicable, is not considered to be ``actively
engaged in business.''
(e) Meaning and application of the term ``control''--(1) In general.
For purposes of this section, the term ``control'' means:
(i) With respect to a transferee corporation described in paragraph
(a) (1) or (2) of this section, the ownership by the transferor
corporation, its shareholders, or both, of stock possessing either (a)
at least 80 percent of the total combined voting power of all classes of
stock entitled to vote, or (b) at least 80 percent of the total value of
shares of all classes of stock.
(ii) With respect to each corporation described in paragraph (a)(3)
of this section, the ownership by five or fewer individuals of stock
possessing (a) at least 80 percent of the total combined voting power of
all classes of stock entitled to vote or at least 80 percent of the
total value of shares of all classes of the stock of each corporation,
and (b) more than 50 percent of the total combined voting power of all
classes of stock entitled to vote or more than 50 percent of the total
value of shares of all classes of stock of each corporation, taking into
account the stock ownership of each such individual only to the extent
such stock ownership is identical with respect to each such corporation.
(2) Special rules. In determining for purposes of this section
whether stock possessing at least 80 percent (or more than 50 percent in
the case of subparagraph (1)(ii)(b) of this paragraph) of the total
combined voting power of all classes of stock entitled to vote is owned,
all classes of such stock shall
[[Page 14]]
be considered together; it is not necessary that at least 80 percent (or
more than 50 percent) of each class of voting stock be owned. Likewise,
in determining for purposes of this section whether stock possessing at
least 80 percent (or more than 50 percent) of the total value of shares
of all classes of stock is owned, all classes of stock of the
corporation shall be considered together; it is not necessary that at
least 80 percent (or more than 50 percent) of the value of shares of
each class be owned. The fair market value of a share shall be
considered as the value to be used for purposes of this computation.
With respect to transfers described in paragraph (a) (2) or (3) of this
section, the ownership of stock shall be determined in accordance with
the provisions of section 1563(e) and the regulations thereunder. With
respect to transfers described in paragraph (a)(1) of this section, the
ownership of stock shall be determined in accordance with the provisions
of section 544 and the regulations thereunder, except that constructive
ownership under section 544(a)(2) shall be determined only with respect
to the individual's spouse and minor children. In determining control,
no stock shall be excluded because such stock was acquired before
January 1, 1951 (the effective date of section 1551(a)(1)), or June 13,
1963 (the effective date of section 1551(a) (2) and (3)).
(3) Example. This paragraph may be illustrated by the following
example:
Example. On January 1, 1964, individual A, who owns 50 percent of
the voting stock of corporation X, and individual B, who owns 30 percent
of such voting stock, transfer property (other than money) to
corporation Y (newly created for the purpose of acquiring such property)
in exchange for all of Y's voting stock. After the transfer, A and B own
the voting stock of corporations X and Y in the following proportions:
------------------------------------------------------------------------
Identical
Individual Corp. X Corp. Y ownership
------------------------------------------------------------------------
A................................... 50 30 30
B................................... 30 50 30
-----------------------------------
Total............................. 80 80 60
------------------------------------------------------------------------
The transfer of property by A and B to corporation Y is a transfer
described in paragraph (a)(3) of this section since (i) A and B own at
least 80 percent of the voting stock of corporations X and Y, and (ii)
taking into account each such individual's stock ownership only to the
extent such ownership is identical with respect to each such
corporation, A and B own more than 50 percent of the voting stock of
corporations X and Y.
(f) Taxable year of allowance or disallowance--(1) In general. The
district director's authority with respect to cases covered by section
1551 is not limited to the taxable year of the transferee corporation in
which the transfer of property occurs. Such authority extends to the
taxable year in which the transfer occurs or any subsequent taxable year
of the transferee corporation if, during any part of such year, the
transferor or transferors are in control of the transferee.
(2) Examples. This paragraph may be illustrated by the following
examples:
Example (1). On January 1, 1955, corporation D transfers property
(other than money) to corporation E, a corporation not actively engaged
in business at the time of the acquisition of such property, in exchange
for 60 percent of the voting stock of E. During a later taxable year of
E, corporation D acquires an additional 20 percent of such voting stock.
As a result of such additional acquisition, D owns 80 percent of the
voting stock of E. Accordingly, section 1551(a)(1) is applicable for the
taxable year in which the later acquisition of stock occurred and for
each taxable year thereafter in which the requisite control continues.
Example (2). On June 20, 1963, individual A, who owns all of the
stock of corporation X, transfers property (other than money) to
corporation Y, a corporation not actively engaged in business at the
time of the acquisition of such property, in exchange for 60 percent of
the voting stock of Y. During a later taxable year of Y, A acquires an
additional 20 percent of such voting stock. After such acquisition A
owns at least 80 percent of the voting stock of corporations X and Y.
Accordingly, section 1551(a)(3) is applicable for the taxable year in
which the later acquisition of stock occurred and for each taxable year
thereafter in which the requisite control continues.
Example (3). Individuals A and B each owns 50 percent of the stock
of corporation X. On January 15, 1964, A transfers property (other than
money) to corporation Y (newly created by A for the purpose of acquiring
such property) in exchange for all the stock of Y. In a subsequent
taxable year of Y, individual B buys 50 percent of the stock which A
owns in Y (or he transfers money to Y in exchange for its stock, as a
result of which he owns 50
[[Page 15]]
percent of Y's stock). Immediately thereafter the stock ownership of A
and B in corporation Y is identical to their stock ownership in
corporation X. Accordingly, section 1551(a)(3) is applicable for the
taxable year in which B acquires stock in corporation Y (see paragraph
(g)(3) of this section) and for each taxable year thereafter in which
the requisite control continues. Moreover, if B's acquisition of stock
in Y is pursuant to a preexisting agreement with A, A's transfer to Y
and B's acquisition of Y's stock are considered a single transaction and
section 1551(a)(3) also would be applicable for the taxable year in
which A's transfer to Y took place and for each taxable year thereafter
in which the requisite control continues.
(g) Nature of transfer--(1) Corporate transfers before June 13,
1963. A transfer made before June 13, 1963, by any corporation of all or
part of its assets, whether or not such transfer qualifies as a
reorganization under section 368, is within the scope of section
1551(a)(1), except that section 1551(a)(1) does not apply to a transfer
of money only. For example, the transfer of cash for the purpose of
expanding the business of the transferor corporation through the
formation of a new corporation is not a transfer within the scope of
section 1551(a)(1), irrespective of whether the new corporation uses the
cash to purchase from the transferor corporation stock in trade or
similar property.
(2) Corporate transfers after June 12, 1963. A direct or indirect
transfer made after June 12, 1963, by any corporation of all or part of
its assets to a transferee corporation, whether or not such transfer
qualifies as a reorganization under section 368, is within the scope of
section 1551(a)(2) except that section 1551(a)(2) does not apply to a
transfer of money only. For example, if a transferor corporation
transfers property to its shareholders or to a subsidiary, the transfer
of that property by the shareholders or the subsidiary to a transferee
corporation as part of the same transaction is a transfer of property by
the transferor corporation to which section 1551(a)(2) applies. A
transfer of property pursuant to a purchase by a transferee corporation
from a transferor corporation controlling the transferee is within the
scope of section 1551(a)(2), whether or not the purchase follows a
transfer of cash from the controlling corporation.
(3) Other transfers after June 12, 1963. A direct or indirect
transfer made after June 12, 1963, by five or fewer individuals to a
transferee corporation, whether or not such transfer qualifies under one
or more other provisions of the Code (for example, section 351), is
within the scope of section 1551(a)(3) except that section 1551(a)(3)
does not apply to a transfer of money only. Thus, if one of five or
fewer individuals who are in control of a corporation transfers property
(other than money) to a controlled transferee corporation, the transfer
is within the scope of section 1551(a)(3) notwithstanding that the other
individuals transfer nothing or transfer only money.
(4) Examples. This paragraph may be illustrated by the following
examples:
Example (1). Individuals A and B each owns 50 percent of the voting
stock of corporation X. On January 15, 1964, A and B each acquires
property (other than money) from X and, as part of the same transaction,
each transfers such property to his wholly owned corporation (newly
created for the purpose of acquiring such property). A and B retain
substantial continuing interests in corporation X. The transfers to the
two newly created corporations are within the scope of section
1551(a)(2).
Example (2). Corporation W organizes corporation X, a wholly owned
subsidiary, for the purpose of acquiring the properties of corporation
Y. Pursuant to a reorganization qualifying under section 368(a)(1)(C),
substantially all of the properties of corporation Y are transferred on
June 15, 1963, to corporation X solely in exchange for voting stock of
corporation W. There is a transfer of property from W to X within the
meaning of section 1551(a)(2).
Example (3). Individuals A and B, each owning 50 percent of the
voting stock of corporation X, organize corporation Y to which each
transfers money only in exchange for 50 percent of the stock of Y.
Subsequently, Y uses such money to acquire other property from A and B
after June 12, 1963. Such acquisition is within the scope of section
1551(a)(3).
Example (4). Individual A owns 55 percent of the stock of
corporation X. Another 25 percent of corporation X's stock is owned in
the aggregate by individuals B, C, D, and E. On June 15, 1963,
individual A transfers property to corporation Y (newly created for the
purpose of acquiring such property) in exchange for 60 percent of the
stock of Y, and B, C, and D acquire all of the remaining stock of Y. The
transfer is within the scope of section 1551(a)(3).
[[Page 16]]
(h) Purpose of transfer. In determining, for purposes of this
section, whether the securing of the surtax exemption or accumulated
earnings credit constituted ``a major purpose'' of the transfer, all
circumstances relevant to the transfer shall be considered. ``A major
purpose'' will not be inferred from the mere purchase of inventory by a
subsidiary from a centralized warehouse maintained by its parent
corporation or by another subsidiary of the parent corporation. For
disallowance of the surtax exemption and accumulated earnings credit
under section 1551, it is not necessary that the obtaining of either
such credit or exemption, or both, have been the sole or principal
purpose of the transfer of the property. It is sufficient if it appears,
in the light of all the facts and circumstances, that the obtaining of
such exemption or credit, or both, was one of the major considerations
that prompted the transfer. Thus, the securing of the surtax exemption
or the accumulated earnings credit may constitute ``a major purpose'' of
the transfer, notwithstanding that such transfer was effected for a
valid business purpose and qualified as a reorganization within the
meaning of section 368. The taxpayer's burden of establishing by the
clear preponderance of the evidence that the securing of either such
exemption or credit or both was not ``a major purpose'' of the transfer
may be met, for example, by showing that the obtaining of such
exemption, or credit, or both, was not a major factor in relationship to
the other consideration or considerations which prompted the transfer.
[T.D. 6911, 32 FR 3214, Feb. 24, 1967, as amended by T.D. 7376, 40 FR
42745, Sept. 16, 1975]
Sec. 1.1552-1 Earnings and profits.
(a) General rule. For the purpose of determining the earnings and
profits of each member of an affiliated group which is required to be
included in a consolidated return for such group filed for a taxable
year beginning after December 31, 1953, and ending after August 16,
1954, the tax liability of the group shall be allocated among the
members of the group in accordance with one of the following methods,
pursuant to an election under paragraph (c) of this section:
(1)(i) The tax liability of the group shall be apportioned among the
members of the group in accordance with the ratio which that portion of
the consolidated taxable income attributable to each member of the group
having taxable income bears to the consolidated taxable income.
(ii) For consolidated return years beginning after December 31,
1965, a member's portion of the tax liability of the group under the
method of allocation provided by subdivision (i) of this subparagraph is
an amount equal to the tax liability of the group multiplied by a
fraction, the numerator of which is the taxable income of such member,
and the denominator of which is the sum of the taxable incomes of all
the members. For purposes of this subdivision the taxable income of a
member shall be the separate taxable income determined under Sec.
1.1502-12, adjusted for the following items taken into account in the
computation of consolidated taxable income:
(a) The portion of the consolidated net operating loss deduction,
the consolidated charitable contributions deduction, the consolidated
dividends received deduction, the consolidated section 247 deduction,
the consolidated section 582(c) net loss, and the consolidated section
922 deduction, attributable to such member;
(b) Such member's capital gain net income (net capital gain for
taxable years beginning before January 1, 1977) (determined without
regard to any net capital loss carryover attributable to such member);
(c) Such member's net capital loss and section 1231 net loss,
reduced by the portion of the consolidated net capital loss attributable
to such member; and
(d) The portion of any consolidated net capital loss carryover
attributable to such member which is absorbed in the taxable year.
If the computation of the taxable income of a member under this
subdivision results in an excess of deductions over gross income, then
for purposes of this subdivision such member's taxable income shall be
zero.
[[Page 17]]
(2)(i) The tax liability of the group shall be allocated to the
several members of the group on the basis of the percentage of the total
tax which the tax of such member if computed on a separate return would
bear to the total amount of the taxes for all members of the group so
computed.
(ii) For consolidated return years beginning after December 31,
1965, a member's portion of the tax liability of the group under the
method of allocation provided by subdivision (i) of this subparagraph is
an amount equal to the tax liability of the group multiplied by a
fraction, the numerator of which is the separate return tax liability of
such member, and the denominator of which is the sum of the separate
return tax liabilities of all the members. For purposes of this
subdivision the separate return tax liability of a member is its tax
liability computed as if it has filed a separate return for the year
except that:
(a) Gains and losses on intercompany transactions shall be taken
into account as provided in Sec. 1.1502-13 as if a consolidated return
had been filed for the year;
(b) Gains and losses relating to inventory adjustments shall be
taken into account as provided in Sec. 1.1502-18 as if a consolidated
return had been filed for the year;
(c) Transactions with respect to stock, bonds, or other obligations
of members shall be reflected as provided in Sec. 1.1502-13 (f) and (g)
as if a consolidated return had been filed for the year;
(d) Excess losses shall be included in income as provided in Sec.
1.1502-19 as if a consolidated return had been filed for the year;
(e) In the computation of the deduction under section 167, property
shall not lose its character as new property as a result of a transfer
from one member to another member during the year;
(f) A dividend distributed by one member to another member during
the year shall not be taken into account in computing the deductions
under section 243(a)(1), 244(a), 245, or 247 (relating to deductions
with respect to dividends received and dividends paid);
(g) Basis shall be determined under Sec. Sec. 1.1502-31 and 1.1502-
32, and earnings and profits shall be determined under Sec. 1.1502-33,
as if a consolidated return had been filed for the year;
(h) Subparagraph (2) of Sec. 1.1502-3(f) shall apply as if a
consolidated return had been filed for the year; and
(i) For purposes of Subtitle A of the Code, the surtax exemption of
the member shall be an amount equal to $25,000 ($50,000 in the case of a
taxable year ending in 1975), divided by the number of members (or such
portion of $25,000 or $50,000 which is apportioned to the member
pursuant to a schedule attached to the consolidated return for the
taxable year). (However, if for the taxable year some or all of the
members are component members of a controlled group of corporations
(within the meaning of section 1563) and if there are other such
component members which do not join in filing the consolidated return
for such year, the amount to be divided among the members filing the
consolidated return shall be (in lieu of $25,000 or $50,000) the sum of
the amounts apportioned to the component members which join in filing
the consolidated return (as determined for taxable years beginning after
December 31, 1974 under Sec. 1.1561-2(a)(2) or Sec. 1.1561-3,
whichever is applicable, and for taxable years beginning before January
1, 1975, under Sec. 1.561-2A(a)(2) or Sec. 1.1561-3A whichever is
applicable).)
If the computation of the separate return tax liability of a member
under this subdivision does not result in a positive tax liability, then
for purposes of this subdivision such member's separate return tax
liability shall be zero.
(3)(i) The tax liability of the group (excluding the tax increases
arising from the consolidation) shall be allocated on the basis of the
contribution of each member of the group to the consolidated taxable
income of the group. Any tax increases arising from the consolidation
shall be distributed to the several members in direct proportion to the
reduction in tax liability resulting to such members from the filing of
the consolidated return as measured by the difference between their tax
liabilities determined on a separate return basis and their tax
liabilities (determined without regard to the 2-
[[Page 18]]
percent increase provided by section 1503(a) and paragraph (a) of Sec.
1.1502-30A (as contained in the 26 CFR edition revised as of April 1,
1996) for taxable years beginning before January 1, 1964) based on their
contributions to the consolidated taxable income.
(ii) For consolidated return years beginning after December 31,
1965, a member's portion of the tax liability of the group under the
method of allocation provided by subdivision (i) of this subparagraph
shall be determined by:
(a) Allocating the tax liability of the group in accordance with
subparagraph (1)(ii) of this paragraph, but
(b) The amount of tax liability allocated to any member shall not
exceed the separate return tax liability of such member, determined in
accordance with subparagraph (2)(ii) of this paragraph, and
(c) The sum of the amounts which would be allocated to the members
but for (b) of this subdivision (ii) shall be apportioned among the
other members in direct proportion to, but limited to, the reduction in
tax liability resulting to such other members. Such reduction for any
member shall be the excess, if any, of (1) its separate this paragraph.
(4) The tax liability of the group shall be allocated in accordance
with any other method selected by the group with the approval of the
Commissioner. No method of allocation may be approved under this
subparagraph which may result in the allocation of a positive tax
liability for a taxable year, among the members who are allocated a
positive tax liability for such year, in a total amount which is more or
less than the tax liability of the group for such year. (However, see
paragraph (d) of Sec. 1.1502-33.)
(b) Application of rules--(1) Tax liability of the group. For
purposes of section 1552 and this section, the tax liability of the
group for a taxable year shall consist of the Federal income tax
liability of the group for such year determined in accordance with Sec.
1.1502-2 or Sec. 1.1502-30A (as contained in the 26 CFR edition revised
as of April 1, 1996), which-ever is applicable. Thus, in the case of a
carryback of a loss or credit to such year, although the earnings and
profits of the members of the group may not be adjusted until the
subsequent taxable year from which the loss or credit was carried back,
the effect of the carryback, for purposes of this section, shall be
determined by allocating the amount of the adjustment as a part of the
tax liability of the group for the taxable year to which the loss or
credit is carried. For example, if a consolidated net operating loss is
carried back from 1969 to 1967, the allocation of the tax liability of
the group for 1967 shall be recomputed in accordance with the method of
allocation used for 1967, and the changes resulting from such
recomputation shall, for accrual method taxpayers, be reflected in the
earnings and profits of the appropriate members in 1969.
(2) Effect of allocation. The amount of tax liability allocated to a
corporation as its share of the tax liability of the group, pursuant to
this section, shall (i) result in a decrease in the earnings and profits
of such corporation in such amount, and (ii) be treated as a liability
of such corporation for such amount. If the full amount of such
liability is not paid by such corporation, pursuant to an agreement
among the members of the group or otherwise, the amount which is not
paid will generally be treated as a distribution with respect to stock,
a contribution to capital, or a combination thereof, as the case may be.
(c) Method of election. (1) The election under paragraph (a) (1),
(2), or (3) of this section shall be made not later than the time
prescribed by law for filing the first consolidated return of the group
for a taxable year beginning after December 31, 1953, and ending after
August 16, 1954 (including extensions thereof). If the group elects to
allocate its tax liability in accordance with the method prescribed in
paragraph (a) (1), (2), or (3) of this section, a statement shall be
attached to the return stating which method is elected. Such statement
shall be made by the common parent corporation and shall be binding upon
all members of the group. In the event that the group desires to
allocate its tax liability in accordance with any other method pursuant
to paragraph (a)(4) of this section, approval of such method by the
Commissioner must be obtained within the time prescribed above. If such
approval
[[Page 19]]
is not obtained in such time, the group shall allocate in accordance
with the method prescribed in paragraph (a)(1) of this section. The
request shall state fully the method which the group wishes to apply in
apportioning the tax liability. Except as provided in subparagraph (2)
of this paragraph, an election once made shall be irrevocable and shall
be binding upon the group with respect to the year for which made and
for all future years for which a consolidated return is filed or
required to be filed unless the Commissioner authorizes a change to
another method prior to the time prescribed by law for filing the return
for the year in which such change is to be effective.
(2) Each group may make a new election to use any one of the methods
prescribed in paragraph (a) (1), (2), or (3) of this section for its
first consolidated return year beginning after December 31, 1965, or in
conjunction with an election under paragraph (d) of Sec. 1.1502-33, or
may request the Commissioner's approval of a method under paragraph
(a)(4) of this section for its first consolidated return year beginning
after December 31, 1965, irrespective of its previous method of
allocation under this section. If such new election is not made in
conjunction with an election under paragraph (d) of Sec. 1.1502-33, it
shall be effective for the first consolidated return year beginning
after December 31, 1965, and all succeeding years. (See Sec. 1.1502-33
for the method of making such new election in conjunction with an
election under paragraph (d) of Sec. 1.1502-33.) Any other such new
election (or request for the Commissioner's approval of a method under
paragraph (a)(4) of this section) shall be made within the time
prescribed by law for filing the consolidated return for the first
taxable year beginning after December 31, 1965 (including extensions
thereof), or within 60 days after July 3, 1968, whichever is later. Such
new election shall be made by attaching a statement to the consolidated
return for the first taxable year beginning after December 31, 1965, or
if such election is made within the time prescribed above but after such
return is filed, by filing a statement with the internal revenue officer
with whom such return was filed.
(d) Failure to elect. If a group fails to make an election in its
first consolidated return, or any other election, in accordance with
paragraph (c) of this section, the method prescribed under paragraph
(a)(1) of this section shall be applicable and shall be binding upon the
group in the same manner as if an election had been made to so allocate.
(e) Definitions. Except as otherwise provided in this section, the
terms used in this section shall have the same meaning as provided in
the regulations under section 1502.
(f) Example. The provisions of this section may be illustrated by
the following example:
Example. Corporation P is the common parent owning all of the stock
of corporations S1 and S2, members of an affiliated group. A
consolidated return is filed for the taxable year ending December 31,
1966, by P, S1, and S2. For 1966 such corporations had the following
taxable incomes or losses computed in accordance with paragraph
(a)(1)(ii) of this section:
P......................................................................0
S1................................................................$2,000
S2...............................................................(1,000)
The group has not made an election under paragraph (c) of this section
or paragraph (d) of Sec. 1.1502-33. Accordingly, the method of
allocation provided by paragraph (a)(1) of this section is in effect for
the group. Assuming that the consolidated taxable income is equal to the
sum of the members taxable income and losses, or $1,000, the tax
liability of the group for the year (assuming a 22-percent rate) is
$220, all of which is allocated to S1. S1 accordingly reduces its
earnings and profits in the amount of $220, irrespective of who actually
pays the tax liability. If S1 pays the $220 tax liability there will be
no further effect upon the income, earnings and profits, or the basis of
stock of any member. If, however, P pays the $220 tax liability (and
such payment is not in fact a loan from P to S1), then P shall be
treated as having made a contribution to the capital of S1 in the amount
of $220. On the other hand, if S2 pays the $220 tax liability (and such
payment is not in fact a loan from S2), then S2 shall be treated as
having made a distribution with respect to its stock to P in the amount
of $220, and P shall be treated as having made a contribution to the
capital of S1 in the amount of $220.
[T.D. 6962, 33 FR 9655, July 3, 1968, as amended by T.D. 7825, 42 FR
64694, Dec. 28, 1977; T.D. 7728, 45 FR 72650, Nov. 3, 1980; T.D. 8560,
59 FR 41675, Aug. 15, 1994; T.D. 8597, 60 FR 36680, July 18, 1995; T.D.
8677, 61 FR 33325, June 27, 1996]
[[Page 20]]
Certain Controlled Corporations
Sec. 1.1561-1T General rules regarding certain tax benefits
available to the component members of a controlled group of
corporations (temporary).
(a) In general. (1) Part II (section 1561 and following) of
subchapter B of chapter 6 of the Internal Revenue Code (part II)
provides rules to limit the amounts of certain specified tax benefit
items of component members of a controlled group of corporations on a
December 31, for their taxable years which include such December 31. The
component members of such a group shall be limited for purposes of
subtitle A of the Code to the amounts of certain items, set forth in
section 1561(a), as if they were one corporation. Certain other tax
items also set forth in section 1561(a) (e.g., the additional tax
imposed by section 11(b)(1) and the section 55(d)(3) phase out of the
alternative minimum tax exemption amount) will be determined by
combining the taxable income of all such members and then allocating the
amount of such items among such members.
(2) For certain definitions (including the definition of a
controlled group of corporations and a component member) and special
rules for purposes of this part II see section 1563.
(b) Special rules. (1) For purposes of this part II, the term
corporation includes a small business corporation (as defined in section
1361). However, for the treatment of such a corporation as an excluded
member of a controlled group of corporations see Sec. 1.1563-
1(b)(2)(ii)(C).
(2) In the case of corporations electing a 52-53-week taxable year
under section 441(f)(1), the provisions of this part II shall be applied
in accordance with the special rule of section 441(f)(2)(A). See Sec.
1.441-2.
(c) Tax avoidance. The provisions of this part II do not delimit or
abrogate any principle of law established by judicial decision, or any
existing provisions of the Code, such as sections 269, 482, and 1551,
which have the effect of preventing the avoidance or evasion of income
taxes.
(d) Effective date--(1) Applicability date. This section applies to
any taxable year beginning on or after December 22, 2006. However,
taxpayers may apply this section to any Federal income tax return filed
on or after December 22, 2006.
(2) Expiration date. The applicability of this section will expire
on December 21, 2009.
[T.D. 9304, 71 FR 76907, Dec. 22, 2006]
Sec. 1.1561-2 Determination of amount of tax benefits.
(a)-(b) [Reserved]
(c) [Reserved]. For further guidance, see Sec. 1.1561-2T(c).
(d) [Reserved]
(e) Certain short taxable years. (1) If the return of a corporation
is for a short period which does not include a December 31, and such
corporation is a component member of a controlled group of corporations
with respect to such short period, then for purposes of subtitle A of
the Code:
(i) The surtax exemption under section 11(d) of such corporation for
such short period shall be an amount equal to $25,000 ($50,000 in the
case of a taxable year ending in 1975), divided by the number of
corporations which are component members of such controlled group on the
last day of such short period;
(ii) The amount to be used in computing the accumulated earnings
credit under section 535(c) (2) and (3) of such corporation for such
short period shall be an amount equal to $150,000 divided by the number
of corporations which are members of such controlled group on the last
day of such short period; and
(iii) The amount to be used in computing the limitation on the small
business deduction of life insurance companies under sections 804(a)(4)
and 809(d)(10) of such corporation for such short period shall not
exceed an amount equal to $25,000 divided by the number of life
insurance companies taxable under section 802 which are component
members of the controlled group on the last day of such short period.
For purposes of the preceding sentence, the term ``short period'' does
not include any period if the income for such period is required to be
included in a
[[Page 21]]
consolidated return under Sec. 1.1502-76. The determination of whether
a corporation is a component member of a controlled group of
corporations on the last day of a short period is made by applying the
definition of ``component member'' contained in section 1563(b) and
Sec. 1.1563-1 as if the last day of such short period were a December
31 occurring after December 31, 1974.
(2) The provisions of this paragraph may be illustrated by the
following examples:
Example (1). On January 2, 1975, corporation X transfers cash to
newly formed corporation Y (which begins business on that date) and
receives all of the stock of Y in return. X also owns all of the stock
of corporation Z on each day of 1974 and 1975. X uses the calendar year
as its taxable year and Z uses a fiscal year ending on March 31. Y
adopts a fiscal year ending on June 30 as its annual accounting period,
and, therefore, files a return for the short taxable year beginning on
January 2, 1975, and ending on June 30, 1975. On June 30, 1975, Y is a
component member of a parent-subsidiary controlled group of corporations
of which X, Y, and Z are component members. Accordingly, the surtax
exemption of Y for the short taxable year ending on June 30, 1975, is
$16,666.67 ($50,000/3). On December 31, 1975, X, Y, and Z are component
members of a parent-subsidiary controlled group of corporations.
Accordingly, the surtax exemption of each such corporation for its
taxable year including December 31, 1975 (i.e., X's calendar year ending
December 31, 1975, Z's fiscal year ending March 31, 1976, and Y's fiscal
year ending June 30, 1976) is $16,666.67 ($50,000/3), or, if an
apportionment plan is filed under Sec. 1.1561-3, the amount apportioned
pursuant to such plan.
Example (2). On January 1, 1975, corporation P owns all of the stock
of corporations S-1, S-2, and S-3. P, S-1, S-2, and S-3 file separate
returns on a calendar year basis. On July 31, 1975, S-1 is liquidated
and therefore files a return for the short taxable year beginning on
January 1, 1975, and ending on July 31, 1975. On August 31, 1975, S-2 is
liquidated and therefore files a return for the short taxable year
beginning on January 1, 1975, and ending on August 31, 1975. On July 31,
1975, S-1 is a component member of a parent-subsidiary controlled group
of corporations of which P, S-1, S-2, and S-3 are component members.
Accordingly, the surtax exemption under section 11(d) of S-1 for the
short taxable year ending on July 31, 1975, is $12,500 ($50,000/4). On
August 31, 1975, S-2 is a component member of a parent-subsidiary
controlled group of corporations of which P, S-2, and S-3 are component
members. Accordingly, the surtax exemption of S-2 for the short taxable
year ending on August 31, 1975, is $16,666.67 ($50,000/3). On December
31, 1975, P and S-3 are component members of a parent-subsidiary
controlled group of corporations. Accordingly, the surtax exemption of
each such corporation for the calendar year 1975 is $25,000 ($50,000/2),
or, if an apportionment plan is filed under Sec. 1.1561-3, the amount
apportioned pursuant to such plan.
(f) [Reserved]. For further guidance, see Sec. 1.1561-2T(f)(1).
[T.D. 7528, 42 FR 64695, Dec. 28, 1977, as amended by T.D. 9304, 71 FR
76908, Dec. 22, 2006]
Sec. 1.1561-2T Determination of amount of tax benefits (temporary).
(a) through (b) [Reserved]
(c) Accumulated earnings credit. The component members of a
controlled group of corporations may allocate the amount of the
accumulated earnings credit unequally if they have an apportionment plan
in effect.
(d) [Reserved]
(e) [Reserved]. For further guidance, see Sec. 1.1561-2(e).
(f) Effective date--(1) Applicability date. This section applies to
any taxable year beginning on or after December 22, 2006. However,
taxpayers may apply this section to any Federal income tax return filed
on or after December 22, 2006.
(2) Expiration date. The applicability of this section will expire
on December 21, 2009.
[T.D. 9304, 71 FR 76908, Dec. 22, 2006]
Sec. 1.1561-3T Allocation of the section 1561(a) tax items (temporary).
(a) Filing of form--(1) In general. For each taxable year that a
corporation is a component member of the same controlled group of
corporations on a December 31, for its taxable year that includes such
December 31, such corporation and all other component members of such
group must each file the required form (i.e., Schedule O or any
successor to that form) with each Federal income tax return. Each such
corporation must file that form with its return whether or not--
(i) An apportionment plan is in effect; or
(ii) Any change is made in the group's apportionment of its section
[[Page 22]]
1561(a) tax benefit items from the previous year.
(2) Exception for component members that are members of a
consolidated group. If one or more of the component members of a
controlled group of corporations are also members of a consolidated
group, the parent of such consolidated group shall file only one form on
behalf of all of such members. Such form shall contain the information
required for each such member.
(b) No apportionment plan in effect. If the component members of a
controlled group of corporations do not have an apportionment plan in
effect, the amounts of the section 1561(a) items must be divided equally
among all such members. For purposes of the preceding sentence, if any
component members of a controlled group of corporations are also members
of a consolidated group, such members will each be treated as a separate
component member of the controlled group.
(c) Apportionment plan in effect--(1) Adoption of plan. The
component members of a controlled group of corporations consent to the
adoption (or amendment) of an apportionment plan by checking the box to
that effect on such form. For purposes of this paragraph (c)--
(i) An apportionment plan that is adopted (including a plan that has
been amended) continues in effect until it is terminated;
(ii) A consolidated group is treated as one component member of such
group; and
(iii) The members must allocate the amounts of the section 1561(a)
items between or among themselves as described in the plan.
(2) Limitation on adopting a plan--(i) Sufficient statute of
limitations period. The members may only adopt or amend such a plan if
there is at least one year remaining in the statutory period (including
any extensions thereof) for the assessment of a deficiency against every
member the tax liability of which would be increased by the adoption of
such a plan.
(ii) Insufficient statute of limitations period. If any member
cannot satisfy the requirement of paragraph (c)(2)(i) of this section,
the members may not adopt or amend such a plan unless the member not
satisfying such requirement has entered into an agreement with the
Internal Revenue Service to extend the statute of limitations for the
limited purpose of assessing any deficiency against such member
attributable to the adoption of such a plan.
(3) Termination of plan. An apportionment plan that is in effect for
the component members of a controlled group with respect to a particular
December 31 is terminated with respect to a succeeding December 31 if--
(i) Each member of such group consents to the termination of such a
plan for such succeeding December 31 by checking the box to that effect
on its form;
(ii) The controlled group ceases to remain in existence (within the
meaning of section 1563(a)) during the calendar year ending on such
succeeding December 31;
(iii) Any corporation which was a component member of such group on
the particular December 31 is not a component member of such group on
such succeeding December 31; or
(iv) Any corporation which was not a component member of such group
on the particular December 31 is a component member of such group on
such succeeding December 31.
(d) Effective date--(1) Applicability date. This section applies to
any taxable year beginning on or after December 22, 2006. However,
taxpayers may apply this section to any Federal income tax return filed
on or after December 22, 2006.
(2) Expiration date. The applicability of this section will expire
on December 21, 2009.
[T.D. 9304, 71 FR 76908, Dec. 22, 2006]
Sec. 1.1563-1T Definition of controlled group of corporations and
component members (temporary).
(a) Controlled group of corporations--(1) In general. For purposes
of sections 1561 through 1563, the term controlled group of corporations
means any group of corporations which is either a parent-subsidiary
controlled group (as defined in paragraph (a)(2) of this section), a
brother-sister controlled group (as defined in paragraph (a)(3)(i) of
this section), a combined group (as defined in paragraph (a)(4) of this
section), or a
[[Page 23]]
life insurance controlled group (as defined in paragraph (a)(5) of this
section). For the exclusion of certain stock for purposes of applying
the definitions contained in this paragraph, see section 1563(c) and
Sec. 1.1563-2.
(2) Parent-subsidiary controlled group. (i) The term parent-
subsidiary controlled group means one or more chains of corporations
connected through stock ownership with a common parent corporation if--
(A) Stock possessing at least 80 percent of the total combined
voting power of all classes of stock entitled to vote or at least 80
percent of the total value of shares of all classes of stock of each of
the corporations, except the common parent corporation, is owned
(directly and with the application of Sec. 1.1563-3(b)(1), relating to
options) by one or more of the other corporations; and
(B) The common parent corporation owns (directly and with the
application of Sec. 1.1563-3(b)(1), relating to options) stock
possessing at least 80 percent of the total combined voting power of all
classes of stock entitled to vote or at least 80 percent of the total
value of shares of all classes of stock of at least one of the other
corporations, excluding, in computing such voting power or value, stock
owned directly by such other corporations.
(ii) The definition of a parent-subsidiary controlled group of
corporations may be illustrated by the following examples:
Example 1. P Corporation owns stock possessing 80 percent of the
total combined voting power of all classes of stock entitled to vote of
S Corporation. P is the common parent of a parent-subsidiary controlled
group consisting of member corporations P and S.
Example 2. Assume the same facts as in Example 1. Assume further
that S owns stock possessing 80 percent of the total value of shares of
all classes of stock of T Corporation. P is the common parent of a
parent-subsidiary controlled group consisting of member corporations P,
S, and T. The result would be the same if P, rather than S, owned the T
stock.
Example 3. L Corporation owns 80 percent of the only class of stock
of M Corporation and M, in turn, owns 40 percent of the only class of
stock of O Corporation. L also owns 80 percent of the only class of
stock of N Corporation and N, in turn, owns 40 percent of the only class
of stock of O. L is the common parent of a parent-subsidiary controlled
group consisting of member corporations L, M, N, and O.
Example 4. X Corporation owns 75 percent of the only class of stock
of Y and Z Corporations; Y owns all the remaining stock of Z; and Z owns
all the remaining stock of Y. Since intercompany stockholdings are
excluded (that is, are not treated as outstanding) for purposes of
determining whether X owns stock possessing at least 80 percent of the
voting power or value of at least one of the other corporations, X is
treated as the owner of stock possessing 100 percent of the voting power
and value of Y and of Z for purposes of paragraph (a)(2)(i)(B) of this
section. Also, stock possessing 100 percent of the voting power and
value of Y and Z is owned by the other corporations in the group within
the meaning of paragraph (a)(2)(i)(A) of this section. (X and Y together
own stock possessing 100 percent of the voting power and value of Z, and
X and Z together own stock possessing 100 percent of the voting power
and value of Y.) Therefore, X is the common parent of a parent-
subsidiary controlled group of corporations consisting of member
corporations X, Y, and Z.
(3) Brother-sister controlled group--(i) In general. The term
brother-sister controlled group means two or more corporations if the
same five or fewer persons who are individuals, estates, or trusts own
(directly and with the application of the rules contained in Sec.
1.1563-3(b)) stock possessing more than 50 percent of the total combined
voting power of all classes of stock entitled to vote or more than 50
percent of the total value of shares of all classes of stock of each
corporation, taking into account the stock ownership of each such person
only to the extent such stock ownership is identical with respect to
each such corporation.
(ii) Additional stock ownership requirement for purposes of certain
other provisions of law. For purposes of any provision of law (other
than sections 1561 through 1563) that incorporates the section 1563(a)
definition of a controlled group, the term brother-sister controlled
group means two or more corporations if the same five or fewer persons
who are individuals, estates, or trusts own (directly and with the
application of the rules contained in Sec. 1.1563-3(b)) stock
possessing--
(A) At least 80 percent of the total combined voting power of all
classes of stock entitled to vote or at least 80 percent of the total
value of shares of
[[Page 24]]
all classes of stock of each corporation (the 80 percent requirement);
(B) More than 50 percent of the total combined voting power of all
classes of stock entitled to vote or more than 50 percent of the total
value of shares of all classes of stock of each corporation, taking into
account the stock ownership of each such person only to the extent such
stock ownership is identical with respect to each such corporation (the
more-than-50 percent identical ownership requirement); and
(C) The five or fewer persons whose stock ownership is considered
for purposes of the 80 percent requirement must be the same persons
whose stock ownership is considered for purposes of the more-than-50
percent identical ownership requirement.
(iii) Examples. The principles of paragraph (a)(3)(ii) of this
section may be illustrated by the following examples:
Example 1. (i) The outstanding stock of corporations P, Q, R, S, and
T, which have only one class of stock outstanding is owned by the
following unrelated individuals:
Corporations
--------------------------------------------------------------------------------------------------------------------------------------------------------
P Q R S T
Individuals (percent) (percent) (percent) (percent) (percent) Identical ownership
--------------------------------------------------------------------------------------------------------------------------------------------------------
A............................................... 55 51 55 55 55 51.
B............................................... 45 49 .......... .......... .......... (45% in P & Q).
C............................................... .......... .......... 45 .......... ..........
D............................................... .......... .......... .......... 45 ..........
E............................................... .......... .......... .......... .......... 45
-------------------------------------------------------------------------------------------------------
Total....................................... 100 100 100 100 100
--------------------------------------------------------------------------------------------------------------------------------------------------------
(ii) Corporations P and Q are members of a brother-sister controlled
group of corporations. Although the more-than-50 percent identical
ownership requirement is met for all 5 corporations, corporations R, S,
and T are not members because at least 80 percent of the stock of each
of those corporations is not owned by the same 5 or fewer persons whose
stock ownership is considered for purposes of the more-than-50 percent
identical ownership requirement.
Example 2. (i) The outstanding stock of corporations U and V, which
have only one class of stock outstanding, is owned by the following
unrelated individuals:
------------------------------------------------------------------------
Corporations
-----------------------
Individuals U V
(percent) (percent)
------------------------------------------------------------------------
A............................................... 12 12
B............................................... 12 12
C............................................... 12 12
D............................................... 12 12
E............................................... 13 13
F............................................... 13 13
G............................................... 13 13
H............................................... 13 13
-----------------------
Total....................................... 100 100
------------------------------------------------------------------------
(ii) Any group of five of the shareholders will own more than 50
percent of the stock in each corporation, in identical holdings.
However, U and V are not members of a brother-sister controlled group
because at least 80 percent of the stock of each corporation is not
owned by the same five or fewer persons.
Example 3. (i) Corporations X and Y each have two classes of stock
outstanding, voting common and non-voting common. (None of this stock is
excluded from the definition of stock under section 1563(c).) Unrelated
individuals A and B own the following percentages of the class of stock
entitled to vote (voting) and of the total value of shares of all
classes of stock (value) in each of corporations X and Y:
----------------------------------------------------------------------------------------------------------------
Corporations
Individuals ------------------------------------------------------------------------
X Y
----------------------------------------------------------------------------------------------------------------
A...................................... 100% voting, 60% value.... 75% voting, 60% value.
B...................................... 0% voting, 10% value...... 25% voting, 10% value.
----------------------------------------------------------------------------------------------------------------
(ii) No other shareholder of X owns (or is considered to own) any
stock in Y. X and Y are a brother-sister controlled group of
corporations. The group meets the more-than-50
[[Page 25]]
percent identical ownership requirement because A and B own more than 50
percent of the total value of shares of all classes of stock of X and Y
in identical holdings. (The group also meets the more-than-50 percent
identical ownership requirement because of A's voting stock ownership.)
The group meets the 80 percent requirement because A and B own at least
80 percent of the total combined voting power of all classes of stock
entitled to vote.
Example 4. Assume the same facts as in Example 3 except that the
value of the stock owned by A and B is not more than 50 percent of the
total value of shares of all classes of stock of each corporation in
identical holdings. X and Y are not a brother-sister controlled group of
corporations. The group meets the more-than-50 percent identical
ownership requirement because A owns more than 50 percent of the total
combined voting power of the voting stock of each corporation. For
purposes of the 80 percent requirement, B's voting stock in Y cannot be
combined with A's voting stock in Y since B, who does not own any voting
stock in X, is not a person whose ownership is considered for purposes
of the more-than-50 percent identical ownership requirement. Because no
other shareholder owns stock in both X and Y, these other shareholders'
stock ownership is not counted towards meeting either the more-than-50
percent identical ownership requirement or the 80 percent ownership
requirement.
(iv) Special rule if prior law applies. Paragraph (a)(3)(ii) of this
section, as amended by TD 8179, applies to taxable years ending on or
after December 31, 1970. See, however, the transitional rule in
paragraph (d) of this section.
(4) Combined group. (i) The term combined group means any group of
three or more corporations if--
(A) Each such corporation is a member of either a parent-subsidiary
controlled group of corporations or a brother-sister controlled group of
corporations; and
(B) At least one of such corporations is the common parent of a
parent-subsidiary controlled group and also is a member of a brother-
sister controlled group.
(ii) The definition of a combined group of corporations may be
illustrated by the following examples:
Example 1. Smith, an individual, owns stock possessing 80 percent of
the total combined voting power of all classes of the stock of
corporations X and Y. Y, in turn, owns stock possessing 80 percent of
the total combined voting power of all classes of the stock of
corporation Z. X, Y, and Z are members of the same combined group
since--
(i) X, Y, and Z are each members of either a parent-subsidiary or
brother-sister controlled group of corporations; and
(ii) Y is the common parent of a parent-subsidiary controlled group
of corporations consisting of Y and Z, and also is a member of a
brother-sister controlled group of corporations consisting of X and Y.
Example 2. Assume the same facts as in Example 1, and further assume
that corporation X owns 80 percent of the total value of shares of all
classes of stock of corporation T. X, Y, Z, and T are members of the
same combined group.
(5) Life insurance controlled group. (i) The term life insurance
controlled group means two or more life insurance companies each of
which is a member of a controlled group of corporations described in
paragraph (a)(2), (a)(3)(i), or (a)(4) of this section and to which
Sec. 1.1502-47(f)(6) does not apply. Such insurance companies shall be
treated as a controlled group of corporations separate from any other
corporations which are members of a controlled group described in such
paragraph (a)(2), (a)(3)(i), or (a)(4). For purposes of this section,
the common parent of the controlled group described in paragraph (a)(2)
of this section shall be referred to as the common parent of the life
insurance controlled group.
(ii) The following examples illustrate the definition of a life
insurance controlled group. In these examples, L indicates a life
company, another letter indicates a nonlife company and each corporation
uses the calendar year as its taxable year.
Example 1. Since January 1, 1999, corporation P has owned all the
stock of corporations L1 and Y, and L1 has owned
all the stock of corporation X. On January 1, 2005, Y acquired all of
the stock of corporation L2. Since L1 and
L2 are members of a parent-subsidiary controlled group of
corporations, such companies are treated as members of a life insurance
controlled group separate from the parent-subsidiary controlled group
consisting of P, X and Y. For purposes of this section, P is referred to
as the common parent of the life insurance controlled group even though
P is not a member of such group.
Example 2. The facts are the same as in Example 1, except that,
beginning with the 2005 tax year, the P affiliated group elected to file
a consolidated return and P made a section 1504(c)(2) election. Pursuant
to paragraph (a)(5)(i) of this section, L1 and L2
are
[[Page 26]]
not members of a separate life insurance controlled group. Instead, P,
X, Y, L1 and L2 constitute one controlled group.
See Sec. 1.1502-47(f)(6).
(6) Voting power of stock. For purposes of this section, and
Sec. Sec. 1.1563-2 and 1.1563-3, in determining whether the stock owned
by a person (or persons) possesses a certain percentage of the total
combined voting power of all classes of stock entitled to vote of a
corporation, consideration will be given to all the facts and
circumstances of each case. A share of stock will generally be
considered as possessing the voting power accorded to such share by the
corporate charter, by-laws, or share certificate. On the other hand, if
there is any agreement, whether express or implied, that a shareholder
will not vote his stock in a corporation, the formal voting rights
possessed by his stock may be disregarded in determining the percentage
of the total combined voting power possessed by the stock owned by other
shareholders in the corporation, if the result is that the corporation
becomes a component member of a controlled group of corporations.
Moreover, if a shareholder agrees to vote his stock in a corporation in
the manner specified by another shareholder in the corporation, the
voting rights possessed by the stock owned by the first shareholder may
be considered to be possessed by the stock owned by such other
shareholder if the result is that the corporation becomes a component
member of a controlled group of corporations.
(b) Component members--(1) In general. For purposes of sections 1561
through 1563, a corporation is a component member of a controlled group
of corporations on a December 31 (and with respect to the taxable year
which includes such December 31) if such corporation--
(i) Is a member of such controlled group on such December 31 and is
not treated as an excluded member under paragraph (b)(2) of this
section; or
(ii) Is not a member of such controlled group on such December 31
but is treated as an additional member under paragraph (b)(3) of this
section.
(2) Excluded members. (i) A corporation, which is a member of a
controlled group of corporations on the December 31 included within its
taxable year, but was a member of such group for less than one-half of
the number of days in such taxable year which precede such December 31,
shall be treated as an excluded member of such group on such December
31.
(ii) A corporation which is a member of a controlled group of
corporations on any December 31 shall be treated as an excluded member
of such group on such date if, for its taxable year including such date,
such corporation is--
(A) Exempt from taxation under section 501(a) (except a corporation
which is subject to tax on its unrelated business taxable income under
section 511) or 521 for such taxable year;
(B) A foreign corporation not subject to taxation under section
882(a) for the taxable year;
(C) An S corporation (as defined in section 1361) for purposes of
any tax benefit item described in section 1561(a) to which it is not
subject;
(D) A franchised corporation (as defined in section 1563(f)(4) and
Sec. 1.1563-4); or
(E) An insurance company subject to taxation under section 801,
unless such insurance company (without regard to this paragraph
(b)(2)(ii)(E)) is a component member of a life insurance controlled
group described in paragraph (a)(5)(i) of this section or unless Sec.
1.1502-47(f)(6) applies (which treats a life insurance company, for
which a section 1504(c)(2) election is effective, as a member (whether
eligible or ineligible) of a life-nonlife affiliated group).
(3) Additional members. A corporation shall be treated as an
additional member of a controlled group of corporations on the December
31 included within its taxable year if it--
(i) Is not a member of such group on such December 31;
(ii) Is not described, with respect to such taxable year, in
paragraph (b)(2)(ii)(A), (B), (C), (D), or (E) of this section; and
(iii) Was a member of such group for one-half (or more) of the
number of days in such taxable year which precede such December 31.
(4) Examples. The provisions of this paragraph may be illustrated by
the following examples:
[[Page 27]]
Example 1. Brown, an individual, owns all of the stock of
corporations W and X on each day of 1964. W and X each uses the calendar
year as its taxable year. On January 1, 1964, Brown also owns all the
stock of corporation Y (a fiscal year corporation with a taxable year
beginning on July 1, 1964, and ending on June 30, 1965), which stock he
sells on October 15, 1964. On December 1, 1964, Brown purchases all the
stock of corporation Z (a fiscal year corporation with a taxable year
beginning on September 1, 1964, and ending on August 31, 1965). On
December 31, 1964, W, X, and Z are members of the same controlled group.
However, the component members of the group on such December 31 are W,
X, and Y. Under paragraph (b)(2)(i) of this section, Z is treated as an
excluded member of the group on December 31, 1964, since Z was a member
of the group for less than one-half of the number of days (29 out of 121
days) during the period beginning on September 1, 1964 (the first day of
its taxable year) and ending on December 30, 1964. Under paragraph
(b)(3) of this section, Y is treated as an additional member of the
group on December 31, 1964, since Y was a member of the group for at
least one-half of the number of days (107 out of 183 days) during the
period beginning on July 1, 1964 (the first day of its taxable year) and
ending on December 30, 1964.
Example 2. On January 1, 1964, corporation P owns all the stock of
corporation S, which in turn owns all the stock of corporation S-1. On
November 1, 1964, P purchases all of the stock of corporation X from the
public and sells all of the stock of S to the public. Corporation X owns
all the stock of corporation Y during 1964. P, S, S-1, X, and Y file
their returns on the basis of the calendar year. On December 31, 1964,
P, X, and Y are members of a parent-subsidiary controlled group of
corporations; also, corporations S and S-1 are members of a different
parent-subsidiary controlled group on such date. However, since X and Y
have been members of the parent-subsidiary controlled group of which P
is the common parent for less than one-half the number of days during
the period January 1 through December 30, 1964, they are not component
members of such group on such date. On the other hand, X and Y have been
members of a parent-subsidiary controlled group of which X is the common
parent for at least one-half the number of days during the period
January 1 through December 30, 1964, and therefore they are component
members of such group on December 31, 1964. Also since S and S-1 were
members of the parent-subsidiary controlled group of which P is the
common parent for at least one-half the number of days in the taxable
years of each such corporation during the period January 1 through
December 30, 1964, P, S, and S-1 are component members of such group on
December 31, 1964.
Example 3. Throughout 1964, corporation M owns all the stock of
corporation F which, in turn, owns all the stock of corporations L-1, L-
2, X, and Y. M is a domestic mutual insurance company subject to
taxation under section 821, F is a foreign corporation not engaged in a
trade or business within the United States, L-1 and L-2 are domestic
life insurance companies subject to taxation under section 802, and X
and Y are domestic corporations subject to tax under section 11 of the
Code. Each corporation uses the calendar year as its taxable year. On
December 31, 1964, M, F, L-1, L-2, X, and Y are members of a parent-
subsidiary controlled group of corporations. However, under paragraph
(b)(2)(ii) of this section, M, F, L-1, and L-2 are treated as excluded
members of the group on December 31, 1964. Thus, on December 31, 1964,
the component members of the parent-subsidiary controlled group of which
M is the common parent include only X and Y. Furthermore, since
paragraph (b)(2)(ii)(E) of this section does not result in L-1 and L-2
being treated as excluded members of a life insurance controlled group,
L-1 and L-2 are component members of a life insurance controlled group
on December 31, 1964.
(5) Application of constructive ownership rules. For purposes of
paragraphs (b)(2)(i) and (3) of this section, it is necessary to
determine whether a corporation was a member of a controlled group of
corporations for one-half (or more) of the number of days in its taxable
year which precede the December 31 falling within such taxable year.
Therefore, the constructive ownership rules contained in Sec. 1.1563-
3(b) (to the extent applicable in making such determination) must be
applied on a day-by-day basis. For example, if P Corporation owns all
the stock of X Corporation on each day of 1964, and on December 30,
1964, acquires an option to purchase all the stock of Y Corporation (a
calendar-year taxpayer which has been in existence on each day of 1964),
the application of Sec. 1.1563-3(b)(1) on a day-by-day basis results in
Y being a member of the brother-sister controlled group on only one day
of Y's 1964 year which precedes December 31, 1964. Accordingly, since Y
is not a member of such group for one-half or more of the number of days
in its 1964 year preceding December 31, 1964, Y is treated as an
excluded member of such group on December 31, 1964.
(c) Overlapping groups--(1) In general. If on a December 31 a
corporation is a component member of a controlled
[[Page 28]]
group of corporations by reason of ownership of stock possessing at
least 80 percent of the total value of shares of all classes of stock of
the corporation, and if on such December 31 such corporation is also a
component member of another controlled group of corporations by reason
of ownership of other stock (that is, stock not used to satisfy the at-
least-80 percent total value test) possessing at least 80 percent of the
total combined voting power of all classes of stock of the corporation
entitled to vote, then such corporation shall be treated as a component
member only of the controlled group of which it is a component member by
reason of the ownership of at least 80 percent of the total value of its
shares.
(2) Brother-sister controlled groups--(i) One corporation. If on a
December 31, a corporation would, without the application of this
paragraph (c)(2), be a component member of more than one brother-sister
controlled group on such date, the corporation will be treated as a
component member of only one such group on such date. Such corporation
may elect the group in which it is to be included by including on or
with its income tax return for the taxable year that includes such date
a statement entitled, ``STATEMENT TO ELECT CONTROLLED GROUP PURSUANT TO
Sec. 1.1563-1T(c)(2).'' This statement must include--
(A) A description of each of the controlled groups in which the
corporation could be included. The description must include the name and
employer identification number of each component member of each such
group and the stock ownership of the component members of each such
group; and
(B) The following representation: [INSERT NAME AND EMPLOYER
IDENTIFICATION NUMBER OF CORPORATION] ELECTS TO BE TREATED AS A
COMPONENT MEMBER OF THE [INSERT DESIGNATION OF GROUP].
(ii) Multiple corporations. If more than one corporation would,
without the application of this paragraph (c)(2), be a component member
of more than one controlled group, those corporations electing to be
component members of the same group must file a single statement. The
statement must contain the information described in paragraph (c)(2)(i)
of this section, plus the names and employer identification numbers of
all other corporations designating the same group. The original
statement must be included on or with the original Federal income tax
return (including any amended return filed on or before the due date
(including extensions) of such return) of the corporation that, among
those corporations which would (without the application of this
paragraph (c)(2)) belong to more than one group, has the taxable year
including such December 31 which ends on the earliest date. That
corporation must provide a copy of the statement to each other
corporation included in the statement and represent in its statement
that it has done so. Either the original or a copy of the statement must
be retained by each corporation as part of its records. See Sec.
1.6001-1(e).
(iii) Election--(A) Election filed. An election filed under this
paragraph (c)(2) is irrevocable and effective until a change in the
stock ownership of the corporation results in termination of membership
in the controlled group in which such corporation has been included.
(B) Election not filed. In the event no election is filed in
accordance with the provisions of this paragraph (c)(2), then the
Internal Revenue Service will determine the group in which such
corporation is to be included. Such determination will be binding for
all subsequent years unless the corporation files a valid election with
respect to any such subsequent year or until a change in the stock
ownership of the corporation results in termination of membership in the
controlled group in which such corporation has been included.
(iv) The provisions of this paragraph (c)(2) may be illustrated by
the following examples (in which it is assumed that all the individuals
are unrelated):
Example 1. (i) On each day of 1970 all the outstanding stock of
corporations M, N, and P is held in the following manner:
[[Page 29]]
----------------------------------------------------------------------------------------------------------------
Corporations
Individuals -----------------------------------------------
M (percent) N (percent) P (percent)
----------------------------------------------------------------------------------------------------------------
A............................................................... 55 40 5
B............................................................... 40 20 40
C............................................................... 5 40 55
----------------------------------------------------------------------------------------------------------------
(ii) Since the more-than-50 percent identical ownership requirement
of section 1563(a)(2) is met with respect to corporations M and N and
with respect to corporations N and P, but not with respect to
corporations M, N, and P, corporation N would, without the application
of this paragraph (c)(2), be a component member on December 31, 1970, of
overlapping groups consisting of M and N and of N and P. If N does not
file an election in accordance with paragraph (c)(2)(i) of this section,
the Internal Revenue Service will determine the group in which N is to
be included.
Example 2. (i) On each day of 1970, all the outstanding stock of
corporations S, T, W, X, and Z is held in the following manner:
----------------------------------------------------------------------------------------------------------------
Corporations
Individuals ----------------------------------------------------------------
S T W X Z
----------------------------------------------------------------------------------------------------------------
D.............................................. 52 52 52 52 52
E.............................................. 40 2 2 2 2
F.............................................. 2 40 2 2 2
G.............................................. 2 2 40 2 2
H.............................................. 2 2 2 40 2
I.............................................. 2 2 2 2 40
----------------------------------------------------------------------------------------------------------------
(ii) On December 31, 1970, the more-than-50 percent identical
ownership requirement of section 1563(a)(2) may be met with regard to
any combination of the corporations but all five corporations cannot be
included as component members of a single controlled group because the
inclusion of all the corporations in a single group would be dependent
upon taking into account the stock ownership of more than five persons.
Therefore, if the corporations do not file a statement in accordance
with paragraph (c)(2)(ii) of this section, the Internal Revenue Service
will determine the group in which each corporation is to be included.
The corporations or the Internal Revenue Service, as the case may be,
may designate that three corporations be included in one group and two
corporations in another, or that any four corporations be included in
one group and that the remaining corporation not be included in any
group.
(d) Transitional rules--(1) In general. Treasury decision 8179
amended paragraph (a)(3)(ii) of this section to revise the definition of
a brother-sister controlled group of corporations. In general, those
amendments are effective for taxable years ending on or after December
31, 1970.
(2) Limited nonretroactivity. (i) Under the authority of section
7805(b), the Internal Revenue Service will treat an old group as a
brother-sister controlled group corporations for purposes of applying
sections 401, 404(a), 408(k), 409A, 410, 411, 412, 414, 415, and 4971 of
the Code and sections 202, 203, 204, and 302 of the Employment
Retirement Income Security Act of 1974 (ERISA) in a plan year or taxable
year beginning before March 2, 1988, to the extent necessary to prevent
an adverse effect on any old member (or any other corporation), or on
any plan or other entity described in such sections (including plans,
etc., of corporations not part of such old group), that would result
solely from the retroactive effect of the amendment to this section by
TD 8179. An adverse effect includes the disqualification of a plan or
the disallowance of a deduction or credit for a contribution to a plan.
The Internal Revenue Service, however, will not treat an old member as a
member of an old group to the extent that such treatment will have an
adverse effect on that old member.
(ii) Section 7805(b) will not be applied pursuant to paragraph
(d)(2)(i) of this section to treat an old member of an old group as a
member of a brother-sister controlled group to prevent an adverse effect
for a taxable year if, for that taxable year, that old member treats or
has treated itself as not being
[[Page 30]]
a member of that old group for purposes of sections 401, 404(a), 408(k),
409A, 410, 411, 412, 414, 415, and 4971 of the Code and sections 202,
203, 204, and 302 and Title IV of ERISA for such taxable year (such as
by filing, with respect to such taxable year, a return, amended return,
or claim for credit or refund in which the amount of any deduction,
credit, limitation, or tax due is determined by treating itself as not
being a member of the old group for purposes of those sections).
However, the fact that one or more (but not all) of the old members do
not qualify for section 7805(b) treatment because of the preceding
sentence will not preclude that old member (or members) from being
treated as a member of the old group under paragraph (d)(2)(i) of this
section in order to prevent the disallowance of a deduction or credit of
another old member (or other corporation) or to prevent the
disqualification of, or other adverse effect on, another old member's
plan (or other entity) described in the sections of the Code and ERISA
enumerated in such paragraph.
(3) Election of general nonretroactivity. In the case of a taxable
year ending on or after December 31, 1970, and before March 2, 1988, an
old group will be treated as a brother-sister controlled group of
corporations for all purposes of the Code for such taxable year if--
(i) Each old member files a statement consenting to such treatment
for such taxable year with the District Director having audit
jurisdiction over its return within six months after March 2, 1988; and
(ii) No old member--
(A) Files or has filed, with respect to such taxable year, a return,
amended return, or claim for credit or refund in which the amount of any
deduction, credit, limitation, or tax due is determined by treating any
old member as not a member of the old group; or
(B) Treats the employees of all members of the old group as not
being employed by a single employer for purposes of sections 401,
404(a), 408(k), 409A, 410, 411, 412, 414, 415, and 4971 of the Code and
sections 202, 203, 204, and 302 of ERISA for such taxable year.
(4) Definitions. For purposes of this paragraph (d)--
(i) An old group is a brother-sister controlled group of
corporations, determined by applying paragraph (a)(3)(ii) of this
section as in effect before the amendments made by Treasury decision
8179, that is not a brother-sister controlled group of corporations,
determined by applying paragraph (a)(3)(ii) of this section as amended
by such Treasury decision; and
(ii) An old member is any corporation that is a member of an old
group.
(5) Election to choose between membership in more than one
controlled group. If--
(i) An old member has filed an election under paragraph (c)(2) of
this section to be treated as a component member of an old group for a
December 31 before March 2, 1988; and
(ii) That corporation would (without regard to such paragraph) be a
component member of more than one brother-sister controlled group (not
including an old group) on the December 31, that corporation may make an
election under that paragraph by filing an amended return on or before
September 2, 1988. This paragraph (d)(5) does not apply to a corporation
that is treated as a member of an old group under paragraph (d)(3) of
this section.
(6) Refunds. See section 6511(a) for period of limitation on filing
claims for credit or refund.
(e) Effective date--(1) Applicability date. Paragraphs (a), (b),
(c)(1), (c)(2)(iv) and (d) of this section apply to taxable years
beginning on or after December 22, 2006. However, taxpayers may apply
these paragraphs to any Federal income tax return filed on or after
December 22, 2006. Paragraphs (c)(2)(i) through (iii) of this section
apply to any original Federal income tax return (including any amended
return filed on or before the due date (including extensions) of such
original return) timely filed on or after May 30, 2006.
(2) Expiration date. The applicability of paragraphs (a), (b),
(c)(1), (c)(2)(iv) and (d) of this section will expire on December 21
2009. The applicability of paragraphs (c)(2)(i) through (iii) of this
section will expire on May 26, 2009.
[T.D. 9264, 71 FR 30605, May 30, 2006, as amended by T.D. 9304, 71 FR
76909, Dec. 22, 2006; 72 FR 3490, Jan. 25, 2007]
[[Page 31]]
Sec. 1.1563-2 Excluded stock.
(a) Certain stock excluded. For purposes of sections 1561 through
1563 and the regulations thereunder, the term ``stock'' does not
include:
(1) Nonvoting stock which is limited and preferred as to dividends,
and
(2) Treasury stock.
(b) Stock treated as excluded stock--(1) Parent-subsidiary
controlled group. If a corporation (hereinafter in this paragraph
referred to as ``parent corporation'') owns 50 percent or more of the
total combined voting power of all classes of stock entitled to vote or
50 percent or more of the total value of shares of all classes of stock
in another corporation (hereinafter in this paragraph referred to as
``subsidiary corporation''), the provisions of subparagraph (2) of this
paragraph shall apply. For purposes of this subparagraph, stock owned by
a corporation means stock owned directly plus stock owned with the
application of the constructive ownership rules of paragraph (b) (1) and
(4) of Sec. 1.1563-3, relating to options and attribution from
corporations. In determining whether the stock owned by a corporation
possesses the requisite percentage of the total combined voting power of
all classes of stock entitled to vote of another corporation, see
paragraph (a)(6) of Sec. 1.1563-1.
(2) Stock treated as not outstanding. If the provisions of this
subparagraph apply, then for purposes of determining whether the parent
corporation or the subsidiary corporation is a member of a parent-
subsidiary controlled group of corporations within the meaning of
paragraph (a)(2) of Sec. 1.1563-1, the following stock of the
subsidiary corporation shall, except as otherwise provided in paragraph
(c) of this section, be treated as if it were not outstanding:
(i) Plan of deferred compensation. Stock in the subsidiary
corporation held by a trust which is part of a plan of deferred
compensation for the benefit of the employees of the parent corporation
or the subsidiary corporation. The term ``plan of deferred
compensation'' shall have the same meaning such term has in section
406(a)(3) and the regulations thereunder.
(ii) Principal stockholders and officers. Stock in the subsidiary
corporation owned (directly and with the application of the rules
contained in paragraph (b) of Sec. 1.1563-3) by an individual who is a
principal stockholder or officer of the parent corporation. A principal
stockholder of the parent corporation is an individual who owns
(directly and with the application of the rules contained in paragraph
(b) of Sec. 1.1563-3) 5 percent or more of the total combined voting
power of all classes of stock entitled to vote or 5 percent or more of
the total value of shares of all classes of stock of the parent
corporation. An officer of the parent corporation includes the
president, vice-presidents, general manager, treasurer, secretary, and
comptroller of such corporation, and any other person who performs
duties corresponding to those normally performed by persons occupying
such positions.
(iii) Employees. Stock in the subsidiary corporation owned (directly
and with the application of the rules contained in paragraph (b) of
Sec. 1.1563-3) by an employee of the subsidiary corporation if such
stock is subject to conditions which substantially restrict or limit the
employee's right (or if the employee constructively owns such stock, the
direct owner's right) to dispose of such stock and which run in favor of
the parent or subsidiary corporation. In general, any condition which
extends, directly or indirectly, to the parent corporation or the
subsidiary corporation preferential rights with respect to the
acquisition of the employee's (or direct owner's) stock will be
considered to be a condition described in the preceding sentence. It is
not necessary, in order for a condition to be considered to be in favor
of the parent corporation or the subsidiary corporation, that the parent
or subsidiary be extended a discriminatory concession with respect to
the price of the stock. For example, a condition whereby the parent
corporation is given a right of first refusal with respect to any stock
of the subsidiary corporation offered by an employee for sale is a
condition which substantially restricts or limits the employee's right
to dispose of such stock and runs in favor of the parent corporation.
Moreover, any legally enforceable condition
[[Page 32]]
which prohibits the employee from disposing of his stock without the
consent of the parent (or a subsidiary of the parent) will be considered
to be a substantial limitation running in favor of the parent
corporation.
(iv) Controlled exempt organization. Stock in the subsidiary
corporation owned (directly and with the application of the rules
contained in paragraph (b) of Sec. 1.1563-3) by an organization (other
than the parent corporation):
(a) To which section 501 (relating to certain educational and
charitable organizations which are exempt from tax) applies, and
(b) Which is controlled directly or indirectly by the parent
corporation or subsidiary corporation, by an individual, estate, or
trust that is a principal stockholder of the parent corporation, by an
officer of the parent corporation, or by any combination thereof.
The terms ``principal stockholder of the parent corporation'' and
``officer of the parent corporation'' shall have the same meanings in
this subdivision as in subdivision (ii) of this subparagraph. The term
``control'' as used in this subdivision means control in fact and the
determination of whether the control requirement of (b) of this
subdivision is met will depend upon all the facts and circumstances of
each case, without regard to whether such control is legally enforceable
and irrespective of the method by which such control is exercised or
exercisable.
(3) Brother-sister controlled group. If five or fewer persons
(hereinafter referred to as common owners) who are individuals, estates,
or trusts own (directly and with the application of the rules contained
in paragraph (b) of Sec. 1.1563-3) stock possessing 50 percent or more
of the total combined voting power of all classes of stock entitled to
vote or 50 percent or more of the total value of shares of all classes
of stock in a corporation, the provisions of subparagraph (4) of this
paragraph shall apply. In determining whether the stock owned by such
person or persons possesses the requisite percentage of the total
combined voting power of all classes of stock entitled to vote of a
corporation, see paragraph (a)(6) of Sec. 1.1563-1.
(4) Stock treated as not outstanding. If the provisions of this
subparagraph apply, then for purposes of determining whether a
corporation is a member of a brother-sister controlled group of
corporations within the meaning of paragraph (a)(3) of Sec. 1.1563-1,
the following stock of such corporation shall, except as otherwise
provided in paragraph (c) of this section, be treated as if it were not
outstanding:
(i) Exempt employees' trust. Stock in such corporation held by an
employees' trust described in section 401(a) which is exempt from tax
under section 501(a), if such trust is for the benefit of the employees
of such corporation.
(ii) Employees. Stock in such corporation owned (directly and with
the application of the rules contained in paragraph (b) of Sec. 1.1563-
3) by an employee of such corporation if such stock is subject to
conditions which run in favor of a common owner of such corporation (or
in favor of such corporation) and which substantially restrict or limit
the employee's right (or if the employee constructively owns such stock,
the record owner's right) to dispose of such stock. The principles of
subparagraph (2)(iii) of this paragraph shall apply in determining
whether a condition satisfies the requirements of the preceding
sentence. Thus, in general, a condition which extends, directly or
indirectly, to a common owner or such corporation preferential rights
with respect to the acquisition of the employee's (or record owner's)
stock will be considered to be a condition which satisfies such
requirements. For purposes of this subdivision, if a condition which
restricts or limits an employee's right (or record owner's right) to
dispose of his stock also applies to the stock in such corporation held
by such common owner pursuant to a bona fide reciprocal stock purchase
arrangement, such condition shall not be treated as one which restricts
or limits the employee's (or record owner's) right to dispose of such
stock. An example of a reciprocal stock purchase arrangement is an
agreement whereby a common owner and the employee are given a right of
first refusal with respect to stock of the employer
[[Page 33]]
corporation owned by the other party. If, however, the agreement also
provides that the common owner has the right to purchase the stock of
the employer corporation owned by the employee in the event that the
corporation should discharge the employee for reasonable cause, the
purchase arrangement would not be reciprocal within the meaning of this
subdivision.
(iii) Controlled exempt organization. Stock in such corporation
owned (directly and with the application of the rules contained in
paragraph (b) of Sec. 1.1563-3) by an organization:
(a) To which section 501(c)(3) (relating to certain educational and
charitable organizations which are exempt from tax) applies, and
(b) Which is controlled directly or indirectly by such corporation,
by an individual, estate, or trust that is a principal stockholder of
such corporation, by an officer of such corporation, or by any
combination thereof.
The terms ``principal stockholder'' and ``officer'' shall have the same
meanings in this subdivision as in subparagraph (2)(ii) of this
paragraph. The term ``control'' as used in this subdivision means
control in fact and the determination of whether the control requirement
of (b) of this subdivision is met will depend upon all the facts and
circumstances of each case, without regard to whether such control is
legally enforceable and irrespective of the method by which such control
is exercised or exercisable.
(5) Other controlled groups. The provisions of subparagraphs (1),
(2), (3), and (4) of this paragraph shall apply in determining whether a
corporation is a member of a combined group (within the meaning of
paragraph (a)(4) of Sec. 1.1563-1) or an insurance group (within the
meaning of paragraph (a)(5) of Sec. 1.1563-1). For example, under
paragraph (a)(4) of Sec. 1.1563-1, in order for a corporation to be a
member of a combined group such corporation must be a member of a
parent-subsidiary group or a brother-sister group. Accordingly, the
excluded stock rules provided by this paragraph are applicable in
determining whether the corporation is a member of such group.
(6) Meaning of employee. For purposes of this section Sec. Sec.
1.1563-3 and 1.1563-4, the term ``employee'' has the same meaning such
term is given in section 3306(i) of the Code (relating to definitions
for purposes of the Federal Unemployment Tax Act). Accordingly, the term
employee as used in such sections includes an officer of a corporation.
(7) Examples. The provisions of this paragraph may be illustrated by
the following examples:
Example (1). Corporation P owns 70 of the 100 shares of the only
class of stock of corporation S. The remaining shares of S are owned as
follows: 4 shares by Jones (the general manager of P), and 26 shares by
Smith (who also owns 5 percent of the total combined voting power of the
stock of P). P satisfies the 50 percent stock ownership requirement of
subparagraph (1) of this paragraph with respect to S. Since Jones is an
officer of P and Smith is a principal stockholder of P, under
subparagraph (2)(ii) of this paragraph the S stock owned by Jones and
Smith is treated as not outstanding for purposes of determining whether
P and S are members of a parent-subsidiary controlled group of
corporations within the meaning of paragraph (a)(2) of Sec. 1.1563-1.
Thus, P is considered to own stock possessing 100 percent (70/70) of the
total voting power and value of all the S stock. Accordingly, P and S
are members of a parent-subsidiary controlled group of corporations.
Example (2). Assume the same facts as in example (1) and further
assume that Jones owns 15 shares of the 100 shares of the only class of
stock of corporation S-1, and corporation S owns 75 shares of such
stock. P satisfies the 50 percent stock ownership requirement of
subparagraph (1) of this paragraph with respect to S-1 since P is
considered as owning 52.5 percent (70 percentx 75 percent) of the S-1
stock with the application of paragraph (b)(4) of Sec. 1.1563-3. Since
Jones is an officer of P, under subparagraph (2)(ii) of this paragraph,
the S-1 stock owned by Jones is treated as not outstanding for purposes
of determining whether S-1 is a member of the parent-subsidiary
controlled group of corporations. Thus, S is considered to own stock
possessing 88.2 percent (75/85) of the voting power and value of the S-1
stock. Accordingly, P, S, and S-1 are members of a parent-subsidiary
controlled group of corporations.
Example (3). Corporation X owns 60 percent of the only class of
stock of corporation Y. Davis, the president of Y, owns the remaining 40
percent of the stock of Y. Davis has agreed that if he offers his stock
in Y for sale he will first offer the stock to X at a price equal to the
fair market value of the stock on the first date the stock is offered
for sale. Since Davis is an employee of Y within the meaning of section
3306(i) of the Code, and
[[Page 34]]
his stock in Y is subject to a condition which substantially restricts
or limits his right to dispose of such stock and runs in favor of X,
under subparagraph (2)(iii) of this paragraph such stock is treated as
if it were not outstanding for purposes of determining whether X and Y
are members of a parent-subsidiary controlled group of corporations.
Thus, X is considered to own stock possessing 100 percent of the voting
power and value of the stock of Y. Accordingly, X and Y are members of a
parent-subsidiary controlled group of corporations. The result would be
the same if Davis's wife, instead of Davis, owned directly the 40
percent stock interest in Y and such stock was subject to a right of
first refusal running in favor of X.
(c) Exception--(1) General. If stock of a corporation is owned by a
person directly or with the application of the rules contained in
paragraph (b) of Sec. 1.1563-3 and such ownership results in the
corporation being a component member of a controlled group of
corporations on a December 31, then the stock shall not be treated as
excluded stock under the provisions of paragraph (b) of this section if
the result of applying such provisions is that such corporation is not a
component member of a controlled group of corporations on such December
31.
(2) Illustration. The provisions of this paragraph may be
illustrated by the following example:
Example. On each day of 1965, corporation P owns directly 50 of the
100 shares of the only class of stock of corporation S. Jones, an
officer of P, owns directly 30 shares of S stock and P has an option to
acquire such 30 shares from Jones. The remaining shares of S are owned
by unrelated persons. If, pursuant to the provisions of paragraph
(b)(2)(ii) of this section, the 30 shares of S stock owned directly by
Jones is treated as not outstanding, the result is that P would be
treated as owning stock possessing only 71 percent (50/70) of the total
voting power and value of S stock, and S would not be a component member
of a controlled group of corporations on December 31, 1965. However,
since P is considered as owning the 30 shares of S stock with the
application of paragraph (b)(1) of this section, and such ownership plus
the S stock directly owned by P (50 shares) results in S being a
component member of a controlled group of corporations on December 31,
1965, the provisions of this paragraph apply. Therefore, the provisions
of paragraph (b)(2)(ii) of this section do not apply with respect to the
30 shares of S stock, and on December 31, 1965, S is a component member
of a controlled group of corporations consisting of P and S.
[T.D. 6845, 30 FR 9753, Aug. 5, 1965, as amended by T.D. 7181, 37 FR
8070, Apr. 4, 1972]
Sec. 1.1563-3 Rules for determining stock ownership.
(a) In general. In determining stock ownership for purposes of
Sec. Sec. 1.1562-5, 1.1563-1, 1.1563-2, and this section, the
constructive ownership rules of paragraph (b) of this section apply to
the extent such rules are referred to in such sections. The application
of such rules shall be subject to the operating rules and special rules
contained in paragraphs (c) and (d) of this section.
(b) Constructive ownership--(1) Options. If a person has an option
to acquire any outstanding stock of a corporation, such stock shall be
considered as owned by such person. For purposes of this subparagraph,
an option to acquire such an option, and each one of a series of such
options, shall be considered as an option to acquire such stock. For
example, assume Smith owns an option to purchase 100 shares of the
outstanding stock of M Corporation. Under this subparagraph, Smith is
considered to own such 100 shares. The result would be the same if Smith
owned an option to acquire the option (or one of a series of options) to
purchase 100 shares of M stock.
(2) Attribution from partnerships. (i) Stock owned, directly or
indirectly, by or for a partnership shall be considered as owned by any
partner having an interest of 5 percent or more in either the capital or
profits of the partnership in proportion to his interest in capital or
profits, whichever such proportion is the greater.
(ii) The provisions of this subparagraph may be illustrated by the
following example:
Example. Green, Jones, and White, unrelated individuals, are
partners in the GJW partnership. The partners' interests in the capital
and profits of the partnership are as follows:
------------------------------------------------------------------------
Capital Profits
Partner -----------------------
Percent Percent
------------------------------------------------------------------------
Green........................................... 36 25
Jones........................................... 60 71
White........................................... 4 4
------------------------------------------------------------------------
[[Page 35]]
The GJW partnership owns the entire outstanding stock (100 shares) of X
Corporation. Under this subparagraph, Green is considered to own the X
stock owned by the partnership in proportion to his interest in capital
(36 percent) or profits (25 percent), whichever such proportion is the
greater. Therefore, Green is considered to own 36 shares of the X stock.
However, since Jones has a greater interest in the profits of the
partnership, he is considered to own the X stock in proportion to his
interest in such profits. Therefore, Jones is considered to own 71
shares of the X stock. Since White does not have an interest of 5
percent or more in either the capital or profits of the partnership, he
is not considered to own any shares of the X stock.
(3) Attribution from estates or trusts. (i) Stock owned, directly or
indirectly, by or for an estate or trust shall be considered as owned by
any beneficiary who has an actuarial interest of 5 percent or more in
such stock, to the extent of such actuarial interest. For purposes of
this subparagraph, the actuarial interest of each beneficiary shall be
determined by assuming the maximum exercise of discretion by the
fiduciary in favor of such beneficiary and the maximum use of such stock
to satisfy his rights as a beneficiary. A beneficiary of an estate or
trust who cannot under any circumstances receive any interest in stock
held by the estate or trust, including the proceeds from the disposition
thereof, or the income therefrom, does not have an actuarial interest in
such stock. Thus, where stock owned by a decedent's estate has been
specifically bequeathed to certain beneficiaries and the remainder of
the estate is bequeathed to other beneficiaries, the stock is
attributable only to the beneficiaries to whom it is specifically
bequeathed. Similarly, a remainderman of a trust who cannot under any
circumstances receive any interest in the stock of a corporation which
is a part of the corpus of the trust (including any accumulated income
therefrom or the proceeds from a disposition thereof) does not have an
actuarial interest in such stock. However, an income beneficiary of a
trust does have an actuarial interest in stock if he has any right to
the income from such stock even though under the terms of the trust
instrument such stock can never be distributed to him. The factors and
methods prescribed in Sec. 20.2031-7 of this chapter (Estate Tax
Regulations) for use in ascertaining the value of an interest in
property for estate tax purposes shall be used for purposes of this
subdivision in determining a beneficiary's actuarial interest in stock
owned directly or indirectly by or for a trust.
(ii) For the purposes of this subparagraph, property of a decedent
shall be considered as owned by his estate if such property is subject
to administration by the executor or administrator for the purposes of
paying claims against the estate and expenses of administration
notwithstanding that, under local law, legal title to such property
vests in the decedent's heirs, legatees or devisees immediately upon
death. With respect to an estate, the term ``beneficiary'' includes any
person entitled to receive property of the decedent pursuant to a will
or pursuant to laws of descent and distribution. A person shall no
longer be considered a beneficiary of an estate when all the property to
which he is entitled has been received by him, when he no longer has a
claim against the estate arising out of having been a beneficiary, and
when there is only a remote possibility that it will be necessary for
the estate to seek the return of property or to seek payment from him by
contribution or otherwise to satisfy claims against the estate or
expenses of administration. When pursuant to the preceding sentence, a
person ceases to be a beneficiary, stock owned by the estate shall not
thereafter be considered owned by him.
(iii) Stock owned, directly or indirectly, by or for any portion of
a trust of which a person is considered the owner under Subpart E, Part
I, Subchapter J of the Code (relating to grantors and others treated as
substantial owners) is considered as owned by such person.
(iv) This subparagraph does not apply to stock owned by any
employees' trust described in section 401(a) which is exempt from tax
under section 501(a).
(4) Attribution from corporations. (i) Stock owned, directly or
indirectly, by or for a corporation shall be considered as owned by any
person who owns (within the meaning of section 1563(d)) 5 percent or
more in value or its stock
[[Page 36]]
in that proportion which the value of the stock which such person so
owns bears to the value of all the stock in such corporation.
(ii) The provisions of this subparagraph may be illustrated by the
following example:
Example. Brown, an individual, owns 60 shares of the 100 shares of
the only class of outstanding stock of corporation P. Smith, an
individual, owns 4 shares of the P stock, and corporation X owns 36
shares of the P stock. Corporation P owns, directly and indirectly, 50
shares of the stock of corporation S. Under this subparagraph, Brown is
considered to own 30 shares of the S stock (\60/100\x50), and X is
considered to own 18 shares of the S stock (\36/100\x50). Since Smith
does not own 5 percent or more in value of the P stock, he is not
considered as owning any of the S stock owned by P. If, in this example,
Smith's wife had owned directly 1 share of the P stock, Smith (and his
wife) would each own 5 shares of the P stock, and therefore Smith (and
his wife) would be considered as owning 2.5 shares of the S stock (\5/
100\x50).
(5) Spouse. (i) Except as provided in subdivision (ii) of this
subparagraph, an individual shall be considered to own the stock owned,
directly or indirectly, by or for his spouse, other than a spouse who is
legally separated from the individual under a decree of divorce, whether
interlocutory or final, or a decree of separate maintenance.
(ii) An individual shall not be considered to own stock in a
corporation owned, directly or indirectly, by or for his spouse on any
day of a taxable year of such corporation, provided that each of the
following conditions are satisfied with respect to such taxable year:
(a) Such individual does not, at any time during such taxable year,
own directly any stock in such corporation.
(b) Such individual is not a member of the board of directors or an
employee of such corporation and does not participate in the management
of such corporation at any time during such taxable year.
(c) Not more than 50 percent of such corporation's gross income for
such taxable year was derived from royalties, rents, dividends,
interest, and annuities.
(d) Such stock in such corporation is not, at any time during such
taxable year, subject to conditions which substantially restrict or
limit the spouse's right to dispose of such stock and which run in favor
of the individual or his children who have not attained the age of 21
years. The principles of paragraph (b)(2)(iii) of Sec. 1.1563-2 shall
apply in determining whether a condition is a condition described in the
preceding sentence.
(iii) For purposes of subdivision (ii)(c) of this subparagraph, the
gross income of a corporation for a taxable year shall be determined
under section 61 and the regulations thereunder. The terms
``royalties'', ``rents'', ``dividends'', ``interest'', and ``annuities''
shall have the same meanings such terms are given for purposes of
section 1244(c). See paragraph (e)(1)(ii), (iii), (iv), (v), and (vi) of
Sec. 1.1244(c)-1.
(6) Children, grandchildren, parents, and grandparents. (i) An
individual shall be considered to own the stock owned, directly or
indirectly, by or for his children who have not attained the age of 21
years, and, if the individual has not attained the age of 21 years, the
stock owned, directly or indirectly, by or for his parents.
(ii) If an individual owns (directly, and with the application of
the rules of this paragraph but without regard to this subdivision)
stock possessing more than 50 percent of the total combined voting power
of all classes of stock entitled to vote or more than 50 percent of the
total value of shares of all classes of stock in a corporation, then
such individual shall be considered to own the stock in such corporation
owned, directly or indirectly, by or for his parents, grandparents,
grandchildren, and children who have attained the age of 21 years. In
determining whether the stock owned by an individual possesses the
requisite percentage of the total combined voting power of all classes
of stock entitled to vote of a corporation, see paragraph (a)(6) of
Sec. 1.1563-1.
(iii) For purposes of section 1563, and Sec. Sec. 1.1563-1 through
1.1563-4, a legally adopted child of an individual shall be treated as a
child of such individual by blood.
(iv) The provisions of this subparagraph may be illustrated by the
following example:
Example (a) Facts. Individual F owns directly 40 shares of the 100
shares of the only class of stock of Z Corporation. His son, M
[[Page 37]]
(20 years of age), owns directly 30 shares of such stock, and his son, A
(30 years of age), owns directly 20 shares of such stock. The remaining
10 shares of the Z stock are owned by an unrelated person.
(b) F's ownership. Individual F owns 40 shares of the Z stock
directly and is considered to own the 30 shares of Z stock owned
directly by M. Since, for purposes of the more-than-50-percent stock
ownership test contained in subdivision (ii) of this subparagraph, F is
treated as owning 70 shares or 70 percent of the total voting power and
value of the Z stock, he is also considered as owning the 20 shares
owned by his adult son, A. Accordingly, F is considered as owning a
total of 90 shares of the Z stock.
(c) M's ownership. Minor son, M, owns 30 shares of the Z stock
directly, and is considered to own the 40 shares of Z stock owned
directly by his father, F. However, M is not considered to own the 20
shares of Z stock owned directly by his brother, A, and constructively
by F, because stock constructively owned by F by reason of family
attribution is not considered as owned by him for purposes of making
another member of his family the constructive owner of such stock. See
paragraph (c)(2) of this section. Accordingly, M owns and is considered
as owning a total of 70 shares of the Z stock.
(d) A's ownership. Adult son, A, owns 20 shares of the Z stock
directly. Since, for purposes of the more-than-50-percent stock
ownership test contained in subdivision (ii) of this subparagraph, A is
treated as owning only the Z stock which he owns directly, he does not
satisfy the condition precedent for the attribution of Z stock from his
father. Accordingly, A is treated as owning only the 20 shares of Z
stock which he owns directly.
(c) Operating rules and special rules--(1) In general. Except as
provided in subparagraph (2) of this paragraph, stock constructively
owned by a person by reason of the application of subparagraph (1), (2),
(3), (4), (5), or (6) of paragraph (b) of this section shall, for
purposes of applying such subparagraphs, be treated as actually owned by
such person.
(2) Members of family. Stock constructively owned by an individual
by reason of the application of subparagraph (5) or (6) of paragraph (b)
of this section shall not be treated as owned by him for purposes of
again applying such subparagraphs in order to make another the
constructive owner of such stock.
(3) Precedence of option attribution. For purposes of this section,
if stock may be considered as owned by a person under subparagraph (1)
of paragraph (b) of this section (relating to option attribution) and
under any other subparagraph of such paragraph, such stock shall be
considered as owned by such person under subparagraph (1) of such
paragraph.
(4) Examples. The provisions of this paragraph may be illustrated by
the following examples:
Example (1). A, 30 years of age, has a 90 percent interest in the
capital and profits of a partnership. The partnership owns all the
outstanding stock of corporation X and X owns 60 shares of the 100
outstanding shares of corporation Y. Under subparagraph (1) of this
paragraph, the 60 shares of Y constructively owned by the partnership by
reason of subparagraph (4) of paragraph (b) of this section is treated
as actually owned by the partnership for purposes of applying
subparagraph (2) of paragraph (b) of this section. Therefore, A is
considered as owning 54 shares of the Y stock (90 percent of 60 shares).
Example (2). Assume the same facts as in example (1). Assume further
that B, who is 20 years of age and the brother of A, directly owns 40
shares of Y stock. Although the stock of Y owned by B is considered as
owned by C (the father of A and B) under paragraph (b)(6)(i) of this
section, under subparagraph (2) of this paragraph such stock may not be
treated as owned by C for purposes of applying paragraph (b)(6)(ii) of
this section in order to make A the constructive owner of such stock.
Example (3). Assume the same facts assumed for purposes of example
(2), and further assume that C has an option to acquire the 40 shares of
Y stock owned by his son, B. The rule contained in subparagraph (2) of
this paragraph does not prevent the reattribution of such 40 shares to A
because, under subparagraph (3) of this paragraph, C is considered as
owning the 40 shares by reason of option attribution and not by reason
of family attribution. Therefore, since A satisfies the more-than-50-
percent stock ownership test contained in paragraph (b)(6)(ii) of this
section with respect to Y, the 40 shares of Y stock constructively owned
by C are reattributed to A, and A is considered as owning a total of 94
shares of Y stock.
(d) Special rule of section 1563 (f)(3)(B)--(1) In general. If the
same stock of a corporation is owned (within the meaning of section
1563(d)) by two or more persons, then such stock shall be treated as
owned by the person whose ownership of such stock results in the
corporation being a component
[[Page 38]]
member of a controlled group on a December 31 which has at least one
other component member on such date.
(2) Component member of more than one group. (i) If, by reason of
subparagraph (1) of this paragraph, a corporation would (but for this
subparagraph) become a component member of more than one controlled
group on a December 31, such corporation shall be treated as a component
member of only one such controlled group on such date. The determination
as to which group such corporation is treated as a component member of
shall be made in accordance with the rules contained in paragraphs
(d)(2)(ii) and (iii) of this section, and paragraph (d)(2)(iv) of Sec.
1.1563-3T.
(ii) In any case in which a corporation is a component member of a
controlled group of corporations on a December 31 as a result of
treating each share of its stock as owned only by the person who owns
such share directly, then each such share shall be treated as owned by
the person who owns such share directly.
(iii) If the application of subdivision (ii) of this subparagraph
does not result in a corporation being treated as a component member of
only one controlled group on a December 31, then the stock of such
corporation described in subparagraph (1) of this paragraph shall be
treated as owned by the one person described in such subparagraph who
owns, directly and with the application of the rules contained in
paragraph (b) (1), (2), (3), and (4) of this section, the stock
possessing the greatest percentage of the total value of shares of all
classes of stock of the corporation.
(iv) [Reserved]. For further guidance, see Sec. 1.1563-
3T(d)(2)(iv).
(3) Examples. The provisions of this paragraph may be illustrated by
the following examples, in which each corporation referred to uses the
calendar year as its taxable year and the stated facts are assumed to
exist on each day of 1970 (unless otherwise provided in the example):
Example (1). Jones owns all the stock of corporation X and has an
option to purchase from Smith all the outstanding stock of corporation
Y. Smith owns all the outstanding stock of corporation Z. Since the Y
stock is considered as owned by two or more persons, under subparagraph
(2)(ii) of this paragraph the Y stock is treated as owned only by Smith
since he has direct ownership of such stock. Therefore, on December 31,
1970, Y and Z are component members of the same brother-sister
controlled group. If, however, Smith had owned his stock in corporation
Z for less than one-half of the number of days of Z's 1970 taxable year,
then under subparagraph (1) of this paragraph the Y stock would be
treated as owned only by Jones since his ownership results in Y being a
component member of a controlled group on December 31, 1970.
Example (2). Individual H owns directly all the outstanding stock of
corporation M. W (the wife of H) owns directly all the outstanding stock
of corporation N. Neither spouse is considered as owning the stock
directly owned by the other because each of the conditions prescribed in
paragraph (b)(5)(ii) of this section is satisfied with respect to each
corporation's 1970 taxable year. H owns directly 60 percent of the only
class of stock of corporation P and W owns the remaining 40 percent of
the P stock. Under subparagraph (2)(iii) of this paragraph, the stock of
P is treated as owned only by H since H owns (directly and with the
application of the rules contained in paragraph (b) (1), (2), (3), and
(4) of this section) the stock possessing the greatest percentage of the
total value of shares of all classes of stock of P. Accordingly, on
December 31, 1970, P is treated as a component member of a brother-
sister group consisting of M and P.
Example (3). Unrelated individuals A and B each own 49 percent of
all the outstanding stock of corporation R, which in turn owns 70
percent of the only class of outstanding stock of corporation S. The
remaining 30 percent of the stock of corporation S is owned by unrelated
individual C. C also owns the remaining 2 percent of the stock of
corporation R. Under the attribution rule of paragraph (b)(4) of this
section A and B are each considered to own 34.3 percent of the stock of
corporation S. Accordingly, since five or fewer persons own at least 80
percent of the stock of corporations R and S and also own more than 50
percent identically (A's and B's identical ownership each is 34.3
percent, C's identical ownership is 2 percent), on December 31, 1970,
corporations R and S are treated as component members of the same
brother-sister controlled group for purposes of paragraph (a)(3)(ii) of
Sec. 1.1563-1T.
(e) [Reserved]. For further guidance, see Sec. 1.1563-3T(e)(1).
[T.D. 6845, 30 FR 9755, Aug. 5, 1965, as amended by T.D. 7181, 37 FR
8070, Apr. 25, 1972; T.D. 7779, 46 FR 29474, June 2, 1981; T.D. 8179, 53
FR 6613, Mar. 2, 1988; T.D. 9264, 71 FR 30606, 30608, May 30, 2006; T.D.
9304, 71 FR 76913, Dec. 22, 2006]
[[Page 39]]
Sec. 1.1563-3T Rules for determining stock ownership (temporary).
(a) through (d)(2)(iii) [Reserved]. For further guidance, see Sec.
1.1563-3(a) through (d)(2)(iii).
(iv) Statement. If the application of paragraph (d)(2)(ii) or (iii)
of Sec. 1.1563-3 does not result in a corporation being treated as a
component member of only one controlled group of corporations on a
December 31, then such corporation will be treated as a component member
of only one such group on such date. Such corporation may elect the
group in which it is to be included by including on or with its income
tax return a statement entitled, ``STATEMENT TO ELECT CONTROLLED GROUP
PURSUANT TO Sec. 1.1563-3T(d)(2)(iv).'' The statement must include--
(A) A description of each of the controlled groups in which the
corporation could be included. The description must include the name and
employer identification number of each component member of each such
group and the stock ownership of the component members of each such
group; and
(B) The following representation: [INSERT NAME AND EMPLOYER
IDENTIFICATION NUMBER OF CORPORATION] ELECTS TO BE TREATED AS A
COMPONENT MEMBER OF THE [INSERT DESIGNATION OF GROUP].
(v) Election-- (A) Election filed. An election filed under paragraph
(d)(2)(iv) of this section is irrevocable and effective until paragraph
(d)(2)(ii) or (iii) of Sec. 1.1563-3 applies or until a change in the
stock ownership of the corporation results in termination of membership
in the controlled group in which such corporation has been included.
(B) Election not filed. In the event no election is filed in
accordance with the provisions of paragraph (d)(2)(iv) of this section,
then the Internal Revenue Service will determine the group in which such
corporation is to be included. Such determination will be binding for
all subsequent years unless the corporation files a valid election with
respect to any such subsequent year or until a change in the stock
ownership of the corporation results in termination of membership in the
controlled group in which such corporation has been included.
(d)(3) [Reserved]. For further guidance, see Sec. 1.1563-3(d)(3).
(e) Effective date--(1) Applicability date. This section applies to
any original Federal income tax return (including any amended return
filed on or before the due date (including extensions) of such original
return) timely filed on or after May 30, 2006.
(2) Expiration date. The applicability of this section will expire
on May 26, 2009.
[T.D. 9264, 71 FR 30606, May 30, 2006]
Sec. 1.1563-4 Franchised corporations.
(a) In general. For purposes of paragraph (b)(2)(ii)(d) of Sec.
1.1563-1, a member of a controlled group of corporations shall be
considered to be a franchised corporation for a taxable year if each of
the following conditions is satisfied for one-half (or more) of the
number of days preceding the December 31 included within such taxable
year (or, if such taxable year does not include a December 31, for one-
half or more of the number of days in such taxable year preceding the
last day of such year):
(1) Such member is franchised to sell the products of another
member, or the common owner, of such controlled group.
(2) More than 50 percent (determined on the basis of cost) of all
the goods held by such member primarily for sale to its customers are
acquired from members or the common owner of the controlled group, or
both.
(3) The stock of such member is to be sold to an employee (or
employees) of such member pursuant to a bona fide plan designed to
eliminate the stock ownership of the parent corporation (as defined in
paragraph (b)(1) of Sec. 1.1563-2) or of the common owner (as defined
in paragraph (b)(3) of Sec. 1.1563-2) in such member.
(4) Such employee owns (or such employees in the aggregate own)
directly more than 20 percent of the total value of shares of all
classes of stock of such member. For purposes of this subparagraph, the
determination of whether an employee (or employees) owns the requisite
percentage of the total value of the stock of the member shall be made
without regard to paragraph (b) of Sec. 1.1563-2, relating to certain
stock
[[Page 40]]
treated as excluded stock. Furthermore, if the corporation has more than
one class of stock outstanding, the relative voting rights as between
each such class of stock shall be disregarded in making such
determination.
(b) Plan for elimination of stock ownership. (1) A plan referred to
in paragraph (a)(3) of this section must:
(i) Provide a reasonable selling price for the stock of the member,
and
(ii) Require that a portion of the employee's compensation or
dividends, or both, from such member be applied to the purchase of such
stock (or to the purchase of notes, bonds, debentures, or similar
evidences of indebtedness of such member held by the parent corporation
or the common owner).
It is not necessary, in order to satisfy the requirements of subdivision
(ii) of this subparagraph, that the plan require that a percentage of
every dollar of the compensation and dividends be applied to the
purchase of the stock (or the indebtedness). The requirements of such
subdivision are satisfied if an otherwise qualified plan provides that
under certain specified conditions (such as a requirement that the
member earn a specified profit) no portion of the compensation and/or
dividends need be applied to the purchase of the stock (or
indebtedness), provided such conditions are reasonable.
(2) A plan for the elimination of the stock ownership of the parent
corporation or of the common owner will satisfy the requirements of
paragraph (a)(3) of this section and subparagraph (1) of this paragraph
even though it does not require that the stock of the member be sold to
an employee (or employees) if it provides for the redemption of the
stock of the member held by the parent or common owner and under the
plan the amount of such stock to be redeemed during any period is
calculated by reference to the profits of such member during such
period.
[T.D. 6845, 30 FR 9757, Aug. 5, 1965]
PROCEDURE AND ADMINISTRATION--Table of Contents
INFORMATION AND RETURNS
Returns and Records--Table of Contents
Source: Sections 1.6001-1 through 1.6091-4 contained in T.D. 6500,
25 FR 12108, Nov. 26, 1960, unless otherwise noted.
Records, Statements, and Special Returns
Sec. 1.6001-1 Records.
(a) In general. Except as provided in paragraph (b) of this section,
any person subject to tax under subtitle A of the Code (including a
qualified State individual income tax which is treated pursuant to
section 6361(a) as if it were imposed by chapter 1 of subtitle A), or
any person required to file a return of information with respect to
income, shall keep such permanent books of account or records, including
inventories, as are sufficient to establish the amount of gross income,
deductions, credits, or other matters required to be shown by such
person in any return of such tax or information.
(b) Farmers and wage-earners. Individuals deriving gross income from
the business of farming, and individuals whose gross income includes
salaries, wages, or similar compensation for personal services rendered,
are required with respect to such income to keep such records as will
enable the district director to determine the correct amount of income
subject to the tax. It is not necessary, however, that with respect to
such income individuals keep the books of account or records required by
paragraph (a) of this section. For rules with respect to the records to
be kept in substantiation of traveling and other business expenses of
employees, see Sec. 1.162-17.
(c) Exempt organizations. In addition to such permanent books and
records as are required by paragraph (a) of this section with respect to
the tax imposed by section 511 on unrelated business income of certain
exempt organizations, every organization exempt from tax under section
501(a) shall keep such permanent books of account or records, including
inventories, as are sufficient to show specifically the items of gross
[[Page 41]]
income, receipts and disbursements. Such organizations shall also keep
such books and records as are required to substantiate the information
required by section 6033. See section 6033 and Sec. Sec. 1.6033-1
through 1.6033-3.
(d) Notice by district director requiring returns statements, or the
keeping of records. The district director may require any person, by
notice served upon him, to make such returns, render such statements, or
keep such specific records as will enable the district director to
determine whether or not such person is liable for tax under subtitle A
of the Code, including qualified State individual income taxes, which
are treated pursuant to section 6361(a) as if they were imposed by
chapter 1 of subtitle A.
(e) Retention of records. The books or records required by this
section shall be kept at all times available for inspection by
authorized internal revenue officers or employees, and shall be retained
so long as the contents thereof may become material in the
administration of any internal revenue law.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 7122, 36 FR
11025, June 8, 1971; T.D. 7577, 43 FR 59357, Dec. 20, 1978; T.D. 8308,
55 FR 35593, Aug. 31, 1990]
Sec. 1.6001-2 Returns.
For rules relating to returns required to be made by every
individual, estate, or trust which is liable for one or more qualified
State individual income taxes, as defined in section 6362, for a taxable
year, see paragraph (b) of Sec. 301.6361-1 of this chapter (Regulations
on procedure and Administration).
[T.D. 7577, 43 FR 59357, Dec. 20, 1978]
tax returns or statements
Sec. 1.6011-1 General requirement of return, statement, or list.
(a) General rule. Every person subject to any tax, or required to
collect any tax, under Subtitle A of the Code, shall make such returns
or statements as are required by the regulations in this chapter. The
return or statement shall include therein the information required by
the applicable regulations or forms.
(b) Use of prescribed forms. Copies of the prescribed return forms
will so far as possible be furnished taxpayers by district directors. A
taxpayer will not be excused from making a return, however, by the fact
that no return form has been furnished to him. Taxpayers not supplied
with the proper forms should make application therefor to the district
director in ample time to have their returns prepared, verified, and
filed on or before the due date with the internal revenue office where
such returns are required to be filed. Each taxpayer should carefully
prepare his return and set forth fully and clearly the information
required to be included therein. Returns which have not been so prepared
will not be accepted as meeting the requirements of the Code. In the
absence of a prescribed form, a statement made by a taxpayer disclosing
his gross income and the deductions therefrom may be accepted as a
tentative return, and, if filed within the prescribed time, the
statement so made will relieve the taxpayer from liability for the
addition to tax imposed for the delinquent filing of the return,
provided that without unnecessary delay such a tentative return is
supplemented by a return made on the proper form.
(c) Tax withheld on nonresident aliens and foreign corporations. For
requirements respecting the return of the tax required to be withheld
under chapter 3 of the Code on nonresident aliens and foreign
corporations and tax-free covenant bonds, see Sec. 1.1461-2.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6922, 32 FR
8713, June 17, 1967]
Sec. 1.6011-2 Returns, etc., of DISC's and former DISC's.
(a) Records and information. Every DISC and former DISC (as defined
in section 992(a)) must comply with section 6001 and the regulations
thereunder, relating to required records, statements, and special
returns. Thus, for example, a DISC is required to maintain the books of
account or records described in Sec. 1.6001-1(a). In addition, every
DISC must furnish to each of its shareholders on or before the last day
of the second month following the close of the taxable year of the DISC
a copy of Schedule K (Form 1120-DISC) disclosing the amounts of
[[Page 42]]
actual distributions and deemed distributions from the DISC to such
shareholder for the taxable year of the DISC. In the case of a
deficiency distribution to meet qualification requirements, see Sec.
1.992-3(a)(4) for requirements that distribution be designated in the
form of a communication sent to a shareholder and service center at the
time of distribution.
(b) Returns--(1) Requirement of return. Every DISC (as defined in
section 992(a)(1)) shall make a return of income. A former DISC (as
defined in section 992(a)(3)) shall also make a return of income in
addition to any other return required. The return required of a DISC or
former DISC under this section shall be made on Form 1120-DISC. The
provisions of Sec. 1.6011-1 shall apply with respect to a DISC and
former DISC. A former DISC should indicate clearly on Form 1120-DISC
that it is making a return of income as a former DISC (for example, by
labeling at the top of the Form 1120-DISC ``Former DISC''). In the case
of a former DISC, those items on the form which pertain to the
computation of taxable income shall not be completed, but Schedules J,
K, L, and M must be completed. Except as otherwise specifically provided
in the Code or regulations, the return of a DISC or former DISC is
considered to be an income tax return.
(2) Existence of DISC. A corporation which is a DISC and which is in
existence during any portion of a taxable year is required to make a
return for that fractional part of its taxable year during which it was
in existence.
[T.D. 7533, 43 FR 6603, Feb. 15, 1978]
Sec. 1.6011-3 Requirement of statement from payees of certain
gambling winnings.
(a) General rule. Except as provided in paragraph (c) of this
section, any person receiving a payment with respect to a wager in a
sweepstakes, wagering pool, lottery, or other wagering transaction
(including a parimutuel pool with respect to horse races, dog races, or
jai alai) shall make a statement to the payer of such winnings upon the
payer's demand. Such statements shall accompany the payer's return made
with respect to the payment as required pursuant to section 3402(q) or
6041, as the case may be.
(b) Contents of statement. The statement referred to in paragraph
(a) shall contain information (in addition to that required under
section 6041(c)) as to the amount, if any, of winnings from identical
wagers to which the recipient is entitled. If any person other than the
recipient is entitled to all or a portion of the payment, the statement
shall also include information as to the amount, if any, of winnings
from identical wagers to which each such person is entitled. The
statement shall be provided on Form W-2G or, if persons other than the
recipient are entitled to all or a portion of such payment, on Form
5754.
(c) Exception. The requirement of paragraph (a) of this section does
not apply with respect to any payment of winnings--
(1) From a slot machine play, or a bingo or keno game,
(2) Which is subject to withholding under section 3402(q) without
regard to the existence of winnings from identical wagers, or
(3) For which no return of information under section 6041 is
required of the payer.
(d) Meaning of terms, For purposes of this section, the terms
``sweepstakes'', ``wagering pool'', ``lottery'', ``other wagering
transaction'' and ``identical wagers'' shall have the same meanings as
ascribed to them under Sec. 31.3402(q)-1.
[T.D. 7919, 48 FR 46297, Oct. 12, 1983]
Sec. 1.6011-4 Requirement of statement disclosing participation in
certain transactions by taxpayers.
(a) In general. Every taxpayer that has participated, as described
in paragraph (c)(3) of this section, in a reportable transaction within
the meaning of paragraph (b) of this section and who is required to file
a tax return must attach to its return for the taxable year described in
paragraph (e) of this section a disclosure statement in the form
prescribed by paragraph (d) of this section. The fact that a transaction
is a reportable transaction shall not affect the legal determination of
whether the taxpayer's treatment of the transaction is proper.
[[Page 43]]
(b) Reportable transactions--(1) In general. A reportable
transaction is a transaction described in any of the paragraphs (b)(2)
through (7) of this section. The term transaction includes all of the
factual elements relevant to the expected tax treatment of any
investment, entity, plan, or arrangement, and includes any series of
steps carried out as part of a plan. There are six categories of
reportable transactions: listed transactions, confidential transactions,
transactions with contractual protection, loss transactions,
transactions with a significant book-tax difference, and transactions
involving a brief asset holding period.
(2) Listed transactions. A listed transaction is a transaction that
is the same as or substantially similar to one of the types of
transactions that the Internal Revenue Service (IRS) has determined to
be a tax avoidance transaction and identified by notice, regulation, or
other form of published guidance as a listed transaction.
(3) Confidential transactions--(i) In general. A confidential
transaction is a transaction that is offered to a taxpayer under
conditions of confidentiality and for which the taxpayer has paid an
advisor a minimum fee.
(ii) Conditions of confidentiality. A transaction is considered to
be offered to a taxpayer under conditions of confidentiality if the
advisor who is paid the minimum fee places a limitation on disclosure by
the taxpayer of the tax treatment or tax structure of the transaction
and the limitation on disclosure protects the confidentiality of that
advisor's tax strategies. A transaction is treated as confidential even
if the conditions of confidentiality are not legally binding on the
taxpayer. A claim that a transaction is proprietary or exclusive is not
treated as a limitation on disclosure if the advisor confirms to the
taxpayer that there is no limitation on disclosure of the tax treatment
or tax structure of the transaction.
(iii) Minimum fee. For purposes of this paragraph (b)(3), the
minimum fee is:
(A) $250,000 for a transaction if the taxpayer is a corporation.
(B) $50,000 for all other transactions unless the taxpayer is a
partnership or trust, all of the owners or beneficiaries of which are
corporations (looking through any partners or beneficiaries that are
themselves partnerships or trusts), in which case the minimum fee is
$250,000.
(iv) Determination of minimum fee. For purposes of this paragraph
(b)(3), a minimum fee includes all fees for a tax strategy or for
services for advice (whether or not tax advice) or for the
implementation of a transaction. These fees include consideration in
whatever form paid, whether in cash or in kind, for services to analyze
the transaction (whether or not related to the tax consequences of the
transaction), for services to implement the transaction, for services to
document the transaction, and for services to prepare tax returns to the
extent that the fees exceed the fees customary for return preparation.
For purposes of this paragraph (b)(3), a taxpayer also is treated as
paying fees to an advisor if the taxpayer knows or should know that the
amount it pays will be paid indirectly to the advisor, such as through a
referral fee or fee-sharing arrangement. A fee does not include amounts
paid to a person, including an advisor, in that person's capacity as a
party to the transaction. For example, a fee does not include reasonable
charges for the use of capital or the sale or use of property.
(v) Related parties. For purposes of this paragraph (b)(3), persons
who bear a relationship to each other as described in section 267(b) or
707(b) will be treated as the same person.
(4) Transactions with contractual protection--(i) In general. A
transaction with contractual protection is a transaction for which the
taxpayer or a related party (as described in section 267(b) or 707(b))
has the right to a full or partial refund of fees (as described in
paragraph (b)(4)(ii) of this section) if all or part of the intended tax
consequences from the transaction are not sustained. A transaction with
contractual protection also is a transaction for which fees (as
described in paragraph (b)(4)(ii) of this section) are contingent on the
taxpayer's realization of tax benefits from the transaction. All the
facts and circumstances relating to the transaction will be considered
when determining whether a fee is refundable or contingent, including
the right to
[[Page 44]]
reimbursements of amounts that the parties to the transaction have not
designated as fees or any agreement to provide services without
reasonable compensation.
(ii) Fees. Paragraph (b)(4)(i) of this section only applies with
respect to fees paid by or on behalf of the taxpayer or a related party
to any person who makes or provides a statement, oral or written, to the
taxpayer or related party (or for whose benefit a statement is made or
provided to the taxpayer or related party) as to the potential tax
consequences that may result from the transaction.
(iii) Exceptions--(A) Termination of transaction. A transaction is
not considered to have contractual protection solely because a party to
the transaction has the right to terminate the transaction upon the
happening of an event affecting the taxation of one or more parties to
the transaction.
(B) Previously reported transaction. If a person makes or provides a
statement to a taxpayer as to the potential tax consequences that may
result from a transaction only after the taxpayer has entered into the
transaction and reported the consequences of the transaction on a filed
tax return, and the person has not previously received fees from the
taxpayer relating to the transaction, then any refundable or contingent
fees are not taken into account in determining whether the transaction
has contractual protection. This paragraph (b)(4)(iii)(B) does not
provide any substantive rules regarding when a person may charge
refundable or contingent fees with respect to a transaction. See
Circular 230, 31 CFR Part 10, for the regulations governing practice
before the IRS.
(5) Loss transactions--(i) In general. A loss transaction is any
transaction resulting in the taxpayer claiming a loss under section 165
of at least--
(A) $10 million in any single taxable year or $20 million in any
combination of taxable years for corporations;
(B) $10 million in any single taxable year or $20 million in any
combination of taxable years for partnerships that have only
corporations as partners (looking through any partners that are
themselves partnerships), whether or not any losses flow through to one
or more partners; or $2 million in any single taxable year or $4 million
in any combination of taxable years for all other partnerships, whether
or not any losses flow through to one or more partners;
(C) $2 million in any single taxable year or $4 million in any
combination of taxable years for individuals, S corporations, or trusts,
whether or not any losses flow through to one or more shareholders or
beneficiaries; or
(D) $50,000 in any single taxable year for individuals or trusts,
whether or not the loss flows through from an S corporation or
partnership, if the loss arises with respect to a section 988
transaction (as defined in section 988(c)(1) relating to foreign
currency transactions).
(ii) Cumulative losses. In determining whether a transaction results
in a taxpayer claiming a loss that meets the threshold amounts over a
combination of taxable years as described in paragraph (b)(5)(i) of this
section, only losses claimed in the taxable year that the transaction is
entered into and the five succeeding taxable years are combined.
(iii) Section 165 loss. (A) For purposes of this section, in
determining the thresholds in paragraph (b)(5)(i) of this section, the
amount of a section 165 loss is adjusted for any salvage value and for
any insurance or other compensation received. See Sec. 1.165-1(c)(4).
However, a section 165 loss does not take into account offsetting gains,
or other income or limitations. For example, a section 165 loss does not
take into account the limitation in section 165(d) (relating to wagering
losses) or the limitations in sections 165(f), 1211, and 1212 (relating
to capital losses). The full amount of a section 165 loss is taken into
account for the year in which the loss is sustained, regardless of
whether all or part of the loss enters into the computation of a net
operating loss under section 172 or a net capital loss under section
1212 that is a carryback or carryover to another year. A section 165
loss does not include any portion of a loss, attributable to a capital
loss carryback or carryover from another year, that is treated as a
deemed capital loss under section 1212.
[[Page 45]]
(B) For purposes of this section, a section 165 loss includes an
amount deductible pursuant to a provision that treats a transaction as a
sale or other disposition, or otherwise results in a deduction under
section 165. A section 165 loss includes, for example, a loss resulting
from a sale or exchange of a partnership interest under section 741 and
a loss resulting from a section 988 transaction.
(6) Transactions with a significant book-tax difference--(i) In
general. A transaction with a significant book-tax difference is a
transaction where the amount for tax purposes of any item or items of
income, gain, expense, or loss from the transaction differs by more than
$10 million on a gross basis from the amount of the item or items for
book purposes in any taxable year. For purposes of this determination,
offsetting items shall not be netted for either tax or book purposes.
For purposes of this paragraph (b)(6), the amount of an item for book
purposes is determined by applying U.S. generally accepted accounting
principles (U.S. GAAP) for worldwide income. However, if a taxpayer, in
the ordinary course of its business, keeps books for reporting financial
results to shareholders, creditors, or regulators on a basis other than
U.S. GAAP, and does not maintain U.S. GAAP books for any purpose, then
the taxpayer may determine the amount of a book item for purposes of
this paragraph (b)(6) by using the books maintained by the taxpayer,
provided the books are kept on the same basis consistently from year to
year. Adjustments to any reserve for taxes are disregarded for purposes
of determining the book-tax difference.
(ii) Applicability--(A) In general. This paragraph (b)(6) applies
only to--
(1) Taxpayers that are reporting companies under the Securities
Exchange Act of 1934 (15 U.S.C. 78a) and related business entities (as
described in section 267(b) or 707(b)); or
(2) Business entities that have $250 million or more in gross assets
for book purposes at the end of any financial accounting period that
ends with or within the entity's taxable year in which the transaction
occurs (for purposes of this determination, the assets of all related
business entities (as defined in section 267(b) or 707(b)) must be
aggregated).
(B) Consolidated returns. For purposes of this paragraph (b)(6), in
the case of taxpayers that are members of a group of affiliated
corporations filing a consolidated return, transactions solely between
or among members of the group will be disregarded. Moreover, where two
or more members of the group participate in a transaction that is not
solely between or among members of the group, items shall be aggregated
(as if such members were a single taxpayer), but any offsetting items
shall not be netted.
(C) Foreign persons. In the case of a taxpayer that is a foreign
person (other than a foreign corporation that is treated as a domestic
corporation for Federal tax purposes under section 269B, 953(d), 1504(d)
or any other provision of the Internal Revenue Code), only assets that
are U.S. assets under Sec. 1.884-1(d) shall be taken into account for
purposes of paragraph (b)(6)(ii)(A)(2) of this section, and only
transactions that give rise to income that is effectively connected with
the conduct of a trade or business within the United States (or to
losses, expenses, or deductions allocated or apportioned to such income)
shall be taken into account for purposes of this paragraph (b)(6).
(D) Owners of disregarded entities. In the case of an eligible
entity that is disregarded as an entity separate from its owner for
Federal tax purposes, items of income, gain, loss, or expense that
otherwise are considered items of the entity for book purposes shall be
treated as items of its owner, and items arising from transactions
between the entity and its owner shall be disregarded, for purposes of
this paragraph (b)(6).
(E) Partners of partnerships. In the case of a taxpayer that is a
member or a partner of an entity that is treated as a partnership for
Federal tax purposes, items of income, gain, loss, or expense that are
allocable to the taxpayer for Federal tax purposes, but otherwise are
considered items of the entity for book purposes, shall be treated as
items of the taxpayer for purposes of this paragraph (b)(6).
(7) Transactions involving a brief asset holding period. A
transaction involving
[[Page 46]]
a brief asset holding period is any transaction resulting in the
taxpayer claiming a tax credit exceeding $250,000 (including a foreign
tax credit) if the underlying asset giving rise to the credit is held by
the taxpayer for 45 days or less. For purposes of determining the
holding period, the principles of section 246(c)(3) and (c)(4) apply.
Transactions resulting in a foreign tax credit for withholding taxes or
other taxes imposed in respect of a dividend that are not disallowed
under section 901(k) (including transactions eligible for the exception
for securities dealers under section 901(k)(4)) are excluded from this
paragraph (b)(7).
(8) Exceptions--(i) In general. A transaction will not be considered
a reportable transaction, or will be excluded from any individual
category of reportable transaction under paragraphs (b)(3) through (7)
of this section, if the Commissioner makes a determination by published
guidance that the transaction is not subject to the reporting
requirements of this section. The Commissioner may make a determination
by individual letter ruling under paragraph (f) of this section that an
individual letter ruling request on a specific transaction or type of
transaction satisfies the reporting requirements of this section with
regard to that transaction or type of transaction for the taxpayer who
requests the individual letter ruling.
(ii) Special rule for RICs. For purposes of this section, a
regulated investment company (RIC) as defined in section 851 or an
investment vehicle that is owned 95 percent or more by one or more RICs
at all times during the course of the transaction are not required to
disclose a transaction that is described in any of paragraphs (b)(3)
through (7) of this section unless the transaction is also a listed
transaction.
(iii) Special rule for lease transactions. For purposes of this
section, leasing transactions of the type excepted from the registration
requirements under section 6111(d) of the Code and the list maintenance
requirements under section 6112 as described in Notice 2001-18 (2001-1
C.B. 731) (see Sec. 601.601(d)(2) of this chapter) are excluded from
paragraphs (b)(3) through (7) of this section.
(c) Definitions. For purposes of this section, the following terms
are defined as follows:
(1) Taxpayer. The term taxpayer means any person described in
section 7701(a)(1), including S corporations. Except as otherwise
specifically provided in this section, the term taxpayer also includes
an affiliated group of corporations that joins in the filing of a
consolidated return under section 1501.
(2) Corporation. When used specifically in this section, the term
corporation means an entity that is required to file a return for a
taxable year on any 1120 series form, or successor form, excluding S
corporations.
(3) Participation--(i) In general--(A) Listed transactions. A
taxpayer has participated in a listed transaction if the taxpayer's tax
return reflects tax consequences or a tax strategy described in the
published guidance that lists the transaction under paragraph (b)(2) of
this section. A taxpayer also has participated in a listed transaction
if the taxpayer knows or has reason to know that the taxpayer's tax
benefits are derived directly or indirectly from tax consequences or a
tax strategy described in published guidance that lists a transaction
under paragraph (b)(2) of this section. Published guidance may identify
other types or classes of persons that will be treated as participants
in a listed transaction.
(B) Confidential transactions. A taxpayer has participated in a
confidential transaction if the taxpayer's tax return reflects a tax
benefit from the transaction and the taxpayer's disclosure of the tax
treatment or tax structure of the transaction is limited in the manner
described in paragraph (b)(3) of this section. If a partnership's, S
corporation's or trust's disclosure is limited, and the partner's,
shareholder's, or beneficiary's disclosure is not limited, then the
partnership, S corporation, or trust, and not the partner, shareholder,
or beneficiary, has participated in the confidential transaction.
(C) Transactions with contractual protection. A taxpayer has
participated in a transaction with contractual protection if the
taxpayer's tax return reflects a tax benefit from the transaction and,
as described in paragraph (b)(4) of this section, the taxpayer has
[[Page 47]]
the right to the full or partial refund of fees or the fees are
contingent. If a partnership, S corporation, or trust has the right to a
full or partial refund of fees or has a contingent fee arrangement, and
the partner, shareholder, or beneficiary does not individually have the
right to the refund of fees or a contingent fee arrangement, then the
partnership, S corporation, or trust, and not the partner, shareholder,
or beneficiary, has participated in the transaction with contractual
protection.
(D) Loss transactions. A taxpayer has participated in a loss
transaction if the taxpayer's tax return reflects a section 165 loss and
the amount of the section 165 loss equals or exceeds the threshold
amount applicable to the taxpayer as described in paragraph (b)(5)(i) of
this section. If a taxpayer is a partner in a partnership, shareholder
in an S corporation, or beneficiary of a trust and a section 165 loss as
described in paragraph (b)(5) of this section flows through the entity
to the taxpayer (disregarding netting at the entity level), the taxpayer
has participated in a loss transaction if the taxpayer's tax return
reflects a section 165 loss and the amount of the section 165 loss that
flows through to the taxpayer equals or exceeds the threshold amounts
applicable to the taxpayer as described in paragraph (b)(5)(i) of this
section. For this purpose, a tax return is deemed to reflect the full
amount of a section 165 loss described in paragraph (b)(5) of this
section allocable to the taxpayer under this paragraph (c)(3)(i)(D),
regardless of whether all or part of the loss enters into the
computation of a net operating loss under section 172 or net capital
loss under section 1212 that the taxpayer may carry back or carry over
to another year.
(E) Transactions with a significant book-tax difference. A taxpayer
has participated in a transaction with a significant book-tax difference
if the taxpayer's tax treatment of an item from the transaction differs
from the book treatment of that item as described in paragraph (b)(6) of
this section. In determining whether a transaction results in a
significant book-tax difference for a taxpayer, differences that arise
solely because a subsidiary of the taxpayer is consolidated with the
taxpayer, in whole or in part, for book purposes, but not for tax
purposes, are not taken into account.
(F) Transactions involving a brief asset holding period. A taxpayer
has participated in a transaction involving a brief asset holding period
if the taxpayer's tax return reflects items giving rise to a tax credit
described in paragraph (b)(7) of this section. If a taxpayer is a
partner in a partnership, shareholder in an S corporation, or
beneficiary of a trust and the items giving rise to a tax credit
described in paragraph (b)(7) of this section flow through the entity to
the taxpayer (disregarding netting at the entity level), the taxpayer
has participated in a transaction involving a brief asset holding period
if the taxpayer's tax return reflects the tax credit and the amount of
the tax credit claimed by the taxpayer exceeds $250,000.
(G) Shareholders of foreign corporations--(1) In general. A
reporting shareholder of a foreign corporation participates in a
transaction described in paragraphs (b)(2) through (5) and (b)(7) of
this section if the foreign corporation would be considered to
participate in the transaction under the rules of this paragraph (c)(3)
if it were a domestic corporation filing a tax return that reflects the
items from the transaction. A reporting shareholder participates in a
transaction described in paragraph (b)(6) of this section only if the
foreign corporation would be considered to participate in the
transaction under the rules of this paragraph (c)(3) if it were a
domestic corporation and the transaction reduces or eliminates an income
inclusion that otherwise would be required under section 551, 951, or
1293. A reporting shareholder (and any successor in interest) is
considered to participate in a transaction under this paragraph
(c)(3)(i)(G) only for its first taxable year with or within which ends
the first taxable year of the foreign corporation in which the foreign
corporation participates in the transaction, and for the reporting
shareholder's five succeeding taxable years.
(2) Reporting shareholder. The term reporting shareholder means a
United
[[Page 48]]
States shareholder (as defined in section 551(a)) in a foreign personal
holding company (as defined in section 552), a United States shareholder
(as defined in section 951(b)) in a controlled foreign corporation (as
defined in section 957), or a 10 percent shareholder (by vote or value)
of a qualified electing fund (as defined in section 1295).
(ii) Examples. The following examples illustrate the provisions of
paragraph (c)(3)(i) of this section:
Example 1. Notice 95-53 (1995-2 C.B. 334) (see Sec. 601.601(d)(2)
of this chapter), describes a lease stripping transaction in which one
party (the transferor) assigns the right to receive future payments
under a lease of tangible property and receives consideration which the
transferor treats as current income. The transferor later transfers the
property subject to the lease in a transaction intended to qualify as a
transferred basis transaction, for example, a transaction described in
section 351. The transferee corporation claims the deductions associated
with the high basis property subject to the lease. The transferor's and
transferee corporation's tax returns reflect tax positions described in
Notice 95-53. Therefore, the transferor and transferee corporation have
participated in the listed transaction. In the section 351 transaction,
the transferor will have received stock with low value and high basis
from the transferee corporation. If the transferor subsequently
transfers the high basis/low value stock to a taxpayer in another
transaction intended to qualify as a transferred basis transaction and
the taxpayer uses the stock to generate a loss, and if the taxpayer
knows or has reason to know that the tax loss claimed was derived
indirectly from the lease stripping transaction, then the taxpayer has
participated in the listed transaction. Accordingly, the taxpayer must
disclose the transaction and the manner of the taxpayer's participation
in the transaction under the rules of this section. If a bank lends
money to the transferor, transferee corporation, or taxpayer for use in
their transactions, the bank has not participated in the listed
transaction because the bank's tax return does not reflect tax
consequences or a tax strategy described in the listing notice (nor does
the bank's tax return reflect a tax benefit derived from tax
consequences or a tax strategy described in the listing notice), nor is
the bank described as a participant in Notice 95-53.
Example 2. XYZ is a limited liability company treated as a
partnership for tax purposes. X, Y, and Z are members of XYZ. X is an
individual, Y is an S corporation, and Z is a partnership. XYZ enters
into a confidential transaction under paragraph (b)(3) of this section.
X is bound by the confidentiality agreement, but Y and Z are not bound
by the agreement. As a result of the transaction, XYZ, X, Y, and Z all
reflect a tax benefit on their tax returns. Because XYZ's and X's
disclosure of the tax treatment and tax structure are limited in the
manner described in paragraph (b)(3) of this section and their tax
returns reflect a tax benefit from the transaction, both XYZ and X have
participated in the confidential transaction. Neither Y nor Z has
participated in the confidential transaction because they are not
subject to the confidentiality agreement.
Example 3. Partnership AB has gross assets with a book value of over
$250 million. Partner A is an SEC reporting company and partner B is an
individual. AB enters into a transaction that results in a book-tax
difference for AB of $25 million. The transaction is a reportable
transaction for AB under paragraph (b)(6) of this section because the
book-tax difference exceeds $10 million. As a result of A's partnership
interest in AB and the allocation of items relating to the transaction
to A, A has a book-tax difference of $11 million. The transaction is a
reportable transaction for A under paragraph (b)(6) of this section
because the $11 million book-tax difference exceeds $10 million.
However, even though $14 million of the book-tax difference would be
allocated to B, the transaction is not a reportable transaction for B
under paragraph (b)(6) of this section because B, an individual, is not
subject to paragraph (b)(6) of this section.
Example 4. (i) P corporation, the parent corporation of a group of
corporations that file a consolidated tax return, owns 60% of the stock
of T corporation. T files its own tax return and is not included as a
member of the P group on the P group consolidated tax return. For book
purposes, some or all of T's income is included by the group of
corporations that includes P. T engages in a transaction that results in
items of book income but does not result in items of income for tax
purposes. P and T are SEC reporting companies.
(ii) T participated in the transaction. T has no items of taxable
income but has items of book income. If items from the transaction
result in a book-tax difference determined in accordance with paragraph
(b)(6) of this section of $10 million in any single year, T will be
required to file Form 8886. The P group did not participate in the
transaction, and does not have a book-tax difference for purposes of
paragraph (b)(6) of this section because, even if the P group included
$10 million in book income, the book tax difference arises solely
because T is not part of P's consolidated group for tax purposes.
(iii) If the facts were changed so that P corporation owned 80% of
the stock of T and T was a member of the P consolidated group for tax
purposes, the P group would be the
[[Page 49]]
taxpayer that participated in the transaction. If, in any single year,
the transaction produced items of income for book purposes of $10
million but no items of taxable income, P would be required to file Form
8886. This result would not change if T separately reported its items
for book purposes, if P reported none of T's items on its consolidated
financial statements, or if the P consolidated financial statements
included only part of a $10 million book-tax difference relating to
items from T's transaction.
Example 5. Domestic corporations X and Y each own 50 percent of the
voting stock of CFC, a controlled foreign corporation. X, Y, and CFC
each use the calendar year as their taxable year. CFC is not engaged in
the conduct of a trade or business within the United States and has no
U.S. source income. Accordingly, CFC is not required to file a U.S.
Federal income tax return. See Sec. 1.6012-2(g). Under paragraph
(c)(3)(i)(G)(2) of this section, X and Y are reporting shareholders with
respect to CFC. CFC purchases a Euro-denominated bond on June 1, 2003,
for 104,400,000 Euros. The bond matures on June 7, 2003, and CFC
collects 104,500,000 Euros, equal to the bond's 100,000,000 Euro face
amount plus 5,000,000 Euros of accrued but unpaid interest, less a 10%
foreign withholding tax of 500,000 Euros. The average dollar-Euro
exchange rate for the year is $.80 = 1 Euro, so CFC adds $400,000 to its
post-1986 foreign income taxes pool as a result of the transaction. See
sections 986(a)(1) and 902(c)(2). Under paragraph (c)(3)(i)(G)(1) of
this section, X and Y have each participated in a transaction involving
a brief asset holding period described in paragraph (b)(7) of this
section for their taxable years 2003 through 2008 because both X and Y
are reporting shareholders of CFC, and CFC would have been considered to
have participated in a reportable transaction if it were a domestic
corporation.
(4) Substantially similar. The term substantially similar includes
any transaction that is expected to obtain the same or similar types of
tax consequences and that is either factually similar or based on the
same or similar tax strategy. Receipt of an opinion regarding the tax
consequences of the transaction is not relevant to the determination of
whether the transaction is the same as or substantially similar to
another transaction. Further, the term substantially similar must be
broadly construed in favor of disclosure. The following examples
illustrate situations where a transaction is the same as or
substantially similar to a listed transaction under paragraph (b)(2) of
this section. (Such transactions may also be reportable transactions
under paragraphs (b)(3) through (7) of this section.) The following
examples illustrate the provisions of this paragraph (c)(4):
Example 1. Notice 2000-44 (2000-2 C.B. 255) (see Sec. 601.601(d)(2)
of this chapter), sets forth a listed transaction involving offsetting
options transferred to a partnership where the taxpayer claims basis in
the partnership for the cost of the purchased options but does not
adjust basis under section 752 as a result of the partnership's
assumption of the taxpayer's obligation with respect to the options.
Transactions using short sales, futures, derivatives or any other type
of offsetting obligations to inflate basis in a partnership interest
would be the same as or substantially similar to the transaction
described in Notice 2000-44. Moreover, use of the inflated basis in the
partnership interest to diminish gain that would otherwise be recognized
on the transfer of a partnership asset would also be the same as or
substantially similar to the transaction described in Notice 2000-44.
Example 2. Notice 2001-16 (2001-1 C.B. 730) (see Sec. 601.601(d)(2)
of this chapter), sets forth a listed transaction involving a seller (X)
who desires to sell stock of a corporation (T), an intermediary
corporation (M), and a buyer (Y) who desires to purchase the assets (and
not the stock) of T. M agrees to facilitate the sale to prevent the
recognition of the gain that T would otherwise report. Notice 2001-16
describes M as a member of a consolidated group that has a loss within
the group or as a party not subject to tax. Transactions utilizing
different intermediaries to prevent the recognition of gain would be the
same as or substantially similar to the transaction described in Notice
2001-16. An example is a transaction in which M is a corporation that
does not file a consolidated return but which buys T stock, liquidates
T, sells assets of T to Y, and offsets the gain recognized on the sale
of those assets with currently generated losses.
(5) Tax. For purposes of this section, the term tax means Federal
income tax.
(6) Tax benefit. A tax benefit includes deductions, exclusions from
gross income, nonrecognition of gain, tax credits, adjustments (or the
absence of adjustments) to the basis of property, status as an entity
exempt from Federal income taxation, and any other tax consequences that
may reduce a taxpayer's Federal income tax liability by affecting the
amount, timing, character, or source of any item of income, gain,
expense, loss, or credit.
[[Page 50]]
(7) Tax return. For purposes of this section, the term tax return
means a Federal income tax return and a Federal information return.
(8) Tax treatment. The tax treatment of a transaction is the
purported or claimed Federal income tax treatment of the transaction.
(9) Tax structure. The tax structure of a transaction is any fact
that may be relevant to understanding the purported or claimed Federal
income tax treatment of the transaction.
(d) Form and content of disclosure statement. The IRS will release
Form 8886, ``Reportable Transaction Disclosure Statement'' (or a
successor form), for use by taxpayers in accordance with this paragraph
(d). A taxpayer required to file a disclosure statement under this
section must file a completed Form 8886 in accordance with the
instructions to the form. The Form 8886 is the disclosure statement
required under this section. The form must be attached to the
appropriate tax returns as provided in paragraph (e) of this section. If
a copy of a disclosure statement is required to be sent to the Office of
Tax Shelter Analysis (OTSA) under paragraph (e) of this section, it must
be sent to: Internal Revenue Service LM:PFTG:OTSA, Large & Mid-Size
Business Division, 1111 Constitution Ave., NW., Washington, DC 20224, or
to such other address as provided by the Commissioner.
(e) Time of providing disclosure--(1) In general. The disclosure
statement for a reportable transaction must be attached to the
taxpayer's tax return for each taxable year for which a taxpayer
participates in a reportable transaction. In addition, the disclosure
statement for a reportable transaction must be attached to each amended
return that reflects a taxpayer's participation in a reportable
transaction. A copy of the disclosure statement must be sent to OTSA at
the same time that any disclosure statement is first filed by the
taxpayer. If a reportable transaction results in a loss which is carried
back to a prior year, the disclosure statement for the reportable
transaction must be attached to the taxpayer's application for tentative
refund or amended tax return for that prior year. In the case of a
taxpayer that is a partnership or S corporation, the disclosure
statement for a reportable transaction must be attached to the
partnership's or S corporation's tax return for each taxable year in
which the partnership or S corporation participates in the transaction
under the rules of paragraph (c)(3)(i) of this section.
(2) Special rules--(i) Listed transactions. If a transaction becomes
a listed transaction after the filing of a taxpayer's tax return
(including an amended return) reflecting either tax consequences or a
tax strategy described in the published guidance listing the transaction
(or a tax benefit derived from tax consequences or a tax strategy
described in the published guidance listing the transaction) and before
the end of the period of limitations for the final return (whether or
not already filed) reflecting the tax consequences, tax strategy, or tax
benefit, then a disclosure statement must be filed as an attachment to
the taxpayer's tax return next filed after the date the transaction is
listed regardless of whether the taxpayer participated in the
transaction in that year.
(ii) Loss transactions. If a transaction becomes a loss transaction
because the losses equal or exceed the threshold amounts as described in
paragraph (b)(5)(i) of this section, a disclosure statement must be
filed as an attachment to the taxpayer's tax return for the first
taxable year in which the threshold amount is reached and to any
subsequent tax return that reflects any amount of section 165 loss from
the transaction.
(3) Multiple disclosures. The taxpayer must disclose the transaction
in the time and manner provided for under the provisions of this section
regardless of whether the taxpayer also plans to disclose the
transaction under other published guidance, for example, Rev. Proc. 94-
69 (1994-2 C.B. 804) (see Sec. 601.601(d)(2) of this chapter).
(4) Example. The following example illustrates the application of
this paragraph (e):
Example. In January of 2004, F, a domestic calendar year
corporation, enters into a transaction that is not a listed transaction
when entered into and is not a transaction described in any of the
paragraphs (b)(3)
[[Page 51]]
through (7) of this section. All the tax benefits from the transaction
are reported on F's 2004 tax return. On March 1, 2008, the IRS publishes
a notice identifying the transaction as a listed transaction described
in paragraph (b)(2) of this section. Thus, upon issuance of the notice,
the transaction becomes a reportable transaction described in paragraph
(b) of this section. The statute of limitations for F's 2004 taxable
year is still open. F is required to file Form 8886 for the transaction
as an attachment to F's next filed Federal income tax return and must
send a copy of Form 8886 to OTSA. If F's 2007 Federal income tax return
has not been filed on or before the date the Service identifies the
transaction as a listed transaction, Form 8886 must be attached to F's
2007 return and at that time a copy of Form 8886 must be sent to OTSA.
(f) Rulings and protective disclosures--(1) [Reserved]. For further
guidance, see Sec. 1.6011-4T(f)(1).
(2) Protective disclosures. If a taxpayer is uncertain whether a
transaction must be disclosed under this section, the taxpayer may
disclose the transaction in accordance with the requirements of this
section, and indicate on the disclosure statement that the taxpayer is
uncertain whether the transaction is required to be disclosed under this
section and that the disclosure statement is being filed on a protective
basis.
(3) [Reserved]. For further guidance, see Sec. 1.6011-4T(f)(1).
(g) Retention of documents. In accordance with the instructions to
Form 8886, the taxpayer must retain a copy of all documents and other
records related to a transaction subject to disclosure under this
section that are material to an understanding of the tax treatment or
tax structure of the transaction. The documents must be retained until
the expiration of the statute of limitations applicable to the final
taxable year for which disclosure of the transaction was required under
this section. (This document retention requirement is in addition to any
document retention requirements that section 6001 generally imposes on
the taxpayer.) The documents may include the following: marketing
materials related to the transaction; written analyses used in decision-
making related to the transaction; correspondence and agreements between
the taxpayer and any advisor, lender, or other party to the reportable
transaction that relate to the transaction; documents discussing,
referring to, or demonstrating the purported or claimed tax benefits
arising from the reportable transaction; and documents, if any,
referring to the business purposes for the reportable transaction. A
taxpayer is not required to retain earlier drafts of a document if the
taxpayer retains a copy of the final document (or, if there is no final
document, the most recent draft of the document) and the final document
(or most recent draft) contains all the information in the earlier
drafts of the document that is material to an understanding of the
purported tax treatment or tax structure of the transaction.
(h) Effective dates.--(1) In general. This section applies to
Federal income tax returns filed after February 28, 2000. However,
paragraphs (b)(3), (e)(1), and (e)(2)(i) of this section apply to
transactions entered into on or after December 29, 2003. All the rules
in this section may be relied upon for transactions entered into on or
after January 1, 2003, and before December 29, 2003. Otherwise, the
rules that apply with respect to transactions entered into before
December 29, 2003, are contained in Sec. 1.6011-4 in effect prior to
December 29, 2003, (see 26 CFR part 1 revised as of April 1, 2003).
(2) [Reserved]. For further guidance, see Sec. 1.6011-4T(h)(2).
[T.D. 9046, 68 FR 10163, Mar. 4, 2003, as amended by T.D. 9108, 68 FR
75130, Dec. 30, 2003; T.D. 9295, 71 FR 64459, Nov. 2, 2006]
Sec. 1.6011-4T Requirement of statement disclosing participation
in certain transactions by taxpayers (temporary).
(a) through (e) [Reserved]. For further guidance, see Sec. 1.6011-
4(a) through (e).
(f) Rulings and protective disclosures--(1) Rulings. If a taxpayer
requests a ruling on the merits of a specific transaction on or before
the date that disclosure would otherwise be required under this section,
and receives a favorable ruling as to the transaction, the disclosure
rules under this section will be deemed to have been satisfied by that
taxpayer with regard to that transaction, so long as the request
[[Page 52]]
fully discloses all relevant facts relating to the transaction which
would otherwise be required to be disclosed under this section. If a
taxpayer requests a ruling as to whether a specific transaction is a
reportable transaction on or before the date that disclosure would
otherwise be required under this section, the Commissioner in his
discretion may determine that the submission satisfies the disclosure
rules under this section for the taxpayer requesting the ruling for that
transaction if the request fully discloses all relevant facts relating
to the transaction which would otherwise be required to be disclosed
under this section. The potential obligation of the taxpayer to disclose
the transaction under this section will not be suspended during the
period that the ruling request is pending.
(f)(2) through (g) [Reserved]. For further guidance, see Sec.
1.6011-4(f)(2) through (g).
(h) Effective date--(1) [Reserved]. For further guidance, see Sec.
1.6011-4(h)(1).
(2) Tolling provision. Paragraph (f)(1) of this section applies to
ruling requests received on or after November 1, 2006. The applicability
of this section expires on or before November 2, 2009.
[T.D. 9295, 71 FR 64459, Nov. 2, 2006]
Sec. 1.6011-5T Required use of magnetic media for corporate income
tax returns (temporary).
The return of a corporation that is required to be filed on magnetic
media under Sec. 301.6011-5T of this chapter must be filed in
accordance with Internal Revenue Service revenue procedures,
publications, forms, or instructions. (See Sec. 601.601(d)(2) of this
chapter).
[T.D. 9175, 70 FR 2014, Jan. 12, 2005]
Sec. 1.6012-1 Individuals required to make returns of income.
(a) Individual citizen or resident--(1) In general. Except as
provided in subparagraph (2) of this paragraph, an income tax return
must be filed by every individual for each taxable year beginning before
January 1, 1973, during which he receives $600 or more of gross income,
and for each taxable year beginning after December 31, 1972, during
which he receives $750 or more of gross income, if such individual is:
(i) A citizen of the United States, whether residing at home or
abroad,
(ii) A resident of the United States even though not a citizen
thereof, or
(iii) An alien bona fide resident of Puerto Rico during the entire
taxable year.
(2) Special rules. (i) For taxable years beginning before January 1,
1970, an individual who is described in subparagraph (1) of this
paragraph and who has attained the age of 65 before the close of his
taxable year must file an income tax return only if he receives $1,200
or more of gross income during his taxable year.
(ii) For taxable years beginning after December 31, 1969, and before
January 1, 1973, an individual described in subparagraph (1) of this
paragraph (other than an individual referred to in section 142(b)):
(a) Who is not married (as determined by applying section 143(a) and
the regulations thereunder) must file an income tax return only if he
receives $1,700 or more of gross income during his taxable year, except
that if such an individual has attained the age of 65 before the close
of his taxable year an income tax return must be filed by such
individual only if he receives $2,300 or more of gross income during his
taxable year.
(b) Who is entitled to make a joint return under section 6013 and
the regulations thereunder must file an income tax return only if his
gross income received during his taxable year, when combined with the
gross income of his spouse received during his taxable year, is $2,300
or more. However, if such individual or his spouse has attained the age
of 65 before the close of the taxable year an income tax return must be
filed by such individual only if their combined gross income is $2,900
or more. If both the individual and his spouse have attained the age of
65 before the close of the taxable year such return must be filed only
if their combined gross income is $3,500 or more. However, this
subdivision (ii)(b) shall not apply if the individual and his spouse did
not have the same household as their home at the close of their
[[Page 53]]
taxable year, if such spouse files a separate return for a taxable year
which includes any part of such individual's taxable year, or if any
other taxpayer is entitled to an exemption for such individual or his
spouse under section 151(e) for such other taxpayer's taxable year
beginning in the calendar year in which such individual's taxable year
begins. For example, a married student more than half of whose support
is furnished by his father must file an income tax return if he receives
$600 or more of gross income during his taxable year.
(iii) For taxable years beginning after December 31, 1972, an
individual described in subparagraph (1) of this paragraph (other than
an individual referred to in section 142(b)):
(a) Who is not married (as determined by applying section 143(a) and
the regulations thereunder) must file an income tax return only if he
receives $1,750 or more of gross income during his taxable year, except
that if such an individual has attained the age of 65 before the close
of his taxable year an income tax return must be filed by such
individual only if he receives $2,500 or more of gross income during his
taxable year.
(b) Who is entitled to make a joint return under section 6013 and
the regulations thereunder must file an income tax return only if his
gross income received during his taxable year, when combined with the
gross income of his spouse received during his taxable year, is $2,500
or more. However, if such individual or his spouse has attained the age
of 65 before the close of the taxable year an income tax return must be
filed by such individual only if their combined gross income is $3,250
or more. If both the individual and his spouse attain the age of 65
before the close of the taxable year such return must be filed only if
their combined gross income is $4,000 or more. However, this subdivision
(iii)(b) shall not apply if the individual and his spouse did not have
the same household as their home at the close of their taxable year, if
such spouse files a separate return for a taxable year which includes
any part of such individual's taxable year, or if any other taxpayer is
entitled to an exemption for the taxpayer or his spouse under section
151(e) for such other taxpayer's taxable year beginning in the calendar
year in which such individual's taxable year begins. For example, a
married student more than half of whose support is furnished by his
father must file an income tax return if he receives $750 or more of
gross income during the taxable year.
(iv) For purposes of section 6012(a)(1)(A)(ii) and subdivisions
(ii)(b) and (iii)(b) of this subparagraph, an individual and his spouse
are considered to have the same household as their home at the close of
a taxable year if the same household constituted the principal place of
abode of both the individual and his spouse at the close of such taxable
year (or on the date of death, if the individual or his spouse died
within the taxable year). The individual and his spouse will be
considered to have the same household as their home at the close of the
taxable year notwithstanding a temporary absence from the household due
to special circumstances, as, for example, in the case of a nonpermanent
failure on the part of the individual and his spouse to have a common
abode by reason of illness, education, business, vacation, or military
service. For example, A, a calendar-year individual under 65 years of
age, is married to B, also under 65 years of age, and is a member of the
Armed Forces of the United States. During 1970 A is transferred to an
overseas base. A and B give up their home, which they had jointly
occupied until that time; B moves to the home of her parents for the
duration of A's absence. They fully intend to set up a new joint
household upon A's return. Neither A nor B must file a return for 1970
if their combined gross income for the year is less than $2,300 and if
no other taxpayer is entitled to a dependency exemption for A or B under
section 151(e).
(v) In the case of a short taxable year referred to in section
443(a)(1), an individual described in subparagraph (1) of this paragraph
shall file an income tax return if his gross income received during such
short taxable year equals or exceeds his own personal exemption allowed
by section 151(b) (prorated as provided in section 443(c)) and, when
applicable, his additional exemption for age 65 or more allowed by
section
[[Page 54]]
151(c)(1) (prorated as provided in section 443(c)).
(vi) For rules relating to returns required to be made by every
individual who is liable for one or more qualified State individual
income taxes, as defined in section 6362, for a taxable year, see
paragraph (b) of Sec. 301.6361-1 of this chapter (Regulations on
Procedure and Administration).
(vii) For taxable years beginning after December 31, 1978, an
individual who receives payments during the calendar year in which the
taxable year begins under section 3507 (relating to advance payment of
earned income credit) must file an income tax return.
(3) Earned income from without the United States and gain from sale
of residence. For the purpose of determining whether an income tax
return must be filed for any taxable year beginning after December 31,
1957, gross income shall be computed without regard to the exclusion
provided for in section 911 (relating to earned income from sources
without the United States). For the purpose of determining whether an
income tax return must be filed for any taxable year ending after
December 31, 1963, gross income shall be computed without regard to the
exclusion provided for in section 121 (relating to sale of residence by
individual who has attained age 65). In the case of an individual
claiming an exclusion under section 121, he shall attach Form 2119 to
the return required under this paragraph and in the case of an
individual claiming an exclusion under section 911, he shall attach Form
2555 to the return required under this paragraph.
(4) Return of income of minor. A minor is subject to the same
requirements and elections for making returns of income as are other
individuals. Thus, for example, for a taxable year beginning after
December 31, 1972, a return must be made by or for a minor who has an
aggregate of $1,750 of gross income from funds held in trust for him and
from his personal services, regardless of the amount of his taxable
income. The return of a minor must be made by the minor himself or must
be made for him by his guardian or other person charged with the care of
the minor's person or property. See paragraph (b)(3) of Sec. 1.6012-3.
See Sec. 1.73-1 for inclusion in the minor's gross income of amounts
received for his personal services. For the amount of tax which is
considered to have been properly assessed against the parent, if not
paid by the child, see section 6201(c) and paragraph (c) of Sec.
301.6201-1 of this chapter (Regulations on Procedure and
Administration).
(5) Returns made by agents. The return of income may be made by an
agent if, by reason of disease or injury, the person liable for the
making of the return is unable to make it. The return may also be made
by an agent if the taxpayer is unable to make the return by reason of
continuous absence from the United States (including Puerto Rico as if a
part of the United States) for a period of at least 60 days prior to the
date prescribed by law for making the return. In addition, a return may
be made by an agent if the taxpayer requests permission, in writing, of
the district director for the internal revenue district in which is
located the legal residence or principal place of business of the person
liable for the making of the return, and such district director
determines that good cause exists for permitting the return to be so
made. However, assistance in the preparation of the return may be
rendered under any circumstances. Whenever a return is made by an agent
it must be accompanied by a power of attorney (or copy thereof)
authorizing him to represent his principal in making, executing, or
filing the return. A form 2848, when properly completed, is sufficient.
In addition, where one spouse is physically unable by reason of disease
or injury to sign a joint return, the other spouse may, with the oral
consent of the one who is incapacitated, sign the incapacitated spouse's
name in the proper place on the return followed by the words ``By ------
-------------- Husband (or Wife),'' and by the signature of the signing
spouse in his own right, provided that a dated statement signed by the
spouse who is signing the return is attached to and made a part of the
return stating:
(i) The name of the return being filed,
(ii) The taxable year,
[[Page 55]]
(iii) The reason for the inability of the spouse who is
incapacitated to sign the return, and
(iv) That the spouse who is incapacitated consented to the signing
of the return.
The taxpayer and his agent, if any, are responsible for the return as
made and incur liability for the penalties provided for erroneous,
false, or fraudulent returns.
(6) Form of return. Form 1040 is prescribed for general use in
making the return required under this paragraph. Form 1040A is an
optional short form which, in accordance with paragraph (a)(7) of this
section, may be used by certain taxpayers. A taxpayer otherwise entitled
to use Form 1040A as his return for any taxable year may not make his
return on such form if he elects not to take the standard deduction
provided in section 141, and in such case he must make his return on
Form 1040. For taxable years beginning before January 1, 1970, a
taxpayer entitled under section 6014 and Sec. 1.6014-1 to elect not to
show his tax on his return must, if he desires to exercise such
election, make his return on Form 1040A. Form 1040W is an optional short
form which, in accordance with paragraph (a)(8) of this section, may be
used only with respect to taxable years beginning after December 31,
1958, and ending before December 31, 1961.
(7)(i) Use of Form 1040A. Form 1040A may be filed only by those
individuals entitled to use such form as provided by and in accordance
with the instructions for such form.
(ii) Computation and payment of tax. Unless a taxpayer is entitled
to elect under section 6014 and Sec. 1.6014-1 not to show the tax on
Form 1040A and does so elect, he shall compute and show on his return on
Form 1040A the amount of the tax imposed by subtitle A of the Code and
shall, without notice and demand therefor, pay any unpaid balance of
such tax not later than the date fixed for filing the return.
(iii) Change of election to use Form 1040A. A taxpayer who has
elected to make his return on Form 1040A may change such election. Such
change of election shall be within the time and subject to the
conditions prescribed in section 144(b) and Sec. 1.144-2 relating to
change of election to take, or not to take the standard deduction.
(8) Use of Form 1040W for certain taxable years--(i) In general. An
individual may use Form 1040W as his return for any taxable year
beginning after December 31, 1958, and ending before December 31, 1961,
in which the gross income of the individual, regardless of the amount
thereof:
(a) Consists entirely of remuneration for personal services
performed as an employee (whether or not such remuneration constitutes
wages as defined in section 3401(a)), dividends, or interest, and
(b) Does not include more than $200 from dividends and interest.
For purposes of determining whether gross income from dividends and
interest exceeds $200, dividends from domestic corporations are taken
into account to the extent that they are includible in gross income. For
purposes of this subparagraph, any reference to Form 1040 in Sec. Sec.
1.4-2, 1.142-1, and 1.144-1 and this section shall also be deemed a
reference to Form 1040W.
(ii) Change of election to use Form 1040W. A taxpayer who has
elected to make his return on Form 1040W may change such election. Such
change of election shall be within the time and subject to the
conditions prescribed in section 144(b) and Sec. 1.144-2, relating to
change of election to take, or not to take, the standard deduction.
(iii) Joint return of husband and wife on Form 1040W. A husband and
wife, eligible under section 6013 and the regulations thereunder to file
a joint return for the taxable year, may, subject to the provisions of
this subparagraph, make a joint return on Form 1040W for any taxable
year beginning after December 31, 1958, and ending before December 31,
1961, in which the aggregate gross income of the spouses (regardless of
amount) consists entirely of remuneration for personal services
performed as an employee (whether or not such remuneration constitutes
wages as defined in section 3401(a)), dividends, or interest, and does
not include more than $200 from dividends and interest. For purposes of
determining whether gross income from sources to which the $200
limitation applies exceeds such
[[Page 56]]
amount in cases where both spouses receive dividends from domestic
corporations, the amount of such dividends received by each spouse is
taken into account to the extent that such dividends are includible in
gross income. See section 116 and Sec. Sec. 1.116-1 and 1.116-2. If a
joint return is made by husband and wife on Form 1040W, the liability
for the tax shall be joint and several.
(9) Items of tax preference. For a taxable year ending after
December 31, 1969, an individual shall attach Form 4625 to the return
required by this paragraph if during the year the individual:
(i) Has items of tax preference (described in section 57) in excess
of its minimum tax exemption (determined under Sec. 1.58-1) or
(ii) Uses a net operating loss carryover from a prior taxable year
in which it deferred minimum tax under section 56(b).
(b) Return of nonresident alien individual--(1) Requirement of
return--(i) In general. Except as otherwise provided in subparagraph (2)
of this paragraph, every nonresident alien individual (other than one
treated as a resident under section 6013 (g) or (h)) who is engaged in
trade or business in the United States at any time during the taxable
year or who has income which is subject to taxation under subtitle A of
the Code shall make a return on Form 1040NR. For this purpose it is
immaterial that the gross income for the taxable year is less than the
minimum amount specified in section 6012(a) for making a return. Thus, a
nonresident alien individual who is engaged in a trade or business in
the United States at any time during the taxable year is required to
file a return on Form 1040 NR even though (a) he has no income which is
effectively connected with the conduct of a trade or business in the
United States, (b) he has no income from sources within the United
States, or (c) his income is exempt from income tax by reason of an
income tax convention or any section of the Code. However, if the
nonresident alien individual has no gross income for the taxable year,
he is not required to complete the return schedules but must attach a
statement to the return indicating the nature of any exclusions claimed
and the amount of such exclusions to the extent such amounts are readily
determinable.
(ii) Treaty income. If the gross income of a nonresident alien
individual includes treaty income, as defined in paragraph (b)(1) of
Sec. 1.871-12, a statement shall be attached to the return on Form
1040NR showing with respect to that income:
(a) The amounts of tax withheld,
(b) The names and post office addresses of withholding agents, and
(c) Such other information as may be required by the return form, or
by the instructions issued with respect to the form, to show the
taxpayer's entitlement to the reduced rate of tax under the tax
convention.
(2) Exceptions--(i) Return not required when tax is fully paid at
source. A nonresident alien individual (other than one treated as a
resident under section 6013 (g) or (h)) who at no time during the
taxable year is engaged in a trade or business in the United States is
not required to make a return for the taxable year if his tax liability
for the taxable year is fully satisfied by the withholding of tax at
source under chapter 3 of the Code. This subdivision does not apply to a
nonresident alien individual who has income for the taxable year which
is treated under section 871 (c) or (d) and Sec. 1.871-9 (relating to
students or trainees) or Sec. 1.871-10 (relating to real property
income) as income which is effectively connected for the taxable year
with the conduct of a trade or business in the United States by that
individual, or to a nonresident alien individual making a claim under
Sec. 301.6402-3 of this chapter (Procedure and Administration
Regulations) for the refund of an overpayment of tax for the taxable
year. In addition, this subdivision does not apply to a nonresident
alien individual who has income for the taxable year that is treated
under section 871(b)(1) as effectively connected with the conduct of a
trade or business within the United States by reason of the operation of
section 897. For purposes of this subdivision, some of the items of
income from sources within the United States upon which the tax
liability will not have been fully satisfied by the withholding of
[[Page 57]]
tax at source under chapter 3 of the Code are:
(a) Interest upon so-called tax-free covenant bonds upon which, in
accordance with section 1451 and Sec. 1.1451-1, a tax of only 2 percent
is required to be withheld at the source,
(b) In the case of bonds or other evidences of indebtedness issued
after September 28, 1965, amounts described in section 871(a)(1)(C),
(c) Capital gains described in section 871(a)(2) and paragraph (d)
of Sec. 1.871- 7, and
(d) Accrued interest received in connection with the sale of bonds
between interest dates, which, in accordance with paragraph (h) of Sec.
1.1441-4, is not subject to withholding of tax at the source.
(ii) Return of individual for taxable year of change of U.S.
citizenship or residence--(a) If an alien individual becomes a citizen
or resident of the United States during the taxable year and is a
citizen or resident of the United States on the last day of such year,
he must make a return on Form 1040 for the taxable year. However, a
separate schedule is required to be attached to this return to show the
income tax computation for the part of the taxable year during which the
alien was neither a citizen nor resident of the United States, unless an
election under section 6013 (g) or (h) is in effect for the alien. A
Form 1040NR, clearly marked ``Statement'' across the top, may be used as
such a separate schedule.
(b) If an individual abandons his U.S. citizenship or residence
during the taxable year and is not a citizen or resident of the United
States on the last day of such year, he must make a return on Form
1040NR for the taxable year, even if an election under section 6013(g)
was in effect for the taxable year preceding the year of abandonment.
However, a separate schedule is required to be attached to this return
to show the income tax computation for the part of the taxable year
during which the individual was a citizen or resident of the United
States. A Form 1040, clearly marked ``Statement'' across the top, may be
used as such a separate schedule.
(c) A return is required under this subdivision (ii) only if the
individual is otherwise required to make a return for the taxable year.
(iii) Beneficiaries of estates or trusts. A nonresident alien
individual who is a beneficiary of an estate or trust which is engaged
in trade or business in the United States is not required to make a
return for the taxable year merely because he is deemed to be engaged in
trade or business within the United States under section 875(2).
However, such nonresident alien beneficiary will be required to make a
return if he otherwise satisfies the conditions of subparagraph (1)(i)
of this paragraph for making a return.
(iv) Certain alien residents of Puerto Rico. This paragraph does not
apply to a nonresident alien individual who is a bona fide resident of
Puerto Rico during the taxable year. See section 876 and paragraph
(a)(1)(iii) of this section.
(3) Representative or agent for nonresident alien individual--(i)
Cases where power of attorney is not required. The responsible
representative or agent within the United States of a nonresident alien
individual shall make on behalf of his nonresident alien principal a
return of, and shall pay the tax on, all income coming within his
control as representative or agent which is subject to the income tax
under subtitle A of the Code. The agency appointment will determine how
completely the agent is substituted for the principal for tax purposes.
Any person who collects interest or dividends on deposited securities of
a nonresident alien individual, executes ownership certificates in
connection therewith, or sells such securities under special
instructions shall not be deemed merely by reason of such acts to be the
responsible representative or agent of the nonresident alien individual.
If the responsible representative or agent does not have a specific
power of attorney from the nonresident alien individual to file a return
in his behalf, the return shall be accompanied by a statement to the
effect that the representative or agent does not possess specific power
of attorney to file a return for such individual but that the return is
being filed in accordance with the provisions of this subdivision.
[[Page 58]]
(ii) Cases where power of attorney is required. Whenever a return of
income of a nonresident alien individual is made by an agent acting
under a duly authorized power of attorney for that purpose, the return
shall be accompanied by the power of attorney in proper form, or a copy
thereof, specifically authorizing him to represent his principal in
making, executing, and filing the income tax return. Form 2848 may be
used for this purpose. The agent, as well as the taxpayer, may incur
liability for the penalties provided for erroneous, false, or fraudulent
returns. For the requirements regarding signing of returns, see Sec.
1.6061-1. The rules of paragraph (e) of Sec. 601.504 of this chapter
(Statement of Procedural Rules) shall apply under this subparagraph in
determining whether a copy of a power of attorney must be certified.
(iii) Limitation. A return of income shall be required under this
subparagraph only if the nonresident alien individual is otherwise
required to make a return in accordance with this paragraph.
(4) Disallowance of deductions and credits. For provisions
disallowing deductions and credits when a return of income has not been
filed by or on behalf of a nonresident alien individual, see section
874(a) and the regulations thereunder.
(5) Effective date. This paragraph shall apply for taxable years
beginning after December 31, 1966, except that it shall not be applied
to require (i) the filing of a return for any taxable year ending before
January 1, 1974, which, pursuant to instructions applicable to the
return, is not required to be filed or (ii) the amendment of a return
for such a taxable year which, pursuant to such instructions, is
required to be filed. For corresponding rules applicable to taxable
years beginning before January 1, 1967, see 26 CFR 1.6012-1(b) (Revised
as of January 1, 1967).
(c) Cross reference. For returns by fiduciaries for individuals,
estates, and trusts, see Sec. 1.6012-3.
(Sec. 1445 (98 Stat. 655; 26 U.S.C. 1445), sec. 6012 (68A Stat. 732; 26
U.S.C. 6012), and 7805 (68A Stat. 917; 26 U.S.C. 7805) of the Internal
Revenue Code of 1954)
[T.D. 6500, 25 FR 12108, Nov. 26, 1960]
Editorial Note: For Federal Register citations affecting Sec.
1.6012-1, see the List of CFR Sections Affected in the Finding Aids
section of this volume.
Sec. 1.6012-2 Corporations required to make returns of income.
(a) In general--(1) Requirement of return. Except as provided in
paragraphs (e) and (g)(1) of this section with respect to charitable and
other organizations having unrelated business income and to certain
foreign corporations, respectively, every corporation, as defined in
section 7701(a)(3), subject to taxation under subtitle A of the Code
shall make a return of income regardless of whether it has taxable
income or regardless of the amount of its gross income.
(2) Existence of corporation. A corporation in existence during any
portion of a taxable year is required to make a return. If a corporation
was not in existence throughout an annual accounting period (either
calendar year or fiscal year), the corporation is required to make a
return for that fractional part of a year during which it was in
existence. A corporation is not in existence after it ceases business
and dissolves, retaining no assets, whether or not under State law it
may thereafter be treated as continuing as a corporation for certain
limited purposes connected with winding up its affairs, such as for the
purpose of suing and being sued. If the corporation has valuable claims
for which it will bring suit during this period, it has retained assets
and therefore continues in existence. A corporation does not go out of
existence if it is turned over to receivers or trustees who continue to
operate it. If a corporation has received a charter but has never
perfected its organization and has transacted no business and has no
income from any source, it may upon presentation of the facts to the
district director be relieved from the necessity of making a return. In
the absence of a proper showing of such facts to the district director,
a corporation will be required to make a return.
(3) Form of return. The return required of a corporation under this
section shall be made on Form 1120 unless the corporation is a type for
which a special form is prescribed. The special forms of returns and
schedules required
[[Page 59]]
of particular types of corporations are set forth in paragraphs (b) to
(g), inclusive, of this section.
(b) Personal holding companies. A personal holding company, as
defined in section 542, including a foreign corporation within the
definition of such section, shall attach Schedule PH, Computation of
U.S. Personal Holding Company Tax, to the return required by paragraph
(a) or (g), as the case may be, of this section.
(c) [Reserved]. For further guidance, see Sec. 1.6012-2T(c).
(d) Affiliated groups. For the forms to be used by affiliated
corporations filing a consolidated return, see Sec. 1.1502-75.
(e) Charitable and other organizations with unrelated business
income. Every organization described in section 511(a)(2) which is
subject to the tax imposed by section 511(a)(1) on its unrelated
business taxable income shall make a return on Form 990-T for each
taxable year if it has gross income, included in computing unrelated
business taxable income for such taxable year, of $1,000 or more. The
filing of a return of unrelated business income does not relieve the
organization of the duty of filing other required returns.
(f) Farmers' cooperatives. Farmers' cooperative organizations
described in section 521 are required to make a return of income whether
or not such organizations are subject to the taxes imposed by sections
11 and 1201 as prescribed in section 522 or 1381. The return shall be
made on Form 990-C.
(g) Returns by foreign corporations--(1) Requirement of return--(i)
In general. Except as otherwise provided in subparagraph (2) of this
paragraph, every foreign corporation which is engaged in trade or
business in the United States at any time during the taxable year or
which has income which is subject to taxation under subtitle A of the
Code (relating to income taxes) shall make a return on Form 1120-F.
Thus, for example, a foreign corporation which is engaged in trade or
business in the United States at any time during the taxable year is
required to file a return on Form 1120-F even though (a) it has no
income which is effectively connected with the conduct of a trade or
business in the United States, (b) it has no income from sources within
the United States, or (c) its income is exempt from income tax by reason
of an income tax convention or any section of the Code. However, if the
foreign corporation has no gross income for the taxable year, it is not
required to complete the return schedules but must attach a statement to
the return indicating the nature of any exclusions claimed and the
amount of such exclusions to the extent such amounts are readily
determinable.
(ii) Treaty income. If the gross income of a foreign corporation
includes treaty income, as defined in paragraph (b)(1) of Sec. 1.871-
12, a statement shall be attached to the return on Form 1120-F showing
with respect to that income:
(a) The amounts of tax withheld,
(b) The names and post office addresses of withholding agents, and
(c) Such other information as may be required by the return form or
by the instructions issued with respect to the form, to show the
taxpayer's entitlement to the reduced rate of tax under the tax
convention.
(iii) Balance sheet and reconciliation of income. At the election of
the taxpayer, the balance sheets and reconciliation of income, as shown
on Form 1120-F, may be limited to:
(a) The assets of the corporation located in the United States and
to its other assets used in the trade or business conducted in the
United States, and
(b) Its income effectively connected with the conduct of a trade or
business in the United States and its other income from sources within
the United States.
(2) Exceptions--(i) Return not required when tax is fully paid at
source--(a) In general. A foreign corporation which at no time during
the taxable year is engaged in a trade or business in the United States
is not required to make a return for the taxable year if its tax
liability for the taxable year is fully satisfied by the withholding of
tax at source under chapter 3 of the Code. For purposes of this
subdivision, some of the items of income from sources within the United
States upon which the tax liability will not have been fully satisfied
by the withholding of tax at source under chapter 3 of the Code are:
[[Page 60]]
(1) Interest upon so-called tax-free covenant bonds upon which, in
accordance with section 1451 and Sec. 1.1451-1, a tax of only 2 percent
is required to be withheld at source,
(2) In the case of bonds or other evidence of indebtedness issued
after September 25, 1965, amounts described in section 881(a)(3),
(3) Accrued interest received in connection with the sale of bonds
between interest dates, which, in accordance with paragraph (h) of Sec.
1.1441-4, is not subject to withholding of tax at source.
(b) Corporations not included. This subdivision (i) shall not apply:
(1) To a foreign corporation which has income for the taxable year
which is treated under section 882(d) or (e) and Sec. 1.882-2 as income
which is effectively connected for the taxable year with the conduct of
a trade or business in the United States by that corporation,
(2) To a foreign corporation making a claim under Sec. 301.6402-3
of this chapter (Procedure and Administration Regulations) for the
refund of an overpayment of tax for the taxable year, or
(3) To a foreign corporation described in paragraph (c)(2)(i) of
Sec. 1.532-1 whose accumulated taxable income for the taxable year is
determined under paragraph (b)(2) of Sec. 1.535-1.
(ii) Beneficiaries of estates or trusts. A foreign corporation which
is a beneficiary of an estate or trust which is engaged in trade or
business in the United States is not required to make a return for the
taxable year merely because it is deemed to be engaged in trade or
business within the United States under section 875(2). However, such
foreign corporation will be required to make a return if it otherwise
satisfies the conditions of subparagraph (1)(i) of this paragraph for
making a return.
(iii) Special returns and schedules. The provisions of paragraphs
(b) through (f) of this section shall apply to a foreign corporation
except that a foreign corporation which is an insurance company to which
paragraph (c)(3) of this section applies shall make a return on Form
1120-F and not on Form 1120. If a foreign corporation which is an
insurance company to which paragraph (c) (1) or (2) of this section
applies has income for the taxable year from sources within the United
States which is not effectively connected for that year with the conduct
of a trade or business in the United States by that corporation, the
corporation shall attach to its return on Form 1120L or 1120M, as the
case may be, a separate schedule showing the nature and amount of the
items of such income, the rate of tax applicable thereto, and the amount
of tax withheld therefrom under chapter 3 of the Code.
(3) Representative or agent for foreign corporation--(i) Cases where
power of attorney is not required. The responsible representative or
agent within the United States of a foreign corporation shall make on
behalf of his principal a return of, and shall pay the tax on, all
income coming within his control as representative or agent which is
subject to the income tax under subtitle A of the Code. The agency
appointment will determine how completely the agent is substituted for
the principal for tax purposes. Any person who collects interest or
dividends on deposited securities of a foreign corporation, executes
ownership certificates in connection therewith, or sells such securities
under special instructions shall not be deemed merely by reason of such
acts to be the responsible representative or agent of the foreign
corporation. If the responsible representative or agent does not have a
specific power of attorney from the foreign corporation to file a return
in its behalf, the return shall be accompanied by a statement to the
effect that the representative or agent does not possess specific power
of attorney to file a return for such corporation but that the return is
being filed in accordance with the provisions of this subdivision.
(ii) Cases where power of attorney is required. Whenever a return of
income of a foreign corporation is made by an agent acting under a duly
authorized power of attorney for that purpose, the return shall be
accompanied by the power of attorney in proper form, or a copy thereof
specifically authorizing him to represent his principal in making,
executing, and filing the income tax return. Form 2848 may be used for
this purpose. The agent, as well as the taxpayer, may incur liability
for the
[[Page 61]]
penalties provided for erroneous, false, or fraudulent returns. For the
requirements regarding signing of returns, see Sec. 1.6062-1. The rules
of paragraph (e) of Sec. 601.504 of this chapter (Statement of
Procedural Rules) shall apply under this subparagraph in determining
whether a copy of a power of attorney must be certified.
(iii) Limitation. A return of income shall be required under this
subparagraph only if the foreign corporation is otherwise required to
make a return in accordance with this paragraph.
(4) Disallowance of deductions and credits. For provisions
disallowing deductions and credits when a return of income has not been
filed by or on behalf of a foreign corporation, see section 882(c)(2)
and the regulations thereunder, and paragraph (b) (2) and (3) of Sec.
1.535-1.
(5) Effective date. This paragraph shall apply for taxable years
beginning after December 31, 1966, except that it shall not be applied
to require (i) the filing of a return for any taxable year ending before
January 1, 1974, which, pursuant to instructions applicable to the
return, is not required to be filed or (ii) the amendment of a return
for such a taxable year which, pursuant to such instructions, is
required to be filed. For corresponding rules applicable to taxable
years beginning before January 1, 1967, see 26 CFR 1.6012-2(g) (Revised
as of January 1, 1967).
(h) Electing small business corporations. An electing small business
corporation, whether or not subject to the tax imposed by section 1378,
shall make a return on Form 1120-S. See also section 6037 and the
regulations thereunder.
(i) Items of tax preference--(1) In general. Every corporation
required to make a return under this section, and having items of tax
preference (described in section 57 and the regulation thereunder) in an
amount specified by Form 4626, shall file such form as part of its
return.
(2) Organizations with unrelated business income and foreign
corporations. Regardless of the provisions of paragraphs (e) and (g) of
this section, any organization described in either such paragraph having
items of tax preference (described in section 57 and the regulations
thereunder) in any amount entering into the computation or unrelated
business income is required to make a return on form 990-T or form 120F,
respectively, and to attach the required form as part of such return.
(j) Other provisions. For returns by fiduciaries for corporations,
see Sec. 1.6012-3. For information returns by corporations regarding
payments of dividends, see Sec. Sec. 1.6042-1 to 1.6042-3, inclusive;
regarding corporate dissolutions or liquidations, see Sec. 1.6043-1;
regarding distributions in liquidation, see Sec. 1.6043-2; regarding
payments of patronage dividends, see Sec. Sec. 1.6044-1 to 1.6044-4,
inclusive; and regarding certain payments of interest, see Sec. Sec.
1.6049-1 and 1.6049-2. For information returns of officers, directors,
and shareholders of foreign personal holding companies, as defined in
section 552, see Sec. Sec. 1.6035-1 and 1.6035-2. For returns as to
formation or reorganization of foreign corporations, see Sec. Sec.
1.6046-1 to 1.6046-3, inclusive.
(k) [Reserved]. For further guidance, see Sec. 1.6012-2T(k)(1).
[T.D. 6500, 25 FR 12108, Nov. 26, 1960]
Editorial Note: For Federal Register citations affecting Sec.
1.6012-2, see the List of CFR Sections Affecting in the Finding Aids
section of this volume.
Sec. 1.6012-2T Corporations required to make returns of income
(temporary).
(a) through (b) [Reserved]. For further guidance, see Sec. 1.6012-
2(a) through (b).
(c) Insurance companies--(1) Domestic life insurance companies--(i)
In general. A life insurance company subject to tax under section 801
shall make a return on Form 1120L. Except as provided in paragraph
(c)(4) of this section, such company shall file with its return--
(A) A copy of its annual statement which shows the reserves used by
the company in computing the taxable income reported on its return; and
(B) A copy of Schedule A (real estate) and of Schedule D (bonds and
stocks), or any successor thereto, of such annual statement.
(ii) Mutual savings banks. Mutual savings banks conducting life
insurance business and meeting the requirements of section 594 are
subject to partial tax computed on Form 1120 and partial tax computed on
Form 1120L. The Form
[[Page 62]]
1120L is attached as a schedule to Form 1120, together with the annual
statement and schedules required to be filed with Form 1120L.
(2) Domestic nonlife insurance companies. Every domestic insurance
company other than a life insurance company shall make a return on Form
1120PC. This includes organizations described in section 501(m)(1) that
provide commercial-type insurance and organizations described in section
833. Except as provided in paragraph (c)(4) of this section, such
company shall file with its return a copy of its annual statement (or a
pro forma annual statement), including the underwriting and investment
exhibit for the year covered by such return.
(3) Foreign insurance companies. The provisions of paragraphs (c)(1)
and (c)(2) of this section concerning the returns and statements of
insurance companies subject to tax under section 801 or section 831 also
apply to foreign insurance companies subject to tax under those
sections, except that the copy of the annual statement required to be
submitted with the return shall, in the case of a foreign insurance
company that is not required to file an annual statement, be a copy of
the pro forma annual statement relating to the United States business of
such company.
(4) Exception for insurance companies filing their Federal income
tax returns electronically. If an insurance company described in
paragraph (c)(1), (c)(2), or (c)(3) of this section files its Federal
income tax return electronically, it should not include on or with such
return its annual statement (or pro forma annual statement), or any
portion thereof. Such statement must be available at all times for
inspection by authorized Internal Revenue Service officers or employees
and retained for so long as such statements may be material in the
administration of any internal revenue law. See Sec. 1.6001-1(e).
(5) Definition. For purposes of this section, the term annual
statement means the annual statement, the form of which is approved by
the National Association of Insurance Commissioners (NAIC), which is
filed by an insurance company for the year with the insurance
departments of States, Territories, and the District of Columbia. The
term annual statement also includes a pro forma annual statement if the
insurance company is not required to file the NAIC annual statement.
(d) through (j) [Reserved]. For further guidance, see Sec. 1.6012-
2(d) through (j).
(k) Effective date--(1) Applicability date. This section applies to
any original Federal income tax return (including any amended return
filed on or before the due date (including extensions) of such original
return) timely filed on or after May 30, 2006.
(2) Expiration date. The applicability of this section will expire
on May 26, 2009.
[T.D. 9264, 71 FR 30606, May 30, 2006]
Sec. 1.6012-3 Returns by fiduciaries.
(a) For estates and trusts--(1) In general. Every fiduciary, or at
least one of joint fiduciaries, must make a return of income on form
1041 (or by use of a composite return pursuant to Sec. 1.6012-5) and
attach the required form if the estate or trust has items of tax
preference (as defined in section 57 and the regulations thereunder) in
any amount:
(i) For each estate for which he acts if the gross income of such
estate for the taxable year is $600 or more;
(ii) For each trust for which he acts, except a trust exempt under
section 501(a), if such trust has for the taxable year any taxable
income, or has for the taxable year gross income of $600 or more
regardless of the amount of taxable income; and
(iii) For each estate and each trust for which he acts, except a
trust exempt under section 501(a), regardless of the amount of income
for the taxable year, if any beneficiary of such estate or trust is a
nonresident alien.
(iv) For each trust electing to be taxed as, or as part of, an
estate under section 645 for which a trustee acts, and for each related
estate joining in a section 645 election for which an executor acts, if
the aggregate gross income of the electing trust(s) and related estate,
if any, joining in the election for the taxable year is $600 or more.
(For the respective filing requirements of the trustee of each electing
trust and executor of any related estate, see Sec. 1.645-1).
[[Page 63]]
(2) Wills and trust instruments. At the request of the Internal
Revenue Service, a copy of the will or trust instrument (including any
amendments), accompanied by a written declaration of the fiduciary under
the penalties of perjury that it is a true and complete copy, shall be
filed together with a statement by the fiduciary indicating the
provisions of the will or trust instrument (including any amendments)
which, in the fiduciary's opinion, determine the extent to which the
income of the estate or trust is taxable to the estate or trust, the
beneficiaries, or the grantor, respectively.
(3) Domiciliary and ancillary representatives. In the case of an
estate required to file a return under subparagraph (1) of this
paragraph, having both domiciliary and ancillary representatives, the
domiciliary and ancillary representatives must each file a return on
Form 1041. The domiciliary representative is required to include in the
return rendered by him as such domiciliary representative the entire
income of the estate. The return of the ancillary representative shall
be filed with the district director for his internal revenue district
and shall show the name and address of the domiciliary representative,
the amount of gross income received by the ancillary representative, and
the deductions to be claimed against such income, including any amount
of income properly paid or credited by the ancillary representative to
any legatee, heir, or other beneficiary. If the ancillary representative
for the estate of a nonresident alien is a citizen or resident of the
United States, and the domiciliary representative is a nonresident
alien, such ancillary representative is required to render the return
otherwise required of the domiciliary representative.
(4) Two or more trusts. A trustee of two or more trusts must make a
separate return for each trust, even though such trusts were created by
the same grantor for the same beneficiary or beneficiaries.
(5) Trusts with unrelated business income. Every fiduciary for a
trust described in section 511(b)(2) which is subject to the tax imposed
on its unrelated business taxable income by section 511(b)(1) shall make
a return on Form 990-T for each taxable year if the trust has gross
income, included in computing unrelated business taxable income for such
taxable year, of $1,000 or more. The filing of a return of unrelated
business income does not relieve the fiduciary of such trust from the
duty of filing other required returns.
(6) Charitable remainder trusts. Every fiduciary for a charitable
remainder annuity trust (as defined in Sec. 1.664-2) or a charitable
remainder unitrust (as defined in Sec. 1.664-3) shall make a return on
Form 1041-B for each taxable year of the trust even though it is
nonexempt because it has unrelated business taxable income. The return
on Form 1041-B shall be made in accordance with the instructions for the
form and shall be filed with the designated Internal Revenue office on
or before the 15th day of the fourth month following the close of the
taxable year of the trust. A copy of the instrument governing the trust,
accompanied by a written declaration of the fiduciary under the
penalties of perjury that it is a true and complete copy, shall be
attached to the return for the first taxable year of the trust.
(7) Certain trusts described in section 4947(a)(1). For taxable
years beginning after December 31, 1980, in the case of a trust
described in section 4947(a)(1) which has no taxable income for a
taxable year, the filing requirements of section 6012 and this section
shall be satisfied by the filing, pursuant to Sec. 53.6011-1 of this
chapter (Foundation Excise Tax Regulations) and Sec. 1.6033-2(a), by
the fiduciary of such trust of--
(i) Form 990-PF if such trust is treated as a private foundation, or
(ii) Form 990 if such trust is not treated as a private foundation.
When the provisions of this paragraph (a)(7) are met, the fiduciary
shall not be required to file Form 1041.
(8) Estate and trusts liable for qualified tax. In the case of an
estate or trust which is liable for one or more qualified State
individual income taxes, as defined in section 6362, for a taxable year,
see paragraph (b) of Sec. 301.6361-1 of this chapter (Regulations on
Procedure and Administration) for rules relating to returns required to
be made.
(9) A trust any portion of which is treated as owned by the grantor
or another person pursuant to sections 671
[[Page 64]]
through 678. In the case of a trust any portion of which is treated as
owned by the grantor or another person under the provisions of subpart E
(section 671 and following) part I, subchapter J, chapter 1 of the
Internal Revenue Code see Sec. 1.671-4.
(b) For other persons--(1) Decedents. The executor or administrator
of the estate of a decedent, or other person charged with the property
of a decedent, shall make the return of income required in respect of
such decedent. For the decedent's taxable year which ends with the date
of his death, the return shall cover the period during which he was
alive. For the filing of returns of income for citizens and alien
residents of the United States, and alien residents of Puerto Rico, see
paragraph (a) of Sec. 1.6012-1. For the filing of a joint return after
death of spouse, see paragraph (d) of Sec. 1.6013-1.
(2) Nonresident alien individuals--(i) In general. A resident or
domestic fiduciary or other person charged with the care of the person
or property of a nonresident alien individual shall make a return for
that individual and pay the tax unless:
(a) The nonresident alien individual makes a return of, and pays the
tax on, his income for the taxable year,
(b) A responsible representative or agent in the United States of
the nonresident alien individual makes a return of, and pays the tax on,
the income of such alien individual for the taxable year, or
(c) The nonresident alien individual has appointed a person in the
United States to act as his agent for the purpose of making a return of
income and, if such fiduciary is required to file a Form 1041 for an
estate or trust of which such alien individual is a beneficiary, such
fiduciary attaches a copy of the agency appointment to his return on
Form 1041.
(ii) Income to be returned. A return of income shall be required
under this subparagraph only if the nonresident alien individual is
otherwise required to make a return in accordance with paragraph (b) of
Sec. 1.6012-1. The provisions of that paragraph shall apply in
determining the form of return to be used and the income to be returned.
(iii) Disallowance of deductions and credits. For provisions
disallowing deductions and credits when a return of income has not been
filed by or on behalf of a nonresident alien individual, see section 874
and the regulations thereunder.
(iv) Alien resident of Puerto Rico. This subparagraph shall not
apply to the return of a nonresident alien individual who is a bona fide
resident of Puerto Rico during the entire taxable year. See Sec. 1.876-
1.
(v) Cross reference. For requirements of withholding tax at source
on nonresident alien individuals and of returns with respect to such
withheld taxes, see Sec. Sec. 1.1441-1 to 1.1465-1, inclusive.
(3) Persons under a disability. A fiduciary acting as the guardian
of a minor, or as the guardian or committee of an insane person, must
make the return of income required in respect of such person unless, in
the case of a minor, the minor himself makes the return or causes it to
be made.
(4) Corporations. A receiver, trustee in dissolution, trustee in
bankruptcy, or assignee, who, by order of a court of competent
jurisdiction, by operation of law or otherwise, has possession of or
holds title to all or substantially all the property or business of a
corporation, shall make the return of income for such corporation in the
same manner and form as corporations are required to make such returns.
Such return shall be filed whether or not the receiver, trustee, or
assignee is operating the property or business of the corporation. A
receiver in charge of only a small part of the property of a
corporation, such as a receiver in mortgage foreclosure proceedings
involving merely a small portion of its property, need not make the
return of income. See also Sec. 1.6041-1, relating to returns regarding
information at source; Sec. Sec. 1.6042-1 to 1.6042-3, inclusive,
relating to returns regarding payments of dividends; Sec. Sec. 1.6044-1
to 1.6044-4, inclusive, relating to returns regarding payments of
patronage dividends; and Sec. Sec. 1.6049-1 and 1.6049-2, relating to
returns regarding certain payments of interest.
[[Page 65]]
(5) Individuals in receivership. A receiver who stands in the place
of an individual must make the return of income required in respect of
such individual. A receiver of only part of the property of an
individual need not file a return, and the individual must make his own
return.
(c) Joint fiduciaries. In the case of joint fiduciaries, a return is
required to be made by only one of such fiduciaries. A return made by
one of joint fiduciaries shall contain a statement that the fiduciary
has sufficient knowledge of the affairs of the person for whom the
return is made to enable him to make the return, and that the return is,
to the best of his knowledge and belief, true and correct.
(d) Other provisions. For the definition of the term ``fiduciary'',
see section 7701(a)(6) and the regulations thereunder. For information
returns required to be made by fiduciaries under section 6041, see Sec.
1.6041-1. As to further duties and liabilities of fiduciaries, see
section 6903 and Sec. 301.6903-1 of this chapter (Regulations on
Procedure and Administration).
[T.D. 6500, 25 FR 12108, Nov. 26, 1960]
Editorial Note: For Federal Register citations affecting Sec.
1.6012-3, see the List of CFR Sections Affecting in the Finding Aids
section of this volume.
Sec. 1.6012-4 Miscellaneous returns.
For returns by regulated investment companies of tax on
undistributed capital gain designated for special treatment under
section 852(b)(3)(D), see Sec. 1.852-9. For returns with respect to tax
withheld on nonresident aliens and foreign corporations and on tax-free
covenant bonds, see Sec. Sec. 1.1461-1 to 1.1465-1, inclusive. For
returns of tax on transfers to avoid income tax, see Sec. 1.1494-1. For
the requirement of an annual report by persons completing a Government
contract, see 26 CFR (1939) 17.16 (Treasury Decision 4906, approved June
23, 1939), and 26 CFR (1939) 16.15 (Treasury Decision 4909, approved
June 28, 1939) , as made applicable to section 1471 of the 1954 Code by
Treasury Decision 6091, approved August 16, 1954 (19 FR 5167, C.B. 1954-
2, 47). See also Sec. 1.1471-1.
[T.D. 7332, 39 FR 44231, Dec. 23, 1974]
Editorial Note: For the convenience of the user Sec. Sec. 16.15 and
17.16 of 26 CFR (1939) are set forth below:
Sec. 16.15 Annual reports for income taxable years.
(a) General requirements. Every contracting party completing a
contract or subcontract within the contracting party's income-taxable
year ending after April 3, 1939 shall file with the district director of
internal revenue for the internal revenue district in which the
contracting party's Federal income tax returns are required to be filed
an annual report on the prescribed form of the profit and excess profit
on all contracts and subcontracts coming within the scope of the act and
the regulations in this part and completed within the particular income-
taxable year. There shall be included as a part of such a report a
statement, preferably in columnar form, showing separately for each such
contract or subcontract completed by the contracting party within the
income-taxable year the total contract price, the cost of performing the
contract or subcontract and the resulting profit or loss on each
contract or subcontract together with a summary statement showing in
detail the computation of the net profit or net loss upon all contracts
and subcontracts completed within the income-taxable year and the amount
of the excess profit, if any, for the income-taxable year covered by the
report. A copy of the report made to the Secretary of the Army (see
Sec. 16.14) with respect to each contract or subcontract covered in the
annual report, shall be filed as a part of such annual report. In case
the income-taxable year of the contracting party is a period of less
than twelve months (see Sec. 16.1), the report required by this section
shall be made for such period and not for a full year.
(b) Time for filing annual reports. Annual reports of contracts and
subcontracts coming within the scope of the act and the regulations in
this part completed by a contracting party within an income-taxable year
must be filed on or before the 15th day of the ninth month following the
close of the contracting party's income-taxable year. It is important
that the contracting party render on or before the due date an annual
report as nearly complete and final as it is possible for the
contracting party to prepare. An extension of time granted the
contracting party for filing its Federal income tax return does not
serve to extend the time for filing the annual report required by this
section. Authority consistent with authorizations for granting
extensions of time for filing Federal income tax returns is hereby
delegated to the various collectors of internal revenue for granting
extensions of time for filing the reports required by this section.
Application for extensions of time for filing such reports should be
addressed to the district director
[[Page 66]]
of internal revenue for the district in which the contracting party
files its Federal income tax returns and must contain a full recital of
the causes for the delay.
Sec. 17.16 Annual reports for income-taxable years.
(a) General requirements. Every contracting party completing a
contract or subcontract within the contracting party's income-taxable
year ending after April 3, 1939 shall file, with the district director
of internal revenue for the internal revenue district in which the
contracting party's Federal income tax return is required to be filed,
annual reports on the prescribed forms of the profit and excess profit
on all contracts and subcontracts coming within the scope of the act. If
any contracts or subcontracts so completed by the contracting party were
entered into for the construction or manufacture of any complete naval
vessel or any portion thereof, the profit and excess profit on all such
contracts and subcontracts completed within the income-taxable year
ending after April 3, 1939 shall be computed in accordance with the
provisions of Sec. 17.6. If any contracts or subcontracts so completed
by the contracting party were entered into for the construction or
manufacture of any complete naval aircraft or any portion thereof, the
profit and excess profit on all such contracts and subcontracts
completed within the income-taxable year ending after April 3, 1939
shall be computed in accordance with the provisions of Sec. 17.7. There
shall be included as a part of the annual report a statement, preferably
in columnar form, showing separately for each contract or subcontract
completed by the contracting party within the income-taxable year and
covered by the report, the total contract price, the cost of performing
the contract or subcontract and resulting profit or loss on each
contract or subcontract together with a summary statement showing in
detail the computation of the net profit or net loss upon each group of
contracts and subcontracts covered by the report and the amount of the
excess profit, if any, with respect to each group of contracts and
subcontracts covered by the report. A copy of the report made to the
Secretary of the Navy (see Sec. 17.15) with respect to each contract or
subcontract covered in the annual report, shall be filed as a part of
such annual report. In case the income-taxable year of the contracting
party is a period of less than twelve months (see Sec. 17.1), the
reports required by this section shall be made for such period and not
for a full year.
(b) Time for filing annual reports. Annual reports of contracts and
subcontracts completed by a contracting party within an income-taxable
year ending after April 3, 1939 shall be filed on or before the 15th day
of the ninth month following the close of the contracting party's
income-taxable year. It is important that the contracting party render
on or before the due date annual reports as nearly complete and final as
it is possible for the contracting party to prepare. An extension of
time granted the contracting party for filing its Federal income tax
return does not serve to extend the time for filing the annual reports
required by this section. Authority consistent with authorizations for
granting extensions of time for filing Federal income tax returns is
hereby delegated to the various district directors of internal revenue
for granting extensions of time for filing the reports required by this
section. Application for extension of time for filing such reports
should be addressed to the district director of internal revenue for the
district in which the contracting party files its Federal income tax
returns and must contain a full recital of the causes for the delay.
Sec. 1.6012-5 Composite return in lieu of specified form.
The Commissioner may authorize the use, at the option of a person
required to make a return, of a composite return in lieu of any form
specified in this part for use by such a person, subject to such
conditions, limitations, and special rules governing the preparation,
execution, filing, and correction thereof as the Commissioner may deem
appropriate. Such composite return shall consist of a form prescribed by
the Commissioner and an attachment or attachments of magnetic tape or
other approved media. Notwithstanding any provisions in this part to the
contrary, a single form and attachment may comprise the returns of more
than one such person. To the extent that the use of a composite return
has been authorized by the Commissioner, references in this part to a
specific form for use by such a person shall be deemed to refer also to
a composite return under this section.
[T.D. 7200, 37 FR 16544, Aug. 16, 1972]
Sec. 1.6012-6 Returns by political organizations.
(a) Requirement of return--(1) In general. For taxable years
beginning after December 31, 1974, every political organization
described in section 527(e)(1), and every fund described in section
527(f)(3) or section 527(g), and every organization described in section
501(c)
[[Page 67]]
and exempt from taxation under section 501(a) shall make a return of
income within the time provided in section 6072(b), if a tax is imposed
on such an organization or fund by section 527(b).
(2) Taxable years beginning after December 31, 1971, and before
January 1, 1975. For taxable years beginning after December 31, 1971,
and before January 1, 1975, any political organization which would be
described in section 527(e)(1) if such section applied to such years
shall not be required to make a return if such organization would not be
required to make a return under paragraph (a)(1) of this section.
(b) Form of return. The return required by an organization or fund
upon which a tax is imposed by section 527(b) shall be made on Form
1120-POL.
[T.D. 7516, 42 FR 57312, Nov. 2, 1977; 43 FR 2721, Jan. 19, 1978]
Sec. 1.6013-1 Joint returns.
(a) In general. (1) A husband and wife may elect to make a joint
return under section 6013(a) even though one of the spouses has no gross
income or deductions. For rules for determining whether individuals
occupy the status of husband and wife for purposes of filing a joint
return, see paragraph (a) of Sec. 1.6013-4. For any taxable year with
respect to which a joint return has been filed, separate returns shall
not be made by the spouses after the time for filing the return of
either has expired. See, however, paragraph (d)(5) of this section for
the right of an executor to file a late separate return for a deceased
spouse and thereby disaffirm a timely joint return made by the surviving
spouse.
(2) A joint return of a husband and wife (if not made by an agent of
one or both spouses) shall be signed by both spouses. The provisions of
paragraph (a)(5) of Sec. 1.6012-1, relating to returns made by agents,
shall apply where one spouse signs a return as agent for the other, or
where a third party signs a return as agent for one or both spouses.
(b) Nonresident alien. A joint return shall not be made if either
the husband or wife at any time during the taxable year is a nonresident
alien, unless an election is in effect for the taxable year under
section 6013 (g) or (h) and the regulations thereunder.
(c) Different taxable years. Except as otherwise provided in this
section, a husband and wife shall not file a joint return if they have
different taxable years.
(d) Joint return after death. (1) Section 6013(a)(2) provides that a
joint return may be made for the survivor and the deceased spouse or for
both deceased spouses if the taxable years of such spouses begin on the
same day and end on different days only because of the death of either
or both. Thus, if a husband and wife make this return on a calendar year
basis, and the wife dies on August 1, 1956, a joint return may be made
with respect to the calendar year 1956 of the husband and the taxable
year of the wife beginning on January 1, 1956, and ending with her death
on August 1, 1956. Similarly, if husband and wife both make their
returns on the basis of a fiscal year beginning on July 1 and the wife
dies on October 1, 1956, a joint return may be made with respect to the
fiscal year of the husband beginning on July 1, 1956, and ending on June
30, 1957, and with respect to the taxable year of the wife beginning on
July 1, 1956, and ending with her death on October 1, 1956.
(2) The provision allowing a joint return to be made for the taxable
year in which the death of either or both spouses occurs is subject to
two limitations. The first limitation is that if the surviving spouse
remarries before the close of his taxable year, he shall not make a
joint return with the first spouse who died during the taxable year. In
such a case, however, the surviving spouse may make a joint return with
his new spouse provided the other requirements with respect to the
filing of a joint return are met. The second limitation is that the
surviving spouse shall not make a joint return with the deceased spouse
if the taxable year of either spouse is a fractional part of a year
under section 443(a)(1) resulting from a change of accounting period.
For example, if a husband and wife make their returns on the calendar
year basis and the wife dies on March 1, 1956, and thereafter the
husband receives permission to change his annual
[[Page 68]]
accounting period to a fiscal year beginning July 1, 1956, no joint
return shall be made for the short taxable year ending June 30, 1956.
Similarly, if a husband and wife who make their returns on a calendar
year basis receive permission to change to a fiscal year beginning July
1, 1956, and the wife dies on June 1, 1956, no joint return shall be
made for the short taxable year ending June 30, 1956.
(3) Section 6013(a)(3) provides for the method of making a joint
return in the case of the death of one spouse or both spouses. The
general rule is that, in the case of the death of one spouse, or of both
spouses, the joint return with respect to the decedent may be made only
by his executor or administrator, as defined in paragraph (c) of Sec.
1.6013-4. An exception is made to this general rule whereby, in the case
of the death of one spouse, the joint return may be made by the
surviving spouse with respect to both him and the decedent if all the
following conditions exist:
(i) No return has been made by the decedent for the taxable year in
respect of which the joint return is made;
(ii) No executor or administrator has been appointed at or before
the time of making such joint return; and
(iii) No executor or administrator is appointed before the last day
prescribed by law for filing the return of the surviving spouse.
These conditions are to be applied with respect to the return for each
of the taxable years of the decedent for which a joint return may be
made if more than one such taxable year is involved. Thus, in the case
of husband and wife on the calendar year basis, if the wife dies in
February 1957, a joint return for the husband and wife for 1956 may be
made if the conditions set forth in this subparagraph are satisfied with
respect to such return. A joint return also may be made by the survivor
for both himself and the deceased spouse for the calendar year 1957 if
it is separately determined that the conditions set forth in this
subparagraph are satisfied with respect to the return for such year. If,
however, the deceased spouse should, prior to her death, make a return
for 1956, the surviving spouse may not thereafter make a joint return
for himself and the deceased spouse for 1956.
(4) If an executor or administrator is appointed at or before the
time of making the joint return or before the last day prescribed by law
for filing the return of the surviving spouse, the surviving spouse
cannot make a joint return for himself and the deceased spouse whether
or not a separate return for the deceased spouse is made by such
executor or administrator. In such a case, any return made solely by the
surviving spouse shall be treated as his separate return. The joint
return, if one is to be made, must be made by both the surviving spouse
and the executor or administrator. In determining whether an executor or
administrator is appointed before the last day prescribed by law for
filing the return of the surviving spouse, an extension of time for
making the return is included.
(5) If the surviving spouse makes the joint return provided for in
subparagraph (3) of this paragraph and thereafter an executor or
administrator of the decedent is appointed, the executor or
administrator may disaffirm such joint return. This disaffirmance, in
order to be effective, must be made within one year after the last day
prescribed by law for filing the return of the surviving spouse
(including any extension of time for filing such return) and must be
made in the form of a separate return for the taxable year of the
decedent with respect to which the joint return was made. In the event
of such proper disaffirmance the return made by the survivor shall
constitute his separate return, that is, the joint return made by him
shall be treated as his return and the tax thereon shall be computed by
excluding all items properly includible in the return of the deceased
spouse. The separate return made by the executor or administrator shall
constitute the return of the deceased spouse for the taxable year.
(6) The time allowed the executor or administrator to disaffirm the
joint return by the making of a separate return does not establish a new
due date for the return of the deceased spouse. Accordingly, the
provisions of sections 6651 and 6601, relating to delinquent returns and
delinquency in payment of tax, are applicable to such return made
[[Page 69]]
by the executor in disaffirmance of the joint return.
(e) Return of surviving spouse treated as joint return. For
provisions relating to the treatment of the return of a surviving spouse
as a joint return for each of the next two taxable years following the
year of the death of the spouse, see section 2 and Sec. 1.2-2.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 7274, 38 FR
11345, May 7, 1973; T.D. 7670, 45 FR 6929, Jan. 31, 1980]
Sec. 1.6013-2 Joint return after filing separate return.
(a) In general. (1) Where an individual has filed a separate return
for a taxable year for which a joint return could have been made by him
and his spouse under section 6013(a), and the time prescribed by law for
filing the return for such taxable year has expired, such individual and
his spouse may, under conditions hereinafter set forth, make a joint
return for such taxable year. The joint return filed pursuant to section
6013(b) shall constitute the return of the husband and wife for such
year, and all payments, credits, refunds, or other repayments, made or
allowed with respect to the separate return of either spouse are to be
taken into account in determining the extent to which the tax based on
the joint return has been paid.
(2) If a joint return is made under section 6013(b), any election,
other than the election to file a separate return, made by either spouse
in his separate return for the taxable year with respect to the
treatment of any income, deduction, or credit of such spouse shall not
be changed in the making of the joint return where such election would
have been irrevocable if the joint return had not been made. Thus, if
one spouse has made an irrevocable election to adopt and use the last-
in, first-out inventory method under section 472, this election may not
be changed upon making the joint return under section 6013(b).
(3) A joint return made under section 6013(b) after the death of
either spouse shall, with respect to the decedent, be made only by his
executor or administrator. Thus, where no executor or administrator has
been appointed, a joint return cannot be made under section 6013(b).
(4) A nonresidential alien treated as a resident under section 6013
(g) or (h) for any taxable year ending on or after December 31, 1975,
and the alien's U.S. citizen or resident spouse may file a joint return
for that taxable year, even though one or both of the spouses have
previously filed separate returns for that taxable year. In this case,
the rule in paragraph (a)(3) of this section does not apply.
(b) Limitations with respect to making of election. A joint return
shall not be made under section 6013(b)(1) with respect to a taxable
year:
(1) Beginning on or before July 30, 1996, unless there is paid in
full at or before the time of the filing of the joint return the amount
shown as tax upon such joint return; or
(2) After the expiration of three years from the last day prescribed
by law for filing the return for such taxable year determined without
regard to any extension of time granted to either spouse; or
(3) After there has been mailed to either spouse, with respect to
such taxable year, a notice of deficiency under section 6212, if the
spouse, as to such notice, files a petition with the Tax Court of the
United States within the time prescribed in section 6213; or
(4) After either spouse has commenced a suit in any court for the
recovery of any part of the tax for such taxable year; or
(5) After either spouse has entered into a closing agreement under
section 7121 with respect to such taxable year, or after any civil or
criminal case arising against either spouse with respect to such taxable
year has been compromised under section 7122.
(c) When return deemed filed; assessment and collection; credit or
refund. (1) For the purpose of section 6501, relating to the period of
limitations upon assessment and collection, and section 6651, relating
to delinquent returns, a joint return made under section 6013(b) shall
be deemed to have been filed, giving due regard to any extension of time
granted to either spouse, on the following date:
[[Page 70]]
(i) Where both spouses filed separate returns, prior to making the
joint return under section 6013(b), on the date the last separate return
of either spouse was filed for the taxable year, but not earlier than
the last date prescribed by law for the filing of the return of either
spouse;
(ii) Where only one spouse was required and did file a return prior
to the making of the joint return under section 6013(b), on the date of
the filing of the separate return, but not earlier than the last day
prescribed by law for the filing of such return; or
(iii) Where both spouses were required to file a return, but only
one spouse did so file, on the date of the filing of the joint return
under section 6013(b).
(2) For the purpose of section 6511, relating to refunds and
credits, a joint return made under section 6013(b) shall be deemed to
have been filed on the last date prescribed by law for filing the return
for such taxable year, determined without regard to any extension of
time granted to either spouse for filing the return or paying the tax.
(d) Additional time for assessment. In the case of a joint return
made under section 6013(b), the period of limitations provided in
sections 6501 and 6502 shall not be less than one year after the date of
the actual filing of such joint return. The expiration of the one year
is to be determined without regard to the rules provided in paragraph
(c)(1) of this section, relating to the application of sections 6501 and
6651 with respect to a joint return made under section 6013(b).
(e) Additions to the tax and penalties. (1) Where the amount shown
as the tax by the husband and wife on a joint return made under section
6013(b) exceeds the aggregate of the amounts shown as tax on the
separate return of each spouse, and such excess is attributable to
negligence, intentional disregard of rules and regulations, or fraud at
the time of the making of such separate return, there shall be assessed,
collected, and paid in the same manner as if it were a deficiency an
additional amount as provided by the following:
(i) If any part of such excess is attributable to negligence, or
intentional disregard of rules and regulations, at the time of the
making of such separate return, but without any intent to defraud, this
additional amount shall be 5 percent of the total amount of the excess.
(ii) If any part of such excess is attributable to fraud with intent
to evade tax at the time of the making of such separate return, this
additional amount shall be 50 percent of the total amount of the excess.
The latter addition is in lieu of the 50 percent addition to the tax
provided in section 6653(b).
(2) For purposes of section 7206 (1) and (2) and section 7207
(relating to criminal penalties in the case of fraudulent returns), the
term ``return'' includes a separate return filed by a spouse with
respect to a taxable year for which a joint return is made under section
6013(b) after the filing of a separate return.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 7670, 45 FR
6929, Jan. 31, 1980; T.D. 8725, 62 FR 39117, July 22, 1997]
Sec. 1.6013-3 Treatment of joint return after death of either spouse.
For purposes of section 21 (relating to change in rates during a
taxable year), section 443 (relating to returns for a period of less
than 12 months), and section 7851(a)(1)(A) (relating to the
applicability of certain provisions of the Internal Revenue Code of 1954
and the Internal Revenue Code of 1939), where the husband and wife have
different taxable years because of death of either spouse, the joint
return shall be treated as if the taxable years of both ended on the
date of the closing of the surviving spouse's taxable year. Thus, in
cases where the Internal Revenue Code of 1939 otherwise would apply to
the taxable year of the decedent spouse and the Internal Revenue Code of
1954 would apply to the taxable year of the surviving spouse, this
provision makes the Internal Revenue Code of 1954 applicable to the
taxable years of both spouses if a joint return is filed.
Sec. 1.6013-4 Applicable rules.
(a) Status as husband and wife. For the purpose of filing a joint
return under section 6013, the status as husband and wife of two
individuals having taxable years beginning on the same day shall be
determined:
[[Page 71]]
(1) If the taxable year of each individual is the same, as of the
close of such year; and
(2) If the close of the taxable year is different by reason of the
death of one spouse, as of the time of such death.
An individual legally separated from his spouse under a decree of
divorce or of separate maintenance shall not be considered as married.
However, the mere fact that spouses have not lived together during the
course of the taxable year shall not prohibit them from making a joint
return. A husband and wife who are separated under an interlocutory
decree of divorce retain the relationship of husband and wife until the
decree becomes final. The fact that the taxpayer and his spouse are
divorced or legally separated at any time after the close of the taxable
year shall not deprive them of their right to file a joint return for
such taxable year under section 6013.
(b) Computation of income, deductions, and tax. If a joint return is
made, the gross income and adjusted gross income of husband and wife on
the joint return are computed in an aggregate amount and the deductions
allowed and the taxable income are likewise computed on an aggregate
basis. Deductions limited to a percentage of the adjusted gross income,
such as the deduction for charitable, etc., contributions and gifts,
under section 170, will be allowed with reference to such aggregate
adjusted gross income. A similar rule is applied in the case of the
limitation of section 1211(b) on the allowance of losses resulting from
the sale or exchange of capital assets (see Sec. 1.1211-1). Although
there are two taxpayers on a joint return, there is only one taxable
income. The tax on the joint return shall be computed on the aggregate
income and the liability with respect to the tax shall be joint and
several. For computation of tax in the case of a joint return, see Sec.
1.2-1. For tax in the case of a joint return of husband and wife
electing to pay the optional tax under section 3, see Sec. 1.3-1. For
the election not to show on a joint return the amount of tax due in
connection therewith, see paragraph (c) of Sec. 1.6014-1 and paragraph
(d) of Sec. 1.6014-2. For separate computations of the self-employment
tax of each spouse on a joint return, see paragraph (b) of Sec. 1.6017-
1.
(c) Definition of executor or administrator. For purposes of section
6013 the term ``executor or administrator'' means the person who is
actually appointed to such office and not a person who is merely in
charge of the property of the decedent.
(d) Return signed under duress. If an individual asserts and
establishes that he or she signed a return under duress, the return is
not a joint return. The individual who signed such return under duress
is not jointly and severally liable for the tax shown on the return or
any deficiency in tax with respect to the return. The return is adjusted
to reflect only the tax liability of the individual who voluntarily
signed the return, and the liability is determined at the applicable
rates in section 1(d) for married individuals filing separate returns.
Section 6212 applies to the assessment of any deficiency in tax on such
return.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 7102, 36 FR
5497, Mar. 24, 1971; T.D. 9003, 67 FR 47285, July 18, 2002]
Sec. 1.6013-6 Election to treat nonresident alien individual as
resident of the United States.
(a) Election for special treatment--(1) In general. Two individuals
who are husband and wife at the close of a taxable year ending on or
after December 31, 1975, may make an election under this section for
that taxable year if, at the close of that year, one spouse is a citizen
or resident of the United States and the other spouse is a nonresident
alien. The effect of the election is that each spouse is treated as a
resident of the United States for purposes of chapters 1, 5, and 24 and
sections 6012, 6013, 6072, and 6091 of the Code for the entire taxable
year. An election made under this section is in effect for the taxable
year for which made and for all subsequent years of the husband and
wife, except:
(i) Any taxable year for which the election is suspended, as
described in paragraph (a)(3) of this section, and
(ii) Any taxable year for which the election is terminated in
accordance with paragraph (b) of this section and all subsequent taxable
years.
[[Page 72]]
A husband and wife may not make an election if an election previously
made under this section by either spouse has been terminated under
paragraph (b) of this section.
(2) Particular rules. (i) As used in paragraph (a)(3) of this
section, the term ``U.S. spouse'' means any married individual who is a
citizen or resident of the United States at any time during a taxable
year.
(ii) An individual's residence is determined by application of the
principles of Sec. Sec. 301.7701(b)-1 through 301.7701(b)-9 of this
chapter relating to what constitutes residence in the United States by
an alien individual.
(iii) Whether two individuals are married at the close of a taxable
year is determined by application of the rules in Sec. 1.6013-4(a).
(iv) The provisions of section 879 and the regulations thereunder
shall not apply for any taxable year for which an election under this
section is in effect.
(v) An individual who makes an election under this section may not,
for United States income tax purposes, claim under any United States
income tax treaty not to be a U.S. resident. The relationship of U.S.
income tax treaties and the election under this section is illustrated
by the following example.
Example. H, a U.S. citizen, is married to W, a nonresident alien of
the United States and a domiciliary of country X. H and W maintain their
only permanent home in country X. W receives both U.S. source and
country X source interest during the taxable year. The interest is not
effectively connected with a permanent establishment or a fixed base in
any country. H and W make the section 6013 (g) election. Under article
ii (1) of the United States--country X Income Tax Convention interest
derived and beneficially owned by a resident of one contracting state is
exempt from tax in the other contracting state. Article 4 (1) of the
treaty provides that an individual is a resident of a contracting state
if subject to tax in that country by reason of the individual's
domicile, residence, or citizenship. Under article 4 (1) of the treaty,
W is a resident of country X by virtue of her domicile in country X and
also of the United States by virtue of the section 6013 (g) election.
Article 4 (2) of the treaty provides that if an individual is a resident
of both the United States and country X by reason of article 4 (1), the
individual shall be deemed to be a resident of the contracting state in
which he or she has a permanent home available. Because W's sole
permanent home is in country X, under article 4 (2) of the treaty W is
treated as a resident of country X for purposes of the treaty. Because W
has elected under section 6013(g) to be treated as a U.S. resident (and
thus to be taxed on worldwide income), W may not, for U.S. income tax
purposes, claim under the treaty not to be a U.S. resident. W,
therefore, is subject to U.S. income tax on the interest. For purposes
of country X income tax, W is considered a resident of country X under
the treaty.
(3) Suspension of election. (i) An election made under this section
is suspended and is not in effect for a taxable year subsequent to the
first taxable year for which made if neither spouse is a U.S. spouse
during that subsequent taxable year. Thus, for example, the election is
in suspense if both spouses are nonresident aliens for the entire
taxable year.
(ii) If either spouse dies during any taxable year for which the
election under this section is in effect, other than the first taxable
year for which the election is to be in effect, the taxable year shall
include, solely for purposes of this paragraph (a)(3), only those days
during the taxable year on which both spouses are alive. Thus, for
example, if the U.S. spouse dies during the taxable year, the election
is not suspended for that year even if the surviving nonresident alien
spouse never acquires U.S. citizenship or residency. Similarly, if the
nonresident alien spouse dies during the taxable year, the election is
not suspended for that year even if the surviving U.S. spouse
subsequently abandons U.S. citizenship or residency. However, if neither
spouse was a U.S. spouse at any time during the period of the taxable
year when both spouses were alive, the election is suspended for that
year even if the surviving spouse subsequently acquires U.S. citizenship
or residency.
For the effect of the death of either spouse on the status of the
election in subsequent taxable years, see paragraph (b)(2) of this
section.
(4) Time and manner of making an election. (i) A husband and wife
shall make the election under this section by attaching a statement to a
joint return for the first taxable year for which the election is to be
in effect. The election must be made before the expiration of the period
prescribed by section 6511(a)
[[Page 73]]
(or section 6511(c) if the period is extended by agreement) for making a
claim for credit or refund. If either or both spouses die after the
close of the taxable year but before the joint return is filed, the
election may be made by the executor, administrator, or other person
charged with the property of the deceased spouse. If the election is
made with a joint amended return, the amended return should be made on
Form 1040 or 1040A, the word ``Amended'' should be written clearly on
the front of the return, and an amended return also must be filed for
each subsequent taxable year as to which a return previously has been
filed by either spouse.
(ii) The statement must contain a declaration that the election is
being made and that the requirements of paragraph (a)(1) of this section
are met for the taxable year. The statement must also contain the name,
address, and taxpayer identifying number of each spouse. If the election
is being made on behalf of a deceased spouse, the statement must contain
the name and address of the executor, administrator, or other person
making the election on behalf of the decreased spouse. The statement
must be signed by both persons making the election.
(b) Termination of election--(1) Revocation. (i) An election under
this section shall terminate if either spouse revokes the election. An
election that is revoked terminates as of the first taxable year for
which the last day prescribed by section 6072(a) and 6081(a) for filing
the return of tax has not yet occurred.
(ii) Revocation of the election is made by filing a statement of
revocation in the following manner. If the spouse revoking the election
is required to file a return under section 6012, the statement is filed
by attaching it to the return for the first taxable year to which the
revocation applies. If the spouse revoking the election is not required
to file a return under section 6012, but files a claim for refund under
section 6511, the statement is filed by attaching it to the claim for
refund. If the spouse revoking the election is not required to file a
return and does not file a claim for refund, the statement is filed by
submitting it to the service center director with whom was filed the
most recent joint return of the spouses. The revocation may, if the
revoking spouse dies after the close of the first taxable year to which
the revocation applies but before the return, claim for refund, or
statement of revocation is filed, be made by the executor, administrator
or other person charged with the property of the deceased spouse.
(iii) A revocation of the election is effective as of a particular
taxable year if it is filed on or before the last day prescribed by
section 6072(a) and 6081(a) for filing the return of tax for that
taxable year. However, the revocation is not final until that last day.
(iv) The statement of revocation must contain a declaration that the
election under this section is being revoked. The statement must also
contain the name, address, and taxpayer identifying number of each
spouse. If the revocation is being made on behalf of a deceased spouse,
the statement must contain the name and address of the executor,
administrator, or other person revoking the election on behalf of the
deceased spouse. The statement must also include a list of the States,
foreign countries, and possessions of the United States which have
community property laws and in which:
(A) Each spouse is domiciled, or
(B) real property is located from which either of the spouses
receives income.
The statement must be signed by the person revoking the election.
(2) Death. An election under this section shall terminate if either
spouse dies. An election that terminates on account of death terminates
as of the first taxable year of the surviving spouse following the
taxable year in which the death occurred. However, if the surviving
spouse is a citizen or resident of the United States who is entitled to
the benefits of section 2, the election terminates as of the first
taxable year following the last taxable year for which the surviving
spouse is entitled to the benefits of section 2. If both spouses die
within the same taxable year, the election terminates as of the first
day after the close of the taxable year in which the deaths occurred.
[[Page 74]]
(3) Legal separation. An election under this section terminates if
the spouses legally separate under a degree of divorce or of separate
maintenance. An election that terminates on account of legal separation
terminates as of the close of the taxable year preceding the taxable
year in which the separation occurs. The rules in Sec. 1.6013-4(a) are
relevant in determining whether two spouses are legally separated.
(4) Inadequate records. An election under this section may be
terminated by the Commissioner if it is determined that either spouse
has failed to keep adequate records. An election that is terminated on
account of inadequate records terminates as of the close of the taxable
year preceding the taxable year for which the Commissioner determines
that the election should be terminated. Adequate records are the books,
records, and other information reasonably necessary to ascertain the
amount of liability for taxes under chapters 1, 5, and 24 of the code of
either spouse for the taxable year. Adequate records also includes the
granting of access to the books and records.
(c) Illustrations. The application of this section is illustrated by
the following examples. In each case the individual's taxable year is
the calendar year and the spouses are not legally separated.
Example (1). W, a U.S. citizen for the entire taxable year 1979, is
married to H, a nonresident alien individual. W and H may make the
section 6013(g) election for 1979 by filing the statement of election
with a joint return. If W and H make the election, income from sources
within and without the United States received by W and H in 1979 and
subsequent years must be included in gross income for each taxable year
unless the election later is terminated or suspended. While W and H must
file a joint return for 1979, joint or separate returns may be filed for
subsequent years.
Example (2). H and W are husband and wife and are both nonresident
alien individuals. In June 1980 H becomes a U.S. resident and remains a
resident for the balance of the year. H and W may make the section
6013(g) election for 1980. If H and W make the election, income from
sources within and without the United States received by H and W for the
entire taxable year 1980 and subsequent years must be included in gross
income for each taxable year, unless the election later is terminated or
suspended.
Example (3) . W, a U.S. resident on December 31, 1981, is married to
H, a nonresident alien. W and H make the section 6013(g) election and
file joint returns for 1981 and succeeding years. On January 10, 1987, W
becomes a nonresident alien. H has remained a nonresident alien. W and H
may file a joint return or separate returns for 1987. As neither W or H
is a U.S. resident at any time during 1988, their election is suspended
for 1988. If W and H have U.S. source or foreign source income
effectively connected with the conduct of a U.S. trade or business in
1988, they must file separate returns as nonresident aliens. W becomes a
U.S. resident again on January 5, 1990. Their election no longer is in
suspense. Income from sources within and without the United States
received by W or H in the years their election is not suspended must be
included in gross income for each taxable year.
Example (4). H, a U.S. citizen for the entire taxable year 1979, is
married to W, who is not a U.S. citizen. While W believes that she is a
U.S. resident, H and W make the section 6013(g) election for 1979 to
cover the possibility that later it would be determined that she is a
nonresident alien during 1979. The election for 1979 will not be
considered evidence that W was a nonresident alien in prior years.
Income from sources within and without the United States received by H
and W in 1979 and subsequent years must be included in gross income for
each taxable year, unless the election later is terminated or suspended.
[T.D. 7670, 45 FR 6929, Jan. 31, 1980, as amended by T.D. 7842, 47 FR
49842, Nov. 3, 1982; T.D. 8411, 57 FR 15241, Apr. 27, 1992]
Sec. 1.6013-7 Joint return for year in which nonresident alien
becomes resident of the United States.
(a) Election for special treatment--(1) In general. Two individuals
who are husband and wife at the close of a taxable year ending on or
after December 31, 1975, may make an election under this section for
that taxable year if one spouse is a citizen or resident of the United
States on the last day of that taxable year and the other spouse is a
nonresident alien at the beginning of that taxable year and a citizen or
resident of the United States at the close of that taxable year. Two
married individuals who are nonresident aliens at the beginning of a
taxable year and who are U.S. citizens or residents on the last day of
that taxable year qualify for the election. The effect of the election
is that each spouse is treated as a resident of the United States for
[[Page 75]]
purposes of chapters 1, 5, and 24 and sections 6012, 6013, 6072, and
6091 of the code for all of that taxable year. A husband and wife may
not make an election if an election has previously been made under this
section by either spouse.
(2) Particular rules. The rules in subdivisions (ii) through (v) of
Sec. 1.6013-6(a)(2) are applicable to this section.
(3) Time and manner of making an election. A husband and wife shall
make the election under this section in accordance with the rules in
Sec. 1.6013-6(a)(4).
(b) Section 6013(g) election in effect. If an election under section
6013(g) is in effect for a year subsequent to the first taxable year for
which made and during that subsequent year the husband and wife meet the
requirements of section 6013(h) and paragraph (a)(1) of this section,
then the election under section 6013(g) shall apply to that subsequent
taxable year. A separate election under section 6013(h) is not required
for that subsequent taxable year.
[T.D. 7670, 45 FR 6931, Jan. 31, 1980]
Sec. 1.6014-1 Tax not computed by taxpayer for taxable years
beginning before January 1, 1970.
(a) In general. If an individual is entitled under paragraph (a)(7)
of Sec. 1.6012-1 to use as his return Form 1040A, he may elect not to
show thereon the amount of the tax due in connection with such return if
his gross income is less than $5,000.
(b) Computation and payment of tax. A taxpayer who, in accordance
with paragraph (a) of this section, elects not to show the tax on Form
1040A is not required to pay the unpaid balance of such tax at the time
he files the return. In such case, the tax will be computed for the
taxpayer by the Internal Revenue Service, and a notice will be mailed to
the taxpayer stating the amount of tax due. Where it is determined that
a refund of tax is due, the Internal Revenue Service will send such
refund to the taxpayer. See paragraph (c) of Sec. 301.6402-3 of this
chapter (Regulations on Procedure and Administration).
(c) Joint return. (1) A husband and wife who, pursuant to paragraph
(a)(7) of Sec. 1.6012-1, file a joint return on Form 1040A may elect
not to show the tax on such return if their aggregate gross income for
the taxable year is less than $5,000.
(2) The tax computed for the taxpayer who files Form 1040A and
elects not to show thereon the tax due shall be the lesser of the
following amounts:
(i) A tax computed as though the return on Form 1040A constituted
the separate returns of the spouses, or
(ii) A tax computed as though the return on Form 1040A constituted a
joint return.
(d) Married individuals filing separate returns. In the case of a
married individual who files a separate return and who elects under this
section not to show his tax on Form 1040A his tax shall be computed with
reference to the 10-percent standard deduction rather than the minimum
standard deduction.
(e) This section shall apply to taxable years beginning before
January 1, 1970.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6581, 26 FR
11678, Dec. 6, 1961; T.D. 6792, 30 FR 531, Jan. 15, 1965; T.D. 7102, 36
FR 5497, Mar. 24, 1971]
Sec. 1.6014-2 Tax not computed by taxpayer for taxable years beginning
after December 31, 1969.
(a) In general. An individual subject to the tax imposed by section
1 of the Code may, in accordance with the instructions applicable to the
income tax return to be filed, elect, for any taxable year beginning
after December 31, 1969, not to show on his income tax return for such
year the amount of tax due in connection with such return.
(b) Restriction on making an election. The election pursuant to this
section shall not be made by an individual who does not file his return
(or amended return) making such election on or before the date
prescribed in section 6072(a) for the filing of the original return
(determined without regard to any extension of time).
(c) Effects of election. (1) A taxpayer who, in accordance with the
provisions of this section, elects not to show the tax on his income tax
return is not required to pay the unpaid balance of such tax at the time
he files the return. In such case, the tax will be computed for the
taxpayer by the Internal Revenue Service, and a notice will be
[[Page 76]]
mailed to the taxpayer stating the amount of tax due. Where it is
determined that a refund of tax is due, the Internal Revenue Service
will send such refund to the taxpayer. See paragraph (c) of Sec.
301.6402-3 of this chapter (Regulations on Procedure and
Administration). The computation of tax by the Internal Revenue Service
shall be treated for purposes of this chapter as if made by the
taxpayer, and such computation or the issuance of a notice or refund
pursuant thereto shall not relieve the taxpayer of liability for any
deficiency (although the deficiency is based upon an amount of tax
different from that computed for the taxpayer by the Internal Revenue
Service) or affect the rights of the Internal Revenue Service with
respect to any subsequent audit or other review of the taxpayer's
return.
(2) Where the election provided for in this section is made by a
taxpayer who takes the standard deduction and who has adjusted gross
income of less than $10,000, such election constitutes an election to
pay the tax imposed by section 3.
(3) A taxpayer who makes an election under section 6014 shall not be
precluded from claiming:
(i) Status as a head of household or a surviving spouse;
(ii) The credit under section 31 (relating to tax withheld on
wages);
(iii) The credit under section 37 (relating to retirement income);
(iv) The credit under section 38 (relating to investment in certain
depreciable property);
(v) The credit under section 39 (relating to certain uses of
gasoline and lubricating oil);
(vi) The credit under section 41 (relating to contributions to
candidates for public office);
(vii) The credit under section 42 (relating to personal exemptions);
(viii) The credit under section 43 (relating to earned income);
(ix) The credit under section 44 (relating to purchase of new
principal residence); or
(x) The credit under section 45 (relating to overpayments of tax).
(d) Joint returns. (1) A husband and wife who file a joint return
may elect not to show the tax on such return in accordance with the
rules prescribed in paragraphs (a) and (b) of this section.
(2) The tax computed for a husband and wife who elect pursuant to
this section not to show their tax on their joint income tax return
shall be the lesser of the following amounts:
(i) A tax computed as though the return of income constituted a
joint return, or
(ii) If sufficient information is provided for the taxable income of
each spouse to be determined, a tax computed as though the return of
income constituted the separate returns of the spouses.
(e) Married individuals filing separate returns. This section shall
apply to married individuals filing separate returns unless otherwise
provided in the instructions accompanying a return. The instructions may
require the taxpayer to attach to his return a statement to the effect
that his tax and the tax of his spouse were determined in accordance
with the rules of sections 141(d) and 142(a).
(f) Revocation of election. An election pursuant to this section may
be revoked on an amended return (whether such return is filed before or
after the date prescribed in section 6072(a) for filing the original
return).
[T.D. 7102, 36 FR 5497, Mar. 24, 1971, as amended by T.D. 7298, 38 FR
35234, Dec. 26, 1973; T.D. 7391, 40 FR 55856, Dec. 2, 1975]
Sec. 1.6015-0 Table of contents.
This section lists captions contained in Sec. Sec. 1.6015-1 through
1.6015-9.
Sec. 1.6015-1 Relief from joint and several liability on a joint
return.
(a) In general.
(b) Duress.
(c) Prior closing agreement or offer in compromise.
(1) In general.
(2) Exception for agreements relating to TEFRA partnership
proceedings.
(3) Examples.
(d) Fraudulent scheme.
(e) Res judicata and collateral estoppel.
(f) Community property laws.
(1) In general.
(2) Example.
(g) Scope of this section and Sec. Sec. 1.6015-2 through 1.6015-9.
(h) Definitions.
(1) Requesting spouse.
(2) Nonrequesting spouse.
[[Page 77]]
(3) Item.
(4) Erroneous item.
(5) Election or request.
(i) [Reserved]
(j) Transferee liability.
(1) In general.
(2) Example.
Sec. 1.6015-2 Relief from liability applicable to all qualifying joint
filers.
(a) In general.
(b) Understatement.
(c) Knowledge or reason to know.
(d) Inequity.
(e) Partial relief.
(1) In general.
(2) Example.
Sec. 1.6015-3 Allocation of liability for individuals who are no longer
married, are legally separated, or are not members of the same
household.
(a) Election to allocate liability.
(b) Definitions.
(1) Divorced.
(2) Legally separated.
(3) Members of the same household.
(i) Temporary absences.
(ii) Separate dwellings.
(c) Limitations.
(1) No refunds.
(2) Actual knowledge.
(i) In general.
(A) Omitted income.
(B) Deduction or credit.
(1) Erroneous deductions in general.
(2) Fictitious or inflated deduction.
(ii) Partial knowledge.
(iii) Knowledge of the source not sufficient.
(iv) Factors supporting actual knowledge.
(v) Abuse exception.
(3) Disqualified asset transfers.
(i) In general.
(ii) Disqualified asset defined.
(iii) Presumption.
(4) Examples.
(d) Allocation.
(1) In general.
(2) Allocation of erroneous items.
(i) Benefit on the return.
(ii) Fraud.
(iii) Erroneous items of income.
(iv) Erroneous deduction items.
(3) Burden of proof.
(4) General allocation method.
(i) Proportionate allocation.
(ii) Separate treatment items.
(iii) Child's liability.
(iv) Allocation of certain items.
(A) Alternative minimum tax.
(B) Accuracy-related and fraud penalties.
(5) Examples.
(6) Alternative allocation methods.
(i) Allocation based on applicable tax rates.
(ii) Allocation methods provided in subsequent published guidance.
(iii) Example.
Sec. 1.6015-4 Equitable relief.
Sec. 1.6015-5 Time and manner for requesting relief.
(a) Requesting relief.
(b) Time period for filing a request for relief.
(1) In general.
(2) Definitions.
(i) Collection activity.
(ii) Section 6330 notice.
(3) Requests for relief made before commencement of collection
activity.
(4) Examples.
(5) Premature requests for relief.
(c) Effect of a final administrative determination.
Sec. 1.6015-6 Nonrequesting spouse's notice and opportunity to
participate in administrative proceedings.
(a) In general.
(b) Information submitted.
(c) Effect of opportunity to participate.
(2) Waiver of the restrictions on collection.
Sec. 1.6015-7 Tax Court review.
(a) In general.
(b) Time period for petitioning the Tax Court.
(c) Restrictions on collection and suspension of the running of the
period of limitations.
(1) Restrictions on collection under Sec. 1.6015-2 or 1.6015-3.
(2) Waiver of the restrictions on collection.
(3) Suspension of the running of the period of limitations.
(i) Relief under Sec. 1.6015-2 or 1.6015-3.
(ii) Relief under Sec. 1.6015-4.
(4) Definitions.
(i) Levy.
(ii) Proceedings in court.
(iii) Assessment to which the election relates.
Sec. 1.6015-8 Applicable liabilities.
(a) In general.
(b) Liabilities paid on or before July 22, 1998.
(c) Examples.
Sec. 1.6015-9 Effective date.
[T.D. 9003, 67 FR 47285, July 18, 2002]
Sec. 1.6015-1 Relief from joint and several liability on a joint return.
(a) In general. (1) An individual who qualifies and elects under
section 6013 to file a joint Federal income tax return with another
individual is jointly and severally liable for the joint Federal income
tax liabilities for that year. A spouse or former spouse may be
[[Page 78]]
relieved of joint and several liability for Federal income tax for that
year under the following three relief provisions:
(i) Innocent spouse relief under Sec. 1.6015-2.
(ii) Allocation of deficiency under Sec. 1.6015-3.
(iii) Equitable relief under Sec. 1.6015-4.
(2) A requesting spouse may submit a single claim electing relief
under both or either Sec. Sec. 1.6015-2 and 1.6015-3, and requesting
relief under Sec. 1.6015-4. However, equitable relief under Sec.
1.6015-4 is available only to a requesting spouse who fails to qualify
for relief under Sec. Sec. 1.6015-2 and 1.6015-3. If a requesting
spouse elects the application of either Sec. 1.6015-2 or 1.6015-3, the
Internal Revenue Service will consider whether relief is appropriate
under the other elective provision and, to the extent relief is
unavailable under either, under Sec. 1.6015-4. If a requesting spouse
seeks relief only under Sec. 1.6015-4, the Secretary may not grant
relief under Sec. 1.6015-2 or 1.6015-3 in the absence of an affirmative
election made by the requesting spouse under either of those sections.
If in the course of reviewing a request for relief only under Sec.
1.6015-4, the IRS determines that the requesting spouse may qualify for
relief under Sec. 1.6015-2 or 1.6015-3 instead of Sec. 1.6015-4, the
Internal Revenue Service will correspond with the requesting spouse to
see if the requesting spouse would like to amend his or her request to
elect the application of Sec. 1.6015-2 or 1.6015-3. If the requesting
spouse chooses to amend the claim for relief, the requesting spouse must
submit an affirmative election under Sec. 1.6015-2 or 1.6015-3. The
amended claim for relief will relate back to the original claim for
purposes of determining the timeliness of the claim.
(3) Relief is not available for liabilities that are required to be
reported on a joint Federal income tax return but are not income taxes
imposed under Subtitle A of the Internal Revenue Code (e.g., domestic
service employment taxes under section 3510).
(b) Duress. For rules relating to the treatment of returns signed
under duress, see Sec. 1.6013-4(d).
(c) Prior closing agreement or offer in compromise--(1) In general.
A requesting spouse is not entitled to relief from joint and several
liability under Sec. 1.6015-2, 1.6015-3, or 1.6015-4 for any tax year
for which the requesting spouse has entered into a closing agreement
with the Commissioner that disposes of the same liability that is the
subject of the claim for relief. In addition, a requesting spouse is not
entitled to relief from joint and several liability under Sec. 1.6015-
2, 1.6015-3, or 1.6015-4 for any tax year for which the requesting
spouse has entered into an offer in compromise with the Commissioner.
For rules relating to the effect of closing agreements and offers in
compromise, see sections 7121 and 7122, and the regulations thereunder.
(2) Exception for agreements relating to TEFRA partnership
proceedings. The rule in paragraph (c)(1) of this section regarding the
unavailability of relief from joint and several liability when the
liability to which the claim for relief relates was the subject of a
prior closing agreement entered into by the requesting spouse, shall not
apply to an agreement described in section 6224(c) with respect to
partnership items (or any penalty, addition to tax, or additional amount
that relates to adjustments to partnership items) that is entered into
while the requesting spouse is a party to a pending partnership-level
proceeding conducted under the provisions of subchapter C of chapter 63
of subtitle F of the Internal Revenue Code (TEFRA partnership
proceeding). If, however, a requesting spouse enters into a closing
agreement pertaining to any penalty, addition to tax, or additional
amount that relates to adjustments to partnership items, at a time when
the requesting spouse is not a party to a pending TEFRA partnership
proceeding (e.g., in connection with an affected items proceeding), then
the provisions of paragraph (c)(1) shall apply. Similarly, if a
requesting spouse enters into a closing agreement with respect to both
partnership items (including affected items) and nonpartnership items,
while the requesting spouse is a party to a pending TEFRA partnership
proceeding, the provisions of paragraph (c)(1) shall apply to the
portion of the closing agreement that relates to nonpartnership items
and the provisions of this paragraph (c)(2)
[[Page 79]]
shall apply to the remainder of the closing agreement.
(3) Examples. The following examples illustrate the rules of this
paragraph (c):
Example 1. H and W file joint returns for taxable years 2002-2004,
on which they claim losses attributable to H's limited partnership
interest in Partnership A. In January 2006, the Internal Revenue Service
commences an audit under the provisions of subchapter C of chapter 63 of
subtitle F of the Internal Revenue Code (TEFRA partnership proceeding)
regarding Partnership A's 2002-2004 taxable years, and sends H and W a
notice under section 6223(a)(1). In September 2007, H files a bankruptcy
petition under chapter 7 of the Bankruptcy Code and receives a discharge
in April 2008. In August 2008, H and W enter into a closing agreement
with the Internal Revenue Service, in which H and W agree to the
disallowance of some of the claimed losses from Partnership A for
taxable years 2002 through 2007. W may not later claim relief from joint
and several liability under section 6015 as to the disallowed losses
attributable to Partnership A for taxable years 2002 to 2007. This is
because at the time W entered into the closing agreement, H's
partnership items attributable to Partnership A had converted to
nonpartnership items as a result of H's filing of the bankruptcy
petition. The conversion of H's items also terminated W's status as a
partner in the TEFRA partnership proceeding regarding Partnership A.
Consequently, the closing agreement did not pertain to partnership items
and W was not a party to a pending partnership-level proceeding
regarding Partnership A when she entered into the closing agreement.
Accordingly, the exception in paragraph (c)(2) of this section for
agreements relating to TEFRA partnership proceedings does not apply.
Example 2. H and W file a joint return for taxable year 2002, on
which they claim $25,000 in losses attributable to H's general
partnership interest in Partnership B. In November 2003, the Service
proposes a deficiency in tax relating to H's and W's 2002 joint return
arising from omitted taxable interest income in the amount of $2,000
that is attributable to H. In July 2005, the Internal Revenue Service
commences a TEFRA partnership proceeding regarding Partnership B's 2002
and 2003 taxable years, and sends H and W a notice under section
6223(a)(1). In March 2006, H and W enter into a closing agreement with
the Service. The closing agreement provides for the disallowance of the
claimed losses from Partnership B in excess of H's and W's out-of-pocket
expenditures relating to Partnership B for taxable year 2002 and any
subsequent year(s) in which H and W claimed losses from Partnership B.
In addition, H and W agree to the imposition of the accuracy-related
penalty under section 6662 with respect to the disallowed losses
attributable to partnership B. In the closing agreement, H and W also
agree to the deficiency resulting from the omitted interest income for
taxable year 2002. W may not later claim relief from joint and several
liability under section 6015 as to the deficiency in tax attributable to
the omitted income of $2,000 for taxable year 2002, because this portion
of the closing agreement pertains to nonpartnership items. In contrast,
W may claim relief from joint and several liability as to the disallowed
losses and accuracy-related penalty attributable to Partnership B for
taxable year 2002 or any subsequent year(s). This is because this
portion of the closing agreement pertains to partnership and affected
items and was entered into at a time when W was a party to the pending
partnership-level proceeding regarding Partnership B. Consequently, W
never had the opportunity to raise the innocent spouse defense in the
course of that TEFRA partnership proceeding. (See Sec. 1.6015-5(b)(5)
relating to premature claims).
(d) Fraudulent scheme. If the Secretary establishes that a spouse
transferred assets to the other spouse as part of a fraudulent scheme,
relief is not available under section 6015, and section 6013(d)(3)
applies to the return. For purposes of this section, a fraudulent scheme
includes a scheme to defraud the Service or another third party,
including, but not limited to, creditors, ex-spouses, and business
partners.
(e) Res judicata and collateral estoppel. A requesting spouse is
barred from relief from joint and several liability under section 6015
by res judicata for any tax year for which a court of competent
jurisdiction has rendered a final decision on the requesting spouse's
tax liability if relief under section 6015 was at issue in the prior
proceeding, or if the requesting spouse meaningfully participated in
that proceeding and could have raised relief under section 6015. A
requesting spouse has not meaningfully participated in a prior
proceeding if, due to the effective date of section 6015, relief under
section 6015 was not available in that proceeding. Also, any final
decisions rendered by a court of competent jurisdiction regarding issues
relevant to section 6015 are conclusive and the requesting spouse may be
collaterally estopped from relitigating those issues.
[[Page 80]]
(f) Community property laws--(1) In general. In determining whether
relief is available under Sec. 1.6015-2, 1.6015-3, or 1.6015-4, items
of income, credits, and deductions are generally allocated to the
spouses without regard to the operation of community property laws. An
erroneous item is attributed to the individual whose activities gave
rise to such item. See Sec. 1.6015-3(d)(2).
(2) Example. The following example illustrates the rule of this
paragraph (f):
Example. (i) H and W are married and have lived in State A (a
community property state) since 1987. On April 15, 2003, H and W file a
joint Federal income tax return for the 2002 taxable year. In August
2005, the Internal Revenue Service proposes a $17,000 deficiency with
respect to the 2002 joint return. A portion of the deficiency is
attributable to $20,000 of H's unreported interest income from his
individual bank account. The remainder of the deficiency is attributable
to $30,000 of W's disallowed business expense deductions. Under the laws
of State A, H and W each own \1/2\ of all income earned and property
acquired during the marriage.
(ii) In November 2005, H and W divorce and W timely elects to
allocate the deficiency. Even though the laws of State A provide that
\1/2\ of the interest income is W's, for purposes of relief under this
section, the $20,000 unreported interest income is allocable to H, and
the $30,000 disallowed deduction is allocable to W. The community
property laws of State A are not considered in allocating items for this
purpose.
(g) Scope of this section and Sec. Sec. 1.6015-2 through 1.6015-9.
This section and Sec. Sec. 1.6015-2 through 1.6015-9 do not apply to
any portion of a liability for any taxable year for which a claim for
credit or refund is barred by operation of law or rule of law.
(h) Definitions--(1) Requesting spouse. A requesting spouse is an
individual who filed a joint return and elects relief from Federal
income tax liability arising from that return under Sec. 1.6015-2 or
1.6015-3, or requests relief from Federal income tax liability arising
from that return under Sec. 1.6015-4.
(2) Nonrequesting spouse. A nonrequesting spouse is the individual
with whom the requesting spouse filed the joint return for the year for
which relief from liability is sought.
(3) Item. An item is that which is required to be separately listed
on an individual income tax return or any required attachments. Items
include, but are not limited to, gross income, deductions, credits, and
basis.
(4) Erroneous item. An erroneous item is any item resulting in an
understatement or deficiency in tax to the extent that such item is
omitted from, or improperly reported (including improperly
characterized) on an individual income tax return. For example,
unreported income from an investment asset resulting in an
understatement or deficiency in tax is an erroneous item. Similarly,
ordinary income that is improperly reported as capital gain resulting in
an understatement or deficiency in tax is also an erroneous item. In
addition, a deduction for an expense that is personal in nature that
results in an understatement or deficiency in tax is an erroneous item
of deduction. An erroneous item is also an improperly reported item that
affects the liability on other returns (e.g., an improper net operating
loss that is carried back to a prior year's return). Penalties and
interest are not erroneous items. Rather, relief from penalties and
interest will generally be determined based on the proportion of the
total erroneous items from which the requesting spouse is relieved. If a
penalty relates to a particular erroneous item, see Sec. 1.6015-
3(d)(4)(iv)(B).
(5) Election or request. A qualifying election under Sec. 1.6015-2
or 1.6015-3, or request under Sec. 1.6015-4, is the first timely claim
for relief from joint and several liability for the tax year for which
relief is sought. A qualifying election also includes a requesting
spouse's second election to seek relief from joint and several liability
for the same tax year under Sec. 1.6015-3 when the additional
qualifications of paragraphs (h)(5)(i) and (ii) of this section are
met--
(i) The requesting spouse did not qualify for relief under Sec.
1.6015-3 when the Internal Revenue Service considered the first election
solely because the qualifications of Sec. 1.6015-3(a) were not
satisfied; and
(ii) At the time of the second election, the qualifications for
relief under Sec. 1.6015-3(a) are satisfied.
(i) [Reserved]
(j) Transferee liability--(1) In general. The relief provisions of
section 6015 do not negate liability that arises under
[[Page 81]]
the operation of other laws. Therefore, a requesting spouse who is
relieved of joint and several liability under Sec. 1.6015-2, 1.6015-3,
or 1.6015-4 may nevertheless remain liable for the unpaid tax (including
additions to tax, penalties, and interest) to the extent provided by
Federal or state transferee liability or property laws. For the rules
regarding the liability of transferees, see sections 6901 through 6904
and the regulations thereunder. In addition, the requesting spouse's
property may be subject to collection under Federal or state property
laws.
(2) Example. The following example illustrates the rule of this
paragraph (j):
Example. H and W timely file their 1998 joint income tax return on
April 15, 1999. H dies in March 2000, and the executor of H's will
transfers all of the estate's assets to W. In July 2001, the Internal
Revenue Service assesses a deficiency for the 1998 return. The items
giving rise to the deficiency are attributable to H. W is relieved of
the liability under section 6015, and H's estate remains solely liable.
The Internal Revenue Service may seek to collect the deficiency from W
to the extent permitted under Federal or state transferee liability or
property laws.
[T.D. 9003, 67 FR 47285, July 18, 2002]
Sec. 1.6015-2 Relief from liability applicable to all qualifying
joint filers.
(a) In general. A requesting spouse may be relieved of joint and
several liability for tax (including additions to tax, penalties, and
interest) from an understatement for a taxable year under this section
if the requesting spouse elects the application of this section in
accordance with Sec. Sec. 1.6015-1(h)(5) and 1.6015-5, and--
(1) A joint return was filed for the taxable year;
(2) On the return there is an understatement attributable to
erroneous items of the nonrequesting spouse;
(3) The requesting spouse establishes that in signing the return he
or she did not know and had no reason to know of the understatement; and
(4) It is inequitable to hold the requesting spouse liable for the
deficiency attributable to the understatement.
(b) Understatement. The term understatement has the meaning given to
such term by section 6662(d)(2)(A) and the regulations thereunder.
(c) Knowledge or reason to know. A requesting spouse has knowledge
or reason to know of an understatement if he or she actually knew of the
understatement, or if a reasonable person in similar circumstances would
have known of the understatement. For rules relating to a requesting
spouse's actual knowledge, see Sec. 1.6015-3(c)(2). All of the facts
and circumstances are considered in determining whether a requesting
spouse had reason to know of an understatement. The facts and
circumstances that are considered include, but are not limited to, the
nature of the erroneous item and the amount of the erroneous item
relative to other items; the couple's financial situation; the
requesting spouse's educational background and business experience; the
extent of the requesting spouse's participation in the activity that
resulted in the erroneous item; whether the requesting spouse failed to
inquire, at or before the time the return was signed, about items on the
return or omitted from the return that a reasonable person would
question; and whether the erroneous item represented a departure from a
recurring pattern reflected in prior years' returns (e.g., omitted
income from an investment regularly reported on prior years' returns).
(d) Inequity. All of the facts and circumstances are considered in
determining whether it is inequitable to hold a requesting spouse
jointly and severally liable for an understatement. One relevant factor
for this purpose is whether the requesting spouse significantly
benefitted, directly or indirectly, from the understatement. A
significant benefit is any benefit in excess of normal support. Evidence
of direct or indirect benefit may consist of transfers of property or
rights to property, including transfers that may be received several
years after the year of the understatement. Thus, for example, if a
requesting spouse receives property (including life insurance proceeds)
from the nonrequesting spouse that is beyond normal support and
traceable to items omitted from gross income that are attributable to
the nonrequesting spouse, the requesting spouse will be considered to
have received significant benefit from those
[[Page 82]]
items. Other factors that may also be taken into account, if the
situation warrants, include the fact that the requesting spouse has been
deserted by the nonrequesting spouse, the fact that the spouses have
been divorced or separated, or that the requesting spouse received
benefit on the return from the understatement. For guidance concerning
the criteria to be used in determining whether it is inequitable to hold
a requesting spouse jointly and severally liable under this section, see
Rev. Proc. 2000-15 (2000-1 C.B. 447), or other guidance published by the
Treasury and IRS (see Sec. 601.601(d)(2) of this chapter).
(e) Partial relief--(1) In general. If a requesting spouse had no
knowledge or reason to know of only a portion of an erroneous item, the
requesting spouse may be relieved of the liability attributable to that
portion of that item, if all other requirements are met with respect to
that portion.
(2) Example. The following example illustrates the rules of this
paragraph (e):
Example. H and W are married and file their 2004 joint income tax
return in March 2005. In April 2006, H is convicted of embezzling $2
million from his employer during 2004. H kept all of his embezzlement
income in an individual bank account, and he used most of the funds to
support his gambling habit. H and W had a joint bank account into which
H and W deposited all of their reported income. Each month during 2004,
H transferred an additional $10,000 from the individual account to H and
W's joint bank account. W paid the household expenses using this joint
account, and regularly received the bank statements relating to the
account. W had no knowledge or reason to know of H's embezzling
activities. However, W did have knowledge and reason to know of $120,000
of the $2 million of H's embezzlement income at the time she signed the
joint return because that amount passed through the couple's joint bank
account. Therefore, W may be relieved of the liability arising from
$1,880,000 of the unreported embezzlement income, but she may not be
relieved of the liability for the deficiency arising from $120,000 of
the unreported embezzlement income of which she knew and had reason to
know.
[T.D. 9003, 67 FR 47285, July 18, 2002]
Sec. 1.6015-3 Allocation of deficiency for individuals who are no
longer married, are legally separated, or are not members of the
same household.
(a) Election to allocate deficiency. A requesting spouse may elect
to allocate a deficiency if, as defined in paragraph (b) of this
section, the requesting spouse is divorced, widowed, or legally
separated, or has not been a member of the same household as the
nonrequesting spouse at any time during the 12-month period ending on
the date an election for relief is filed. For purposes of this section,
the marital status of a deceased requesting spouse will be determined on
the earlier of the date of the election or the date of death in
accordance with section 7703(a)(1). Subject to the restrictions of
paragraph (c) of this section, an eligible requesting spouse who elects
the application of this section in accordance with Sec. Sec. 1.6015-
1(h)(5) and 1.6015-5 generally may be relieved of joint and several
liability for the portion of any deficiency that is allocated to the
nonrequesting spouse pursuant to the allocation methods set forth in
paragraph (d) of this section. Relief may be available to both spouses
filing the joint return if each spouse is eligible for and elects the
application of this section.
(b) Definitions--(1) Divorced. A determination of whether a
requesting spouse is divorced for purposes of this section will be made
in accordance with section 7703 and the regulations thereunder. Such
determination will be made as of the date the election is filed.
(2) Legally separated. A determination of whether a requesting
spouse is legally separated for purposes of this section will be made in
accordance with section 7703 and the regulations thereunder. Such
determination will be made as of the date the election is filed.
(3) Members of the same household--(i) Temporary absences. A
requesting spouse and a nonrequesting spouse are considered members of
the same household during either spouse's temporary absences from the
household if it is reasonable to assume that the absent spouse will
return to the household, and the household or a substantially
[[Page 83]]
equivalent household is maintained in anticipation of such return.
Examples of temporary absences may include, but are not limited to,
absence due to incarceration, illness, business, vacation, military
service, or education.
(ii) Separate dwellings. A husband and wife who reside in the same
dwelling are considered members of the same household. In addition, a
husband and wife who reside in two separate dwellings are considered
members of the same household if the spouses are not estranged or one
spouse is temporarily absent from the other's household within the
meaning of paragraph (b)(3)(i) of this section.
(c) Limitations--(1) No refunds. Relief under this section is only
available for unpaid liabilities resulting from understatements of
liability. Refunds are not authorized under this section.
(2) Actual knowledge--(i) In general. If, under section
6015(c)(3)(C), the Secretary demonstrates that, at the time the return
was signed, the requesting spouse had actual knowledge of an erroneous
item that is allocable to the nonrequesting spouse, the election to
allocate the deficiency attributable to that item is invalid, and the
requesting spouse remains liable for the portion of the deficiency
attributable to that item. The Service, having both the burden of
production and the burden of persuasion, must establish, by a
preponderance of the evidence, that the requesting spouse had actual
knowledge of the erroneous item in order to invalidate the election.
(A) Omitted income. In the case of omitted income, knowledge of the
item includes knowledge of the receipt of the income. For example,
assume W received $5,000 of dividend income from her investment in X Co.
but did not report it on the joint return. H knew that W received $5,000
of dividend income from X Co. that year. H had actual knowledge of the
erroneous item (i.e., $5,000 of unreported dividend income from X Co.),
and no relief is available under this section for the deficiency
attributable to the dividend income from X Co. This rule applies equally
in situations where the other spouse has unreported income although the
spouse does not have an actual receipt of cash (e.g., dividend
reinvestment or a distributive share from a flow-through entity shown on
Schedule K-1, ``Partner's Share of Income, Credits, Deductions, etc.'').
(B) Deduction or credit--(1) Erroneous deductions in general. In the
case of an erroneous deduction or credit, knowledge of the item means
knowledge of the facts that made the item not allowable as a deduction
or credit.
(2) Fictitious or inflated deduction. If a deduction is fictitious
or inflated, the IRS must establish that the requesting spouse actually
knew that the expenditure was not incurred, or not incurred to that
extent.
(ii) Partial knowledge. If a requesting spouse had actual knowledge
of only a portion of an erroneous item, then relief is not available for
that portion of the erroneous item. For example, if H knew that W
received $1,000 of dividend income and did not know that W received an
additional $4,000 of dividend income, relief would not be available for
the portion of the deficiency attributable to the $1,000 of dividend
income of which H had actual knowledge. A requesting spouse's actual
knowledge of the proper tax treatment of an item is not relevant for
purposes of demonstrating that the requesting spouse had actual
knowledge of an erroneous item. For example, assume H did not know W's
dividend income from X Co. was taxable, but knew that W received the
dividend income. Relief is not available under this section. In
addition, a requesting spouse's knowledge of how an erroneous item was
treated on the tax return is not relevant to a determination of whether
the requesting spouse had actual knowledge of the item. For example,
assume that H knew of W's dividend income, but H failed to review the
completed return and did not know that W omitted the dividend income
from the return. Relief is not available under this section.
(iii) Knowledge of the source not sufficient. Knowledge of the
source of an erroneous item is not sufficient to establish actual
knowledge. For example, assume H knew that W owned X Co. stock, but H
did not know that X Co. paid dividends to W that year. H's knowledge of
W's ownership in X Co. is not sufficient to establish that H had
[[Page 84]]
actual knowledge of the dividend income from X Co. In addition, a
requesting spouse's actual knowledge may not be inferred when the
requesting spouse merely had reason to know of the erroneous item. Even
if H's knowledge of W's ownership interest in X Co. indicates a reason
to know of the dividend income, actual knowledge of such dividend income
cannot be inferred from H's reason to know. Similarly, the IRS need not
establish that a requesting spouse knew of the source of an erroneous
item in order to establish that the requesting spouse had actual
knowledge of the item itself. For example, assume H knew that W received
$1,000, but he did not know the source of the $1,000. W and H omit the
$1,000 from their joint return. H has actual knowledge of the item
giving rise to the deficiency ($1,000), and relief is not available
under this section.
(iv) Factors supporting actual knowledge. To demonstrate that a
requesting spouse had actual knowledge of an erroneous item at the time
the return was signed, the IRS may rely upon all of the facts and
circumstances. One factor that may be relied upon in demonstrating that
a requesting spouse had actual knowledge of an erroneous item is whether
the requesting spouse made a deliberate effort to avoid learning about
the item in order to be shielded from liability. This factor, together
with all other facts and circumstances, may demonstrate that the
requesting spouse had actual knowledge of the item, and the requesting
spouse's election would be invalid with respect to that entire item.
Another factor that may be relied upon in demonstrating that a
requesting spouse had actual knowledge of an erroneous item is whether
the requesting spouse and the nonrequesting spouse jointly owned the
property that resulted in the erroneous item. Joint ownership is a
factor supporting a finding that the requesting spouse had actual
knowledge of an erroneous item. For purposes of this paragraph, a
requesting spouse will not be considered to have had an ownership
interest in an item based solely on the operation of community property
law. Rather, a requesting spouse who resided in a community property
state at the time the return was signed will be considered to have had
an ownership interest in an item only if the requesting spouse's name
appeared on the ownership documents, or there otherwise is an indication
that the requesting spouse asserted dominion and control over the item.
For example, assume H and W live in State A, a community property state.
After their marriage, H opens a bank account in his name. Under the
operation of the community property laws of State A, W owns \1/2\ of the
bank account. However, W does not have an ownership interest in the
account for purposes of this paragraph (c)(2)(iv) because the account is
not held in her name and there is no other indication that she asserted
dominion and control over the item.
(v) Abuse exception. If the requesting spouse establishes that he or
she was the victim of domestic abuse prior to the time the return was
signed, and that, as a result of the prior abuse, the requesting spouse
did not challenge the treatment of any items on the return for fear of
the nonrequesting spouse's retaliation, the limitation on actual
knowledge in this paragraph (c) will not apply. However, if the
requesting spouse involuntarily executed the return, the requesting
spouse may choose to establish that the return was signed under duress.
In such a case, Sec. 1.6013-4(d) applies.
(3) Disqualified asset transfers--(i) In general. The portion of the
deficiency for which a requesting spouse is liable is increased (up to
the entire amount of the deficiency) by the value of any disqualified
asset that was transferred to the requesting spouse. For purposes of
this paragraph (c)(3), the value of a disqualified asset is the fair
market value of the asset on the date of the transfer.
(ii) Disqualified asset defined. A disqualified asset is any
property or right to property that was transferred from the
nonrequesting spouse to the requesting spouse if the principal purpose
of the transfer was the avoidance of tax or payment of tax (including
additions to tax, penalties, and interest).
(iii) Presumption. Any asset transferred from the nonrequesting
spouse to the requesting spouse during the 12-month period before the
mailing date of the first letter of proposed deficiency (e.g., a 30-day
letter or, if no 30-
[[Page 85]]
day letter is mailed, a notice of deficiency) is presumed to be a
disqualified asset. The presumption also applies to any asset that is
transferred from the nonrequesting spouse to the requesting spouse after
the mailing date of the first letter of proposed deficiency. The
presumption does not apply, however, if the requesting spouse
establishes that the asset was transferred pursuant to a decree of
divorce or separate maintenance or a written instrument incident to such
a decree. If the presumption does not apply, but the Internal Revenue
Service can establish that the purpose of the transfer was the avoidance
of tax or payment of tax, the asset will be disqualified, and its value
will be added to the amount of the deficiency for which the requesting
spouse remains liable. If the presumption applies, a requesting spouse
may still rebut the presumption by establishing that the principal
purpose of the transfer was not the avoidance of tax or payment of tax.
(4) Examples. The following examples illustrate the rules in this
paragraph (c):
Example 1. Actual knowledge of an erroneous item. (i) H and W file
their 2001 joint Federal income tax return on April 15, 2002. On the
return, H and W report W's self-employment income, but they do not
report W's self-employment tax on that income. H and W divorce in July
2003. In August 2003, H and W receive a 30-day letter from the Internal
Revenue Service proposing a deficiency with respect to W's unreported
self-employment tax on the 2001 return. On November 4, 2003, H files an
election to allocate the deficiency to W. The erroneous item is the
self-employment income, and it is allocable to W. H knows that W earned
income in 2001 as a self-employed musician, but he does not know that
self-employment tax must be reported on and paid with a joint return.
(ii) H's election to allocate the deficiency to W is invalid
because, at the time H signed the joint return, H had actual knowledge
of W's self-employment income. The fact that H was unaware of the tax
consequences of that income (i.e., that an individual is required to pay
self-employment tax on that income) is not relevant.
Example 2. Actual knowledge not inferred from a requesting spouse's
reason to know. (i) H has long been an avid gambler. H supports his
gambling habit and keeps all of his gambling winnings in an individual
bank account, held solely in his name. W knows about H's gambling habit
and that he keeps a separate bank account, but she does not know whether
he has any winnings because H does not tell her, and she does not
otherwise know of H's bank account transactions. H and W file their 2001
joint Federal income tax return on April 15, 2002. On October 31, 2003,
H and W receive a 30-day letter proposing a $100,000 deficiency relating
to H's unreported gambling income. In February 2003, H and W divorce,
and in March 2004, W files an election under section 6015(c) to allocate
the $100,000 deficiency to H.
(ii) While W may have had reason to know of the gambling income
because she knew of H's gambling habit and separate account, W did not
have actual knowledge of the erroneous item (i.e., the gambling
winnings). The Internal Revenue Service may not infer actual knowledge
from W's reason to know of the income. Therefore, W's election to
allocate the $100,000 deficiency to H is valid.
Example 3. Actual knowledge and failure to review return. (i) H and
W are legally separated. In February 1999, W signs a blank joint Federal
income tax return for 1998 and gives it to H to fill out. The return was
timely filed on April 15, 1999. In September 2001, H and W receive a 30-
day letter proposing a deficiency relating to $100,000 of unreported
dividend income received by H with respect to stock of ABC Co. owned by
H. W knew that H received the $100,000 dividend payment in August 1998,
but she did not know whether H reported that payment on the joint
return.
(ii) On January 30, 2002, W files an election to allocate the
deficiency from the 1998 return to H. W claims she did not review the
completed joint return, and therefore, she had no actual knowledge that
there was an understatement of the dividend income. W's election to
allocate the deficiency to H is invalid because she had actual knowledge
of the erroneous item (dividend income from ABC Co.) at the time she
signed the return. The fact that W signed a blank return is irrelevant.
The result would be the same if W had not reviewed the completed return
or if W had reviewed the completed return and had not noticed that the
item was omitted.
Example 4. Actual knowledge of an erroneous item of income. (i) H
and W are legally separated. In June 2004, a deficiency is proposed with
respect to H's and W's 2002 joint Federal income tax return that is
attributable to $30,000 of unreported income from H's plumbing business
that should have been reported on a Schedule C. No Schedule C was
attached to the return. At the time W signed the return, W knew that H
had a plumbing business but did not know whether H received any income
from the business. W's election to allocate to H the deficiency
attributable to the $30,000 of unreported plumbing income is valid.
(ii) Assume the same facts as in paragraph (i) of this Example 5
except that, at the time
[[Page 86]]
W signed the return, W knew that H received $20,000 of plumbing income.
W's election to allocate to H the deficiency attributable to the $20,000
of unreported plumbing income (of which W had actual knowledge) is
invalid. W's election to allocate to H the deficiency attributable to
the $10,000 of unreported plumbing income (of which W did not have
actual knowledge) is valid.
(iii) Assume the same facts as in paragraph (i) of this Example 5
except that, at the time W signed the return, W did not know the exact
amount of H's plumbing income. W did know, however, that H received at
least $8,000 of plumbing income. W's election to allocate to H the
deficiency attributable to $8,000 of unreported plumbing income (of
which W had actual knowledge) is invalid. W's election to allocate to H
the deficiency attributable to the remaining $22,000 of unreported
plumbing income (of which W did not have actual knowledge) is valid.
(iv) Assume the same facts as in paragraph (i) of this Example 5
except that H reported $26,000 of plumbing income on the return and
omitted $4,000 of plumbing income from the return. At the time W signed
the return, W knew that H was a plumber, but she did not know that H
earned more than $26,000 that year. W's election to allocate to H the
deficiency attributable to the $4,000 of unreported plumbing income is
valid because she did not have actual knowledge that H received plumbing
income in excess of $26,000.
(v) Assume the same facts as in paragraph (i) of this Example 5
except that H reported only $20,000 of plumbing income on the return and
omitted $10,000 of plumbing income from the return. At the time W signed
the return, W knew that H earned at least $26,000 that year as a
plumber. However, W did not know that, in reality, H earned $30,000 that
year as a plumber. W's election to allocate to H the deficiency
attributable to the $6,000 of unreported plumbing income (of which W had
actual knowledge) is invalid. W's election to allocate to H the
deficiency attributable to the $4,000 of unreported plumbing income (of
which W did not have actual knowledge) is valid.
Example 5. Actual knowledge of a deduction that is an erroneous
item. (i) H and W are legally separated. In February 2005, a deficiency
is asserted with respect to their 2002 joint Federal income tax return.
The deficiency is attributable to a disallowed $1,000 deduction for
medical expenses H claimed he incurred. At the time W signed the return,
W knew that H had not incurred any medical expenses. W's election to
allocate to H the deficiency attributable to the disallowed medical
expense deduction is invalid because W had actual knowledge that H had
not incurred any medical expenses.
(ii) Assume the same facts as in paragraph (i) of this Example 6
except that, at the time W signed the return, W did not know whether H
had incurred any medical expenses. W's election to allocate to H the
deficiency attributable to the disallowed medical expense deduction is
valid because she did not have actual knowledge that H had not incurred
any medical expenses.
(iii) Assume the same facts as in paragraph (i) of this Example 6
except that the Internal Revenue Service disallowed $400 of the $1,000
medical expense deduction. At the time W signed the return, W knew that
H had incurred some medical expenses but did not know the exact amount.
W's election to allocate to H the deficiency attributable to the
disallowed medical expense deduction is valid because she did not have
actual knowledge that H had not incurred medical expenses (in excess of
the floor amount under section 213(a)) of more than $600.
(iv) Assume the same facts as in paragraph (i) of this Example 6
except that H claims a medical expense deduction of $10,000 and the
Internal Revenue Service disallows $9,600. At the time W signed the
return, W knew H had incurred some medical expenses but did not know the
exact amount. W also knew that H incurred medical expenses (in excess of
the floor amount under section 213(a)) of no more than $1,000. W's
election to allocate to H the deficiency attributable to the portion of
the overstated deduction of which she had actual knowledge ($9,000) is
invalid. W's election to allocate the deficiency attributable to the
portion of the overstated deduction of which she had no knowledge ($600)
is valid.
Example 6. Disqualified asset presumption. (i) H and W are divorced.
In May 1999, W transfers $20,000 to H, and in April 2000, H and W
receive a 30-day letter proposing a $40,000 deficiency on their 1998
joint Federal income tax return. The liability remains unpaid, and in
October 2000, H elects to allocate the deficiency under this section.
Seventy-five percent of the net amount of erroneous items are allocable
to W, and 25% of the net amount of erroneous items are allocable to H.
(ii) In accordance with the proportionate allocation method (see
paragraph (d)(4) of this section), H proposes that $30,000 of the
deficiency be allocated to W and $10,000 be allocated to himself. H
submits a signed statement providing that the principal purpose of the
$20,000 transfer was not the avoidance of tax or payment of tax, but he
does not submit any documentation indicating the reason for the
transfer. H has not overcome the presumption that the $20,000 was a
disqualified asset. Therefore, the portion of the deficiency for which H
is liable ($10,000) is increased by the value of the disqualified asset
($20,000). H is relieved of liability for $10,000 of the $30,000
deficiency allocated to W, and remains jointly and severally liable for
the remaining $30,000 of the deficiency (assuming that H does not
qualify for relief under any other provision).
[[Page 87]]
Example 7. Disqualified asset presumption inapplicable. On May 1,
2001, H and W receive a 30-day letter regarding a proposed deficiency on
their 1999 joint Federal income tax return relating to unreported
capital gain from H's sale of his investment in Z stock. W had no actual
knowledge of the stock sale. The deficiency is assessed in November
2001, and in December 2001, H and W divorce. According to a decree of
divorce, H must transfer \1/2\ of his interest in mutual fund A to W.
The transfer takes place in February 2002. In August 2002, W elects to
allocate the deficiency to H. Although the transfer of \1/2\ of H's
interest in mutual fund A took place after the 30-day letter was mailed,
the mutual fund interest is not presumed to be a disqualified asset
because the transfer of H's interest in the fund was made pursuant to a
decree of divorce.
Example 8. Overcoming the disqualified asset presumption. (i) H and
W are married for 25 years. Every September, on W's birthday, H gives W
a gift of $500. On February 28, 2002, H and W receive a 30-day letter
from the Internal Revenue Service relating to their 1998 joint
individual Federal income tax return. The deficiency relates to H's
Schedule C business, and W had no knowledge of the items giving rise to
the deficiency. H and W are legally separated in June 2003, and, despite
the separation, H continues to give W $500 each year for her birthday. H
is not required to give such amounts pursuant to a decree of divorce or
separate maintenance.
(ii) On January 27, 2004, W files an election to allocate the
deficiency to H. The $1,500 transferred from H to W from February 28,
2001 (a year before the 30-day letter was mailed) to the present is
presumed disqualified. However, W may overcome the presumption that such
amounts were disqualified by establishing that such amounts were
birthday gifts from H and that she has received such gifts during their
entire marriage. Such facts would show that the amounts were not
transferred for the purpose of avoidance of tax or payment of tax.
(d) Allocation--(1) In general. (i) An election to allocate a
deficiency limits the requesting spouse's liability to that portion of
the deficiency allocated to the requesting spouse pursuant to this
section.
(ii) Only a requesting spouse may receive relief. A nonrequesting
spouse who does not also elect relief under this section remains liable
for the entire amount of the deficiency. Even if both spouses elect to
allocate a deficiency under this section, there may be a portion of the
deficiency that is not allocable, for which both spouses remain jointly
and severally liable.
(2) Allocation of erroneous items. For purposes of allocating a
deficiency under this section, erroneous items are generally allocated
to the spouses as if separate returns were filed, subject to the
following four exceptions:
(i) Benefit on the return. An erroneous item that would otherwise be
allocated to the nonrequesting spouse is allocated to the requesting
spouse to the extent that the requesting spouse received a tax benefit
on the joint return.
(ii) Fraud. The Internal Revenue Service may allocate any item
between the spouses if the Internal Revenue Service establishes that the
allocation is appropriate due to fraud by one or both spouses.
(iii) Erroneous items of income. Erroneous items of income are
allocated to the spouse who was the source of the income. Wage income is
allocated to the spouse who performed the services producing such wages.
Items of business or investment income are allocated to the spouse who
owned the business or investment. If both spouses owned an interest in
the business or investment, the erroneous item of income is generally
allocated between the spouses in proportion to each spouse's ownership
interest in the business or investment, subject to the limitations of
paragraph (c) of this section. In the absence of clear and convincing
evidence supporting a different allocation, an erroneous income item
relating to an asset that the spouses owned jointly is generally
allocated 50% to each spouse, subject to the limitations in paragraph
(c) of this section and the exceptions in paragraph (c)(2)(iv) of this
section. For rules regarding the effect of community property laws, see
Sec. 1.6015-1(f) and paragraph (c)(2)(iv) of this section.
(iv) Erroneous deduction items. Erroneous deductions related to a
business or investment are allocated to the spouse who owned the
business or investment. If both spouses owned an interest in the
business or investment, an erroneous deduction item is generally
allocated between the spouses in proportion to each spouse's ownership
interest in the business or investment. In the absence of clear and
convincing
[[Page 88]]
evidence supporting a different allocation, an erroneous deduction item
relating to an asset that the spouses owned jointly is generally
allocated 50% to each spouse, subject to the limitations in paragraph
(c) of this section and the exceptions in paragraph (d)(4) of this
section. Deduction items unrelated to a business or investment are also
generally allocated 50% to each spouse, unless the evidence shows that a
different allocation is appropriate.
(3) Burden of proof. Except for establishing actual knowledge under
paragraph (c)(2) of this section, the requesting spouse must prove that
all of the qualifications for making an election under this section are
satisfied and that none of the limitations (including the limitation
relating to transfers of disqualified assets) apply. The requesting
spouse must also establish the proper allocation of the erroneous items.
(4) General allocation method--(i) Proportionate allocation. (A) The
portion of a deficiency allocable to a spouse is the amount that bears
the same ratio to the deficiency as the net amount of erroneous items
allocable to the spouse bears to the net amount of all erroneous items.
This calculation may be expressed as follows:
[GRAPHIC] [TIFF OMITTED] TR18JY02.004
where X = the portion of the deficiency allocable to the spouse.
(B) The proportionate allocation applies to any portion of the
deficiency other than--
(1) Any portion of the deficiency attributable to erroneous items
allocable to the nonrequesting spouse of which the requesting spouse had
actual knowledge;
(2) Any portion of the deficiency attributable to separate treatment
items (as defined in paragraph (d)(4)(ii) of this section);
(3) Any portion of the deficiency relating to the liability of a
child (as defined in paragraph (d)(4)(iii) of this section) of the
requesting spouse or nonrequesting spouse;
(4) Any portion of the deficiency attributable to alternative
minimum tax under section 55;
(5) Any portion of the deficiency attributable to accuracy-related
or fraud penalties;
(6) Any portion of the deficiency allocated pursuant to alternative
allocation methods authorized under paragraph (d)(6) of this section.
(ii) Separate treatment items. Any portion of a deficiency that is
attributable to an item allocable solely to one spouse and that results
from the disallowance of a credit, or a tax or an addition to tax (other
than tax imposed by section 1 or section 55) that is required to be
included with a joint return (a separate treatment item) is allocated
separately to that spouse. If such credit or tax is attributable in
whole or in part to both spouses, then the IRS will determine on a case
by case basis how such item will be allocated. Once the proportionate
allocation is made, the liability for the requesting spouse's separate
treatment items is added to the requesting spouse's share of the
liability.
(iii) Child's liability. Any portion of a deficiency relating to the
liability of a child of the requesting and nonrequesting spouse is
allocated jointly to both spouses. For purposes of this paragraph, a
child does not include the taxpayer's stepson or stepdaughter, unless
such child was legally adopted by the taxpayer. If the child is the
child of only one of the spouses, and the other spouse had not legally
adopted such child, any portion of a deficiency relating to the
liability of such child is allocated solely to the parent spouse.
(iv) Allocation of certain items--(A) Alternative minimum tax. Any
portion of a deficiency relating to the alternative minimum tax under
section 55 will be allocated appropriately.
[[Page 89]]
(B) Accuracy-related and fraud penalties. Any accuracy-related or
fraud penalties under section 6662 or 6663 are allocated to the spouse
whose item generated the penalty.
(5) Examples. The following examples illustrate the rules of this
paragraph (d). In each example, assume that the requesting spouse or
spouses qualify to elect to allocate the deficiency, that any election
is timely made, and that the deficiency remains unpaid. In addition,
unless otherwise stated, assume that neither spouse has actual knowledge
of the erroneous items allocable to the other spouse. The examples are
as follows:
Example 1. Allocation of erroneous items. (i) H and W file a 2003
joint Federal income tax return on April 15, 2004. On April 28, 2006, a
deficiency is assessed with respect to their 2003 return. Three
erroneous items give rise to the deficiency--
(A) Unreported interest income, of which W had actual knowledge,
from H's and W's joint bank account;
(B) A disallowed business expense deduction on H's Schedule C; and
(C) A disallowed Lifetime Learning Credit for W's post-secondary
education, paid for by W.
(ii) H and W divorce in May 2006, and in September 2006, W timely
elects to allocate the deficiency. The erroneous items are allocable as
follows:
(A) The interest income would be allocated \1/2\ to H and \1/2\ to
W, except that W has actual knowledge of it. Therefore, W's election to
allocate the portion of the deficiency attributable to this item is
invalid, and W remains jointly and severally liable for it.
(B) The business expense deduction is allocable to H.
(C) The Lifetime Learning Credit is allocable to W.
Example 2. Proportionate allocation. (i) W and H timely file their
2001 joint Federal income tax return on April 15, 2002. On August 16,
2004, a $54,000 deficiency is assessed with respect to their 2001 joint
return. H and W divorce on October 14, 2004, and W timely elects to
allocate the deficiency. Five erroneous items give rise to the
deficiency--
(A) A disallowed $15,000 business deduction allocable to H;
(B) $20,000 of unreported income allocable to H;
(C) A disallowed $5,000 deduction for educational expense allocable
to H;
(D) A disallowed $40,000 charitable contribution deduction allocable
to W; and
(E) A disallowed $40,000 interest deduction allocable to W.
(ii) In total, there are $120,000 worth of erroneous items, of which
$80,000 are attributable to W and $40,000 are attributable to H.
W's items .. ......... H's items
------------------------------------------------------------- -----------------------------------------------
$40,000 charitable deduction .. $15,000 business deduction
40,000 interest deduction .. 20,000 unreported income
................................................. .. 5,000 education deduction
---------- -----------
$80,000 ................................................. .. $40,000
(iii) The ratio of erroneous items allocable to W to the total
erroneous items is \2/3\ ($80,000/$120,000). W's liability is limited to
$36,000 of the deficiency (\2/3\ of $54,000). The Internal Revenue
Service may collect up to $36,000 from W and up to $54,000 from H (the
total amount collected, however, may not exceed $54,000). If H also made
an election, there would be no remaining joint and several liability,
and the Internal Revenue Service would be permitted to collect $36,000
from W and $18,000 from H.
Example 3. Proportionate allocation with joint erroneous item. (i)
On September 4, 2001, W elects to allocate a $3,000 deficiency for the
1998 tax year to H. Three erroneous items give rise to the deficiency--
(A) Unreported interest in the amount of $4,000 from a joint bank
account;
(B) A disallowed deduction for business expenses in the amount of
$2,000 attributable to H's business; and
(C) Unreported wage income in the amount of $6,000 attributable to
W's second job.
(ii) The erroneous items total $12,000. Generally, income,
deductions, or credits from jointly held property that are erroneous
items are allocable 50% to each spouse. However, in this case, both
spouses had actual knowledge of the unreported interest income.
Therefore, W's election to allocate the portion of the deficiency
attributable to this item is invalid, and W and H remain jointly and
severally liable for this portion. Assume that this portion is $1,000. W
may allocate the remaining $2,000 of the deficiency.
H's items .. ......... W's items
------------------------------------------------------------- -----------------------------------------------
$2,000 business deduction .. $6,000 wage income
[[Page 90]]
Total allocable items: $8,000
(iii) The ratio of erroneous items allocable to W to the total
erroneous items is \3/4\ ($6,000/$8,000). W's liability is limited to
$1,500 of the deficiency (\3/4\ of $2,000) allocated to her. The
Internal Revenue Service may collect up to $2,500 from W (\3/4\ of the
total allocated deficiency plus $1,000 of the deficiency attributable to
the joint bank account interest) and up to $3,000 from H (the total
amount collected, however, cannot exceed $3,000).
(iv) Assume H also elects to allocate the 1998 deficiency. H is
relieved of liability for \3/4\ of the deficiency, which is allocated to
W. H's relief totals $1,500 (\3/4\ of $2,000). H remains liable for
$1,500 of the deficiency (\1/4\ of the allocated deficiency plus $1,000
of the deficiency attributable to the joint bank account interest).
Example 4. Separate treatment items (STIs). (i) On September 1,
2006, a $28,000 deficiency is assessed with respect to H's and W's 2003
joint return. The deficiency is the result of 4 erroneous items--
(A) A disallowed Lifetime Learning Credit of $2,000 attributable to
H;
(B) A disallowed business expense deduction of $8,000 attributable
to H;
(C) Unreported income of $24,000 attributable to W; and
(D) Unreported self-employment tax of $14,000 attributable to W.
(ii) H and W both elect to allocate the deficiency.
(iii) The $2,000 Lifetime Learning Credit and the $14,000 self-
employment tax are STIs totaling $16,000. The amount of erroneous items
included in computing the proportionate allocation ratio is $32,000
($24,000 unreported income and $8,000 disallowed business expense
deduction). The amount of the deficiency subject to proportionate
allocation is reduced by the amount of STIs ($28,000-$16,000 = $12,000).
(iv) Of the $32,000 of proportionate allocation items, $24,000 is
allocable to W, and $8,000 is allocable to H.
W's share of allocable items .. H's share of allocable items
\3/4\ ($24,000/$32,000) .. \1/4\ ($8,000/$32,000)
(v) W's liability for the portion of the deficiency subject to
proportionate allocation is limited to $9,000 (\3/4\ of $12,000) and H's
liability for such portion is limited to $3,000 (\1/4\ of $12,000).
(vi) After the proportionate allocation is completed, the amount of
the STIs is added to each spouse's allocated share of the deficiency.
W's share of total deficiency .. ......... H's share of total deficiency
------------------------------------------------------------- -----------------------------------------------
$ 9,000 allocated deficiency .. $3,000 allocated deficiency
14,000 self-employment tax .. 2,000 Lifetime Learning Credit
---------- -----------
$23,000 ................................................. .. $5,000
(vii) Therefore, W's liability is limited to $23,000 and H's
liability is limited to $5,000.
Example 5. Requesting spouse receives a benefit on the joint return
from the nonrequesting spouse's erroneous item. (i) In 2001, H reports
gross income of $4,000 from his business on Schedule C, and W reports
$50,000 of wage income. On their 2001 joint Federal income tax return, H
deducts $20,000 of business expenses resulting in a net loss from his
business of $16,000. H and W divorce in September 2002, and on May 22,
2003, a $5,200 deficiency is assessed with respect to their 2001 joint
return. W elects to allocate the deficiency. The deficiency on the joint
return results from a disallowance of all of H's $20,000 of deductions.
(ii) Since H used only $4,000 of the disallowed deductions to offset
gross income from his business, W benefitted from the other $16,000 of
the disallowed deductions used to offset her wage income. Therefore,
$4,000 of the disallowed deductions are allocable to H and $16,000 of
the disallowed deductions are allocable to W. W's liability is limited
to $4,160 (\4/5\ of $5,200). If H also elected to allocate the
deficiency, H's election to allocate the $4,160 of the deficiency to W
would be invalid because H had actual knowledge of the erroneous items.
Example 6. Calculation of requesting spouse's benefit on the joint
return when the nonrequesting spouse's erroneous item is partially
disallowed. Assume the same facts as in Example 5, except that H deducts
$18,000 for business expenses on the joint return, of which $16,000 are
disallowed. Since H used only $2,000 of the $16,000 disallowed
deductions to offset gross income from his business, W received benefit
on the return from the other $14,000 of the disallowed deductions used
to offset her wage income. Therefore, $2,000 of the disallowed
deductions are allocable to H and $14,000 of the disallowed deductions
are allocable to W. W's liability is limited to $4,550 (\7/8\ of
$5,200).
[[Page 91]]
(6) Alternative allocation methods--(i) Allocation based on
applicable tax rates. If a deficiency arises from two or more erroneous
items that are subject to tax at different rates (e.g., ordinary income
and capital gain items), the deficiency will be allocated after first
separating the erroneous items into categories according to their
applicable tax rate. After all erroneous items are categorized, a
separate allocation is made with respect to each tax rate category using
the proportionate allocation method of paragraph (d)(4) of this section.
(ii) Allocation methods provided in subsequent published guidance.
Additional alternative methods for allocating erroneous items under
section 6015(c) may be prescribed by the Treasury and IRS in subsequent
revenue rulings, revenue procedures, or other appropriate guidance.
(iii) Example. The following example illustrates the rules of this
paragraph (d)(6):
Example. Allocation based on applicable tax rates. H and W timely
file their 1998 joint Federal income tax return. H and W divorce in
1999. On July 13, 2001, a $5,100 deficiency is assessed with respect to
H's and W's 1998 return. Of this deficiency, $2,000 results from
unreported capital gain of $6,000 that is attributable to W and $4,000
of capital gain that is attributable to H (both gains being subject to
tax at the 20% marginal rate). The remaining $3,100 of the deficiency is
attributable to $10,000 of unreported dividend income of H that is
subject to tax at a marginal rate of 31%. H and W both timely elect to
allocate the deficiency, and qualify under this section to do so. There
are erroneous items subject to different tax rates; thus, the
alternative allocation method of this paragraph (d)(6) applies. The
three erroneous items are first categorized according to their
applicable tax rates, then allocated. Of the total amount of 20% tax
rate items ($10,000), 60% is allocable to W and 40% is allocable to H.
Therefore, 60% of the $2,000 deficiency attributable to these items (or
$1,200) is allocated to W. The remaining 40% of this portion of the
deficiency ($800) is allocated to H. The only 31% tax rate item is
allocable to H. Accordingly, H is liable for $3,900 of the deficiency
($800 + $3,100), and W is liable for the remaining $1,200.
[T.D. 9003, 67 FR 47285, July 18, 2002]
Sec. 1.6015-4 Equitable relief.
(a) A requesting spouse who files a joint return for which a
liability remains unpaid and who does not qualify for full relief under
Sec. 1.6015-2 or 1.6015-3 may request equitable relief under this
section. The Internal Revenue Service has the discretion to grant
equitable relief from joint and several liability to a requesting spouse
when, considering all of the facts and circumstances, it would be
inequitable to hold the requesting spouse jointly and severally liable.
(b) This section may not be used to circumvent the limitation of
Sec. 1.6015-3(c)(1) (i.e., no refunds under Sec. 1.6015-3). Therefore,
relief is not available under this section to obtain a refund of
liabilities already paid, for which the requesting spouse would
otherwise qualify for relief under Sec. 1.6015-3.
(c) For guidance concerning the criteria to be used in determining
whether it is inequitable to hold a requesting spouse jointly and
severally liable under this section, see Rev. Proc. 2000-15 (2000-1 C.B.
447), or other guidance published by the Treasury and IRS (see Sec.
601.601(d)(2) of this chapter).
[T.D. 9003, 67 FR 47285, July 18, 2002]
Sec. 1.6015-5 Time and manner for requesting relief.
(a) Requesting relief. To elect the application of Sec. 1.6015-2 or
1.6015-3, or to request equitable relief under Sec. 1.6015-4, a
requesting spouse must file Form 8857, ``Request for Innocent Spouse
Relief'' (or other specified form); submit a written statement
containing the same information required on Form 8857, which is signed
under penalties of perjury; or submit information in the manner
prescribed by the Treasury and IRS in forms, relevant revenue rulings,
revenue procedures, or other published guidance (see Sec. 601.601(d)(2)
of this chapter).
(b) Time period for filing a request for relief--(1) In general. To
elect the application of Sec. 1.6015-2 or 1.6015-3, or to request
equitable relief under Sec. 1.6015-4, a requesting spouse must file
Form 8857 or other similar statement with the Internal Revenue Service
no later than two years from the date of the first collection activity
against the requesting spouse after July 22, 1998, with respect to the
joint tax liability.
[[Page 92]]
(2) Definitions--(i) Collection activity. For purposes of this
paragraph (b), collection activity means a section 6330 notice; an
offset of an overpayment of the requesting spouse against a liability
under section 6402; the filing of a suit by the United States against
the requesting spouse for the collection of the joint tax liability; or
the filing of a claim by the United States in a court proceeding in
which the requesting spouse is a party or which involves property of the
requesting spouse. Collection activity does not include a notice of
deficiency; the filing of a Notice of Federal Tax Lien; or a demand for
payment of tax. The term property of the requesting spouse, for purposes
of this paragraph (b), means property in which the requesting spouse has
an ownership interest (other than solely through the operation of
community property laws), including property owned jointly with the
nonrequesting spouse.
(ii) Section 6330 notice. A section 6330 notice refers to the notice
sent, pursuant to section 6330, providing taxpayers notice of the
Service's intent to levy and of their right to a collection due process
(CDP) hearing.
(3) Requests for relief made before commencement of collection
activity. An election or request for relief may be made before
collection activity has commenced. For example, an election or request
for relief may be made in connection with an audit or examination of the
joint return or a demand for payment, or pursuant to the CDP hearing
procedures under section 6320 in connection with the filing of a Notice
of Federal Tax Lien. For more information on the rules regarding
collection due process for liens, see the Treasury regulations under
section 6320. However, no request for relief may be made before the date
specified in paragraph (b)(5) of this section.
(4) Examples. The following examples illustrate the rules of this
paragraph (b):
Example 1. On January 11, 2000, a section 6330 notice is mailed to H
and W regarding their 1997 joint Federal income tax liability. The
Internal Revenue Service levies on W's employer on June 5, 2000. The
Internal Revenue Service levies on H's employer on July 10, 2000. An
election or request for relief must be made by January 11, 2002, which
is two years after the Internal Revenue Service sent the section 6330
notice.
Example 2. The Internal Revenue Service offsets an overpayment
against a joint liability for 1995 on January 12, 1998. The offset only
partially satisfies the liability. The Internal Revenue Service takes no
other collection actions. On July 24, 2001, W elects relief with respect
to the unpaid portion of the 1995 liability. W's election is timely
because the Internal Revenue Service has not taken any collection
activity after July 22, 1998; therefore, the two-year period has not
commenced.
Example 3. Assume the same facts as in Example 2, except that the
Internal Revenue Service sends a section 6330 notice on January 22,
1999. W's election is untimely because it is filed more than two years
after the first collection activity after July 22, 1998.
Example 4. H and W do not remit full payment with their timely filed
joint Federal income tax return for the 1989 tax year. No collection
activity is taken after July 22, 1998, until the United States files a
suit against both H and W to reduce the tax assessment to judgment and
to foreclose the tax lien on their jointly-held business property on
July 1, 1999. H elects relief on October 2, 2000. The election is timely
because it is made within two years of the filing of a collection suit
by the United States against H.
Example 5. W files a Chapter 7 bankruptcy petition on July 10, 2000.
On September 5, 2000, the United States files a proof of claim for her
joint 1998 income tax liability. W elects relief with respect to the
1998 liability on August 20, 2002. The election is timely because it is
made within two years of the date the United States filed the proof of
claim in W's bankruptcy case.
(5) Premature requests for relief. The Internal Revenue Service will
not consider premature claims for relief under Sec. 1.6015-2, 1.6015-3,
or 1.6015-4. A premature claim is a claim for relief that is filed for a
tax year prior to the receipt of a notification of an audit or a letter
or notice from the IRS indicating that there may be an outstanding
liability with regard to that year. Such notices or letters do not
include notices issued pursuant to section 6223 relating to TEFRA
partnership proceedings. A premature claim is not considered an election
or request under Sec. 1.6015-1(h)(5).
(c) Effect of a final administrative determination--(1) In general.
A requesting spouse is entitled to only one final administrative
determination of relief under Sec. 1.6015-1 for a given assessment,
[[Page 93]]
unless the requesting spouse properly submits a second request for
relief that is described in Sec. 1.6015-1(h)(5).
(2) Example. The following example illustrates the rule of this
paragraph (c):
Example: In January 2001, W becomes a limited partner in partnership
P, and in February 2001, she starts her own business from which she
earns $100,000 of net income for the year. H and W file a joint return
for tax year 2001, on which they claim $20,000 in losses from their
investment in P, and they omit W's self-employment tax. In March 2003,
the Internal Revenue Service commences an audit under the provisions of
subchapter C of chapter 63 of subtitle F of the Internal Revenue Code
(TEFRA partnership proceeding) and sends H and W a notice under section
6223(a)(1). In September 2003, the Internal Revenue Service audits H's
and W's 2001 joint return regarding the omitted self-employment tax. H
may file a claim for relief from joint and several liability for the
self-employment tax liability because he has received a notification of
an audit indicating that there may be an outstanding liability on the
joint return. However, his claim for relief regarding the TEFRA
partnership proceeding is premature under paragraph (b)(5) of this
section. H will have to wait until the Internal Revenue Service sends
him a notice of computational adjustment or assesses the liability
resulting from the TEFRA partnership proceeding before he files a claim
for relief with respect to any such liability. The assessment relating
to the TEFRA partnership proceeding is separate from the assessment for
the self-employment tax; therefore, H's subsequent claim for relief for
the liability from the TEFRA partnership proceeding is not precluded by
his previous claim for relief from the self-employment tax liability
under this paragraph (c).
[T.D. 9003, 67 FR 47285, July 18, 2002, as amended at 67 FR 54735, Aug.
26, 2002]
Sec. 1.6015-6 Nonrequesting spouse's notice and opportunity to
participate in administrative proceedings.
(a) In general. (1) When the Internal Revenue Service receives an
election under Sec. 1.6015-2 or 1.6015-3, or a request for relief under
Sec. 1.6015-4, the Internal Revenue Service must send a notice to the
nonrequesting spouse's last known address that informs the nonrequesting
spouse of the requesting spouse's claim for relief. For further guidance
regarding the definition of last known address, see Sec. 301.6212-2 of
this chapter. The notice must provide the nonrequesting spouse with an
opportunity to submit any information that should be considered in
determining whether the requesting spouse should be granted relief from
joint and several liability. A nonrequesting spouse is not required to
submit information under this section. Upon the request of either
spouse, the Internal Revenue Service will share with one spouse the
information submitted by the other spouse, unless such information would
impair tax administration.
(2) The Internal Revenue Service must notify the nonrequesting
spouse of the Service's preliminary and final determinations with
respect to the requesting spouse's claim for relief under section 6015.
(b) Information submitted. The Internal Revenue Service will
consider all of the information (as relevant to each particular relief
provision) that the nonrequesting spouse submits in determining whether
relief from joint and several liability is appropriate, including
information relating to the following--
(1) The legal status of the requesting and nonrequesting spouses'
marriage;
(2) The extent of the requesting spouse's knowledge of the erroneous
items or underpayment;
(3) The extent of the requesting spouse's knowledge or participation
in the family business or financial affairs;
(4) The requesting spouse's education level;
(5) The extent to which the requesting spouse benefitted from the
erroneous items;
(6) Any asset transfers between the spouses;
(7) Any indication of fraud on the part of either spouse;
(8) Whether it would be inequitable, within the meaning of
Sec. Sec. 1.6015-2(d) and 1.6015-4, to hold the requesting spouse
jointly and severally liable for the outstanding liability;
(9) The allocation or ownership of items giving rise to the
deficiency; and
(10) Anything else that may be relevant to the determination of
whether relief from joint and several liability should be granted.
(c) Effect of opportunity to participate. The failure to submit
information pursuant to paragraph (b) of this section does not affect
the nonrequesting spouse's ability to seek relief from
[[Page 94]]
joint and several liability for the same tax year. However, information
that the nonrequesting spouse submits pursuant to paragraph (b) of this
section is relevant in determining whether relief from joint and several
liability is appropriate for the nonrequesting spouse should the
nonrequesting spouse also submit an application for relief.
[T.D. 9003, 67 FR 47285, July 18, 2002]
Sec. 1.6015-7 Tax Court review.
(a) In general. Requesting spouses may petition the Tax Court to
review the denial of relief under Sec. 1.6015-1.
(b) Time period for petitioning the Tax Court. Pursuant to section
6015(e), the requesting spouse may petition the Tax Court to review a
denial of relief under Sec. 1.6015-1 within 90 days after the date
notice of the Service's final determination is mailed by certified or
registered mail (90-day period). If the IRS does not mail the requesting
spouse a final determination letter within 6 months of the date the
requesting spouse files an election under Sec. 1.6015-2 or 1.6015-3,
the requesting spouse may petition the Tax Court to review the election
at any time after the expiration of the 6-month period, and before the
expiration of the 90-day period. The Tax Court also may review a claim
for relief if Tax Court jurisdiction has been acquired under another
section of the Internal Revenue Code such as section 6213(a) or 6330(d).
(c) Restrictions on collection and suspension of the running of the
period of limitations--(1) Restrictions on collection under Sec.
1.6015-2 or 1.6015-3. Unless the Internal Revenue Service determines
that collection will be jeopardized by delay, no levy or proceeding in
court shall be made, begun, or prosecuted against a requesting spouse
electing the application of Sec. 1.6015-2 or 1.6015-3 for the
collection of any assessment to which the election relates until the
expiration of the 90-day period described in paragraph (b) of this
section, or if a petition is filed with the Tax Court, until the
decision of the Tax Court becomes final under section 7481. For more
information regarding the date on which a decision of the Tax Court
becomes final, see section 7481 and the regulations thereunder.
Notwithstanding the above, if the requesting spouse appeals the Tax
Court's decision, the Internal Revenue Service may resume collection of
the liability from the requesting spouse on the date the requesting
spouse files the notice of appeal, unless the requesting spouse files an
appeal bond pursuant to the rules of section 7485. Jeopardy under this
paragraph (c)(1) means conditions exist that would require an assessment
under section 6851 or 6861 and the regulations thereunder.
(2) Waiver of the restrictions on collection. A requesting spouse
may, at any time (regardless of whether a notice of the Service's final
determination of relief is mailed), waive the restrictions on collection
in paragraph (c)(1) of this section.
(3) Suspension of the running of the period of limitations--(i)
Relief under Sec. 1.6015-2 or 1.6015-3. The running of the period of
limitations in section 6502 on collection against the requesting spouse
of the assessment to which an election under Sec. 1.6015-2 or 1.6015-3
relates is suspended for the period during which the Internal Revenue
Service is prohibited by paragraph (c)(1) of this section from
collecting by levy or a proceeding in court and for 60 days thereafter.
However, if the requesting spouse signs a waiver of the restrictions on
collection in accordance with paragraph (c)(2) of this section, the
suspension of the period of limitations in section 6502 on collection
against the requesting spouse will terminate on the date that is 60 days
after the date the waiver is filed with the Internal Revenue Service.
(ii) Relief under Sec. 1.6015-4. If a requesting spouse seeks only
equitable relief under Sec. 1.6015-4, the restrictions on collection of
paragraph (c)(1) of this section do not apply. Accordingly, the request
for relief does not suspend the running of the period of limitations on
collection.
(4) Definitions--(i) Levy. For purposes of this paragraph (c), levy
means an administrative levy or seizure described by section 6331.
(ii) Proceedings in court. For purposes of this paragraph (c),
proceedings in court means suits filed by the United States for the
collection of Federal tax. Proceedings in court does not refer to the
filing of pleadings and claims
[[Page 95]]
and other participation by the Internal Revenue Service or the United
States in suits not filed by the United States, including Tax Court
cases, refund suits, and bankruptcy cases.
(iii) Assessment to which the election relates. For purposes of this
paragraph (c), the assessment to which the election relates is the
entire assessment of the deficiency to which the election relates, even
if the election is made with respect to only part of that deficiency.
[T.D. 9003, 67 FR 47285, July 18, 2002]
Sec. 1.6015-8 Applicable liabilities.
(a) In general. Section 6015 applies to liabilities that arise after
July 22, 1998, and to liabilities that arose prior to July 22, 1998,
that were not paid on or before July 22, 1998.
(b) Liabilities paid on or before July 22, 1998. A requesting spouse
seeking relief from joint and several liability for amounts paid on or
before July 22, 1998, must request relief under section 6013(e) and the
regulations thereunder.
(c) Examples. The following examples illustrate the rules of this
section:
Example 1. H and W file a joint Federal income tax return for 1995
on April 15, 1996. There is an understatement on the return attributable
to an omission of H's wage income. On October 15, 1998, H and W receive
a 30-day letter proposing a deficiency on the 1995 joint return. W pays
the outstanding liability in full on November 30, 1998. In March 1999, W
files Form 8857, requesting relief from joint and several liability
under section 6015(b). Although W's liability arose prior to July 22,
1998, it was unpaid as of that date. Therefore, section 6015 is
applicable.
Example 2. H and W file their 1995 joint Federal income tax return
on April 15, 1996. On October 14, 1997, a deficiency of $5,000 is
assessed regarding a disallowed business expense deduction attributable
to H. On June 30, 1998, the Internal Revenue Service levies on the
$3,000 in W's bank account in partial satisfaction of the outstanding
liability. On August 31, 1998, W files a request for relief from joint
and several liability. The liability arose prior to July 22, 1998.
Section 6015 is applicable to the $2,000 that remained unpaid as of July
22, 1998, and section 6013(e) is applicable to the $3,000 that was paid
prior to July 22, 1998.
[T.D. 9003, 67 FR 47285, July 18, 2002]
Sec. 1.6015-9 Effective date.
Sections 1.6015-0 through 1.6015-9 are applicable for all elections
under Sec. 1.6015-2 or 1.6015-3 or any requests for relief under Sec.
1.6015-4 filed on or after July 18, 2002.
[T.D. 9003, 67 FR 47285, July 18, 2002]
Sec. 1.6016-1 Declarations of estimated income tax by corporations.
(a) Requirement. For taxable years ending on or after December 31,
1955, a declaration of estimated tax shall be made by every corporation
(including unincorporated business enterprises electing to be taxed as
domestic corporations under section 1361), which is subject to taxation
under section 11 or 1201(a), or subchapter L, chapter 1 of the Code
(relating to insurance companies), if its income tax under such sections
or such subchapter L for the taxable year can reasonably be expected to
exceed the sum of $100,000 plus the amount of any estimated credits
allowable under section 32 (relating to tax withheld at source on
nonresident aliens and foreign corporations and on tax-free covenant
bonds), section 33 (relating to taxes of foreign countries and
possessions of the United States), and section 38 (relating to
investment in certain depreciable property).
(b) Definition of estimated tax. The term ``estimated tax'', in the
case of a corporation, means the excess of the amount which such
corporation estimates as its income tax liability for the taxable year
under section 11 or 1201(a), or subchapter L, chapter 1 of the Code,
over the sum of $100,000 and any estimated credits under sections 32,
33, and 38. However, for the rule with respect to the limitation upon
the $100,000 exemption for members of certain electing affiliated
groups, see section 243(b)(3)(C)(v) and the regulations thereunder.
(c) Examples. The application of this section may be illustrated by
the following examples:
Example (1). M, a corporation subject to tax under section 11,
reasonably anticipates that it will have taxable income of $224,000 for
the calendar year 1964. The normal tax and surtax result in an expected
liability of $105,000. M determines that it will not have any allowable
credits under sections 32, 33, and 38 for 1964. Since M's expected tax
($105,000) exceeds the exemption ($100,000), a declaration of estimated
tax is required to be filed, reporting an estimated tax of $5,000
($105,000-$100,000) for the calendar year 1964.
[[Page 96]]
Example (2). Under the facts stated in example (1), except that M
estimates it will have an allowable foreign tax credit under section 33
in the amount of $4,000 and an allowable investment credit under section
38 in the amount of $3,000, no declaration is required, since M's
expected tax ($105,000) does not exceed the $100,000 plus the allowable
credits totaling $7,000.
[T.D. 6768, 29 FR 14921, Nov. 4, 1964]
Sec. 1.6016-2 Contents of declaration of estimated tax.
(a) In general. The declaration of estimated tax by a corporation
shall be made on Form 1120-ES. For the purpose of making the
declaration, the estimated tax should be based upon the amount of gross
income which the taxpayer can reasonably be expected to receive or
accrue as the case may be, depending upon the method of accounting upon
the basis of which the taxable income is computed, and the amount of the
estimated allowable deductions and credits to be taken into account.
Such amounts of gross income, deductions, and credits should be
determined upon the basis of facts and circumstances existing as at the
time prescribed for the filing of the declaration as well as those
reasonably to be anticipated for the taxable year.
(b) Use of prescribed form. Copies of Form 1120-ES will so far as
possible be furnished taxpayers by district directors. A taxpayer will
not be excused from making a declaration, however, by the fact that no
form has been furnished. Taxpayers not supplied with the proper form
should make application therefor to the district director in ample time
to have their declarations prepared, verified, and filed with the
district director on or before the date prescribed for filing the
declaration. If the prescribed form is not available a statement
disclosing the estimated income tax after the exemption and the credits,
if any, should be filed as a tentative declaration within the prescribed
time, accompanied by the payment of the required installment. Such
tentative declaration should be supplemented, without unnecessary delay,
by a declaration made on the proper form.
Sec. 1.6016-3 Amendment of declaration.
In the making of a declaration of estimated tax the corporation is
required to take into account the then existing facts and circumstances
as well as those reasonably to be anticipated relating to prospective
gross income, allowable deductions, and estimated credits for the
taxable year. Amended or revised declarations may be made in any case in
which the corporation estimates that its gross income, deductions, or
credits will materially change the estimated tax reported in the
previous declaration. However, for the rule with respect to the number
of amended declarations which may be filed for taxable years beginning
after December 31, 1963, see paragraph (d)(2) of Sec. 1.6074-1. Such
amended declaration may be made on either Form 1120-ES (marked
``Amended'') or on the reverse side of the installment notice furnished
the corporation by the district director. See, however, paragraph (b) of
Sec. 1.6016-2 for procedure to be followed if the prescribed form is
not available.
[T.D. 6768, 29 FR 14922, Nov. 4, 1964]
Sec. 1.6016-4 Short taxable year.
(a) Requirement of declaration. No declaration may be made for a
period of more than 12 months. For purposes of this section a taxable
year of 52 or 53 weeks, in the case of a corporation which computes its
taxable income in accordance with the election permitted by section
441(f), shall be deemed a period of 12 months. For special rules
affecting the time for filing declarations and paying estimated tax by
such corporation, see paragraph (b) of Sec. 1.441-2. A separate
declaration is required where a corporation is required to submit an
income tax return for a period of less than 12 months, but only if such
short period ends on or after December 31, 1955. However, no declaration
is required if the short taxable year:
(1) Begins on or before December 31, 1963, and is:
(i) A period of less than 9 months, or
(ii) A period of 9 or more months but less than 12 months and the
requirements of section 6016(a) are not met before the 1st day of the
last month in the short taxable year, or
(2) Begins after December 31, 1963, and is:
(i) A period of less than 4 months, or
[[Page 97]]
(ii) A period of 4 or more months but less than 12 months and the
requirements of section 6016(a) are not met before the 1st day of the
last month in the short taxable year.
(b) Income placed on an annual basis. In cases where the short
taxable year results from a change of annual accounting period, for the
purpose of determining whether the anticipated income for a short
taxable year will result in an estimated tax liability requiring the
filing of a declaration, such income shall be placed on an annual basis
in the manner prescribed in section 443(b)(1). If a tax computed on such
annualized income exceeds the sum of $100,000 and any credits under part
IV, of subchapter A, chapter 1 of the Code, the estimated tax shall be
the same part of the excess so computed as the number of months in the
short period is of 12 months. Thus, for example, a corporation which
changes from a calendar year basis to a fiscal year basis beginning
October 1, 1956, will have a short taxable year beginning January 1,
1956, and ending September 30, 1956. If on or before August 31, 1956,
the taxpayer anticipates that it will have income of $264,000 for the 9-
month taxable year the estimated tax is computed as follows:
(1) Anticipated taxable income for 9 months................. $264,000
(2) Annualized income ($264,000x12/9)....................... 352,000
(3) Tax liability on item (2)............................... 177,540
(4) Item (3) reduced by $100,000 (there are no credits under 77,540
part IV, subchapter A, chapter 1 of the Code)..............
(5) Estimated tax for 9-month period ($77,540x9/12)......... 58,155
Since the tax liability on the annualized income is in excess of
$100,000, a declaration is required to be filed, reporting an estimated
tax of $58,155 for the 9-month taxable period. This paragraph has no
application where the short taxable year does not result from a change
in the taxpayer's annual accounting period.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6768, 29 FR
14922, Nov. 4, 1964]
Sec. 1.6017-1 Self-employment tax returns.
(a) In general. (1) Every individual, other than a nonresident
alien, having net earnings from self-employment, as defined in section
1402, of $400 or more for the taxable year shall make a return of such
earnings. For purposes of this section, an individual who is a resident
of the Virgin Islands, Puerto Rico, or (for any taxable year beginning
after 1960) Guam or American Samoa is not to be considered a nonresident
alien individual. See paragraph (d) of Sec. 1.1402(b)-1. A return is
required under this section if an individual has self-employment income,
as defined in section 1402(b), even though he may not be required to
make a return under section 6012 for purposes of the tax imposed by
section 1 or 3. Provisions applicable to returns under section 6012(a)
shall be applicable to returns under this section.
(2) Except as otherwise provided in this subparagraph, the return
required by this section shall be made on Form 1040. The form to be used
by residents of the Virgin Islands, Guam, or American Samoa is From
1040SS. In the case of a resident of Puerto Rico who is not required to
make a return of income under section 6012(a), the form to be used is
Form 1040SS, except that Form 1040PR shall be used if it is furnished by
the Internal Revenue Service to such resident for use in lieu of Form
1040SS.
(b) Joint returns. (1) In the case of a husband and wife filing a
joint return under section 6013, the tax on self-employment income is
computed on the separate self-employment income of each spouse, and not
on the aggregate of the two amounts. The requirement of section
6013(d)(3) that in the case of a joint return the tax is computed on the
aggregate income of the spouses is not applicable with respect to the
tax on self-employment income. Where the husband and wife each has net
earnings from self-employment of $400 or more, it will be necessary for
each to complete separate schedules of the computation of self-
employment tax with respect to the net earnings of each spouse, despite
the fact that a joint return is filed. If the net earnings from self-
employment of either the husband or the wife are less than $400, such
net earnings are not subject to the tax on self-employment income, even
though they must be shown on the joint return for purposes of the tax
imposed by section 1 or 3.
[[Page 98]]
(2) Except as otherwise expressly provided, section 6013 is
applicable to the return of the tax on self-employment income;
therefore, the liability with respect to such tax in the case of a joint
return is joint and several.
(c) Social security account numbers. (1) Every individual making a
return of net earnings from self-employment for any period commencing
before January 1, 1962, is required to show thereon his social security
account number, or, if he has no such account number, to make
application therefor on Form SS-5 before filing such return. However,
the failure to apply for or receive a social security account number
will not excuse the individual from the requirement that he file such
return on or before the due date thereof. Form SS-5 may be obtained from
any district office of the Social Security Administration or from any
district director. The application shall be filed with a district office
of the Social Security Administration or, in the case of an individual
not in the United States, with the district office of the Social
Security Administration at Baltimore, Md. An individual who has
previously secured a social security account number as an employee shall
use that account number on his return of net earnings from self-
employment.
(2) For provisions applicable to the securing of identifying numbers
and the reporting thereof on returns and schedules for periods
commencing after December 31, 1961, see Sec. 1.6109-1.
(d) Declaration of estimated tax with respect to taxable years
beginning after December 31, 1966. For taxable years beginning after
December 31, 1966, section 6015 provides that the term ``estimated tax''
includes the amount which an individual estimates as the amount of self-
employment tax imposed by chapter 2 for the taxable year. Thus,
individuals upon whom self-employment tax is imposed by section 1401
must make a declaration of estimated tax if they meet the requirements
of section 6015(a); except as otherwise provided under section 6015(i).
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6691, 28 FR
12816, Dec. 3, 1963; T.D. 7427, 41 FR 34028, Aug. 12, 1976]
information returns
Sec. 1.6031(a)-1 Return of partnership income.
(a) Domestic partnerships--(1) Return required. Except as provided
in paragraphs (a)(3) and (c) of this section, every domestic partnership
must file a return of partnership income under section 6031 (partnership
return) for each taxable year on the form prescribed for the partnership
return. The partnership return must be filed for the taxable year of the
partnership regardless of the taxable years of the partners. For taxable
years of a partnership and of a partner, see section 706 and Sec.
1.706-1. For the rules governing partnership statements to partners and
nominees, see Sec. 1.6031(b)-1T. For the rules requiring the disclosure
of certain transactions, see Sec. 1.6011-4T.
(2) Content of return. The partnership return must contain the
information required by the prescribed form and the accompanying
instructions.
(3) Special rule. (i) A partnership that has no income, deductions,
or credits for federal income tax purposes for a taxable year is not
required to file a partnership return for that year.
(ii) The Commissioner may, in guidance published in the Internal
Revenue Bulletin (see Sec. 601.601(d)(2)(ii)(b) of this chapter),
provide for an exception to partnership reporting under section 6031 and
for conditions for the exception, if all or substantially all of a
partnership's income is derived from the holding or disposition of tax-
exempt obligations (as defined in section 1275(a)(3) and Sec. 1.1275-
1(e)) or shares in a regulated investment company (as defined in section
851(a)) that pays exempt-interest dividends (as defined in section
852(b)(5)).
(4) Failure to file. For the consequences of a failure to comply
with the requirements of section 6031(a) and this paragraph (a), see
sections 6229(a), 6231(f), 6698, and 7203.
(b) Foreign partnerships--(1) General rule. (i) Filing requirement.
A foreign partnership is not required to file a partnership return, if
the foreign partnership does not have gross income that is (or is
treated as) effectively connected with the conduct of a trade or
business within the United States
[[Page 99]]
(ECI) and does not have gross income (including gains) derived from
sources within the United States (U.S.-source income). Except as
provided in paragraphs (b)(2) and (3) of this section, a foreign
partnership that has ECI or has U.S.-source income that is not ECI must
file a partnership return for its taxable year in accordance with the
rules for domestic partnerships in paragraph (a) of this section.
(ii) Special rule. For purposes of this paragraph (b)(1) and
paragraph (b)(3)(iii) of this section, a foreign partnership will not be
considered to have derived income from sources within the United States
solely because a U.S. partner marks to market his pro rata share of PFIC
stock held by the foreign partnership pursuant to an election under
section 1296.
(2) Foreign partnerships with de minimis U.S.-source income and de
minimis U.S. partners. A foreign partnership (other than a withholding
foreign partnership, as defined in Sec. 1.1441-5(c)(2)(i)) that has
$20,000 or less of U.S.-source income and has no ECI during its taxable
year is not required to file a partnership return if, at no time during
the partnership taxable year, one percent or more of any item of
partnership income, gain, loss, deduction, or credit is allocable in the
aggregate to direct United States partners. The United States partners
must directly report their shares of the allocable items of partnership
income, gain, loss, deduction, and credit.
(3) Filing obligations for certain other foreign partnerships with
no ECI--(i) General requirements for modified filing obligations. A
foreign partnership will be subject to the modified filing obligations
in paragraphs (b)(3)(ii) and (iii) of this section if, in addition to
satisfying the requirements contained in paragraphs (b)(3)(ii) and (iii)
of this section--
(A) The partnership is not a withholding foreign partnership as
defined in Sec. 1.1441-5(c)(2)(i);
(B) Forms 1042 and 1042-S are filed by the partnership with respect
to the amounts subject to reporting under Sec. 1.1461-1(b) and (c),
unless the partnership is not required to file such returns under Sec.
1.1461-1(b)(2) and (c)(4), in which case Forms 1042 and 1042-S must be
filed by another withholding agent or agents; and
(C) The tax liability of the partners with respect to such amounts
has been fully satisfied by the withholding of tax at the source, if
applicable, under chapter 3 of the Internal Revenue Code.
(ii) Foreign partnerships with U.S.-source income but no U.S.
partners. A foreign partnership that has U.S.-source income is not
required to file a partnership return if the partnership has no ECI and
no United States partners at any time during the partnership's taxable
year.
(iii) Foreign partnerships with U.S.-source income and U.S.
partners. Except as provided in paragraph (b)(2) of this section, a
foreign partnership with one or more United States partners that has
U.S.-source income but no ECI must file a partnership return. However,
such a foreign partnership need not file Statements of Partner's Share
of Income, Credit, Deduction, etc. (Schedules K-1) for any partners
other than its direct United States partners and its passthrough
partners (whether U.S. or foreign) through which United States partners
hold an interest in the foreign partnership. Schedules K-1 that are not
excepted from filing under this paragraph (b)(3)(iii) must contain the
same information required of a domestic partnership filing under
paragraph (a) of this section.
(4) Information or returns required of partners who are United
States persons--(i) In general. If a United States person is a partner
in a partnership that is not required to file a partnership return, the
district director or director of the relevant service center may require
that person to render the statements or provide the information
necessary to verify the accuracy of the reporting by that person of any
items of partnership income, gain, loss, deduction, or credit.
(ii) Controlled foreign partnerships. Certain United States persons
who are partners in a foreign partnership controlled (within the meaning
of section 6038(e)(1)) by United States persons may be required to
provide information with respect to the partnership under section 6038.
[[Page 100]]
(5) Certain partnership elections. For a partnership that is not
otherwise required to file a partnership return, if an election that can
only be made by the partnership under section 703 (affecting the
computation of taxable income derived from a partnership) is to be made
by or for the partnership, a return on the form prescribed for the
partnership return must be filed for the partnership. Unless otherwise
provided in the form or the accompanying instructions, a return filed
solely to make an election need only contain a written statement citing
paragraph (b)(5)(ii) of this section, listing the name and address of
the partnership making the election, and clearly identifying the
specific election being made. A return filed under paragraph (b)(5)(ii)
of this section solely to make an election is not a partnership return.
Thus, such a return is not a return filed under section 6031(a) for
purposes of sections 6501 (except regarding the specific election
issue), 6231(a)(1)(A), and 6233. The return must be signed by--
(i) Each partner that is a partner in the partnership at the time
the election is made; or
(ii) Any partner of the partnership who is authorized (under local
law or the partnership's organizational documents) to make the election
and who represents to having such authorization under penalties of
perjury.
(6) Exclusion for certain organizations. The return requirement of
section 6031 and this section does not apply to the International
Telecommunications Satellite Organization, the International Maritime
Satellite Organization, or any organization that is a successor of
either.
(c) Partnerships excluded from the application of subchapter K of
the Internal Revenue Code--(1) Wholly excluded--(i) Year of election. An
eligible partnership as described in Sec. 1.761-2(a) that elects to be
excluded from all the provisions of subchapter K of chapter 1 of the
Internal Revenue Code in the manner specified by Sec. 1.761-2(b)(2)(i)
must timely file the form prescribed for the partnership return for the
taxable year for which the election is made. In lieu of the information
otherwise required, the return must contain or be accompanied by the
information required by Sec. 1.761-2(b)(2)(i).
(ii) Subsequent years. Except as otherwise provided in paragraph
(c)(1)(i) of this section, an eligible partnership that elects to be
wholly excluded from the application of subchapter K is not required to
file a partnership return.
(2) Deemed excluded. An eligible partnership that is deemed to have
elected exclusion from the application of subchapter K beginning with
its first taxable year, as specified in Sec. 1.761-2(b)(2)(ii), is not
required to file a partnership return.
(d) Definitions--(1) Partnership. For the meaning of the term
partnership, see Sec. 1.761-1(a).
(2) United States person. In applying this section, a United States
person is a person described in section 7701(a)(30); the government of
the United States, a State, or the District of Columbia (including an
agency or instrumentality thereof); or a corporation created or
organized in Guam, the Commonwealth of Northern Mariana Islands, the
U.S. Virgin Islands, and American Samoa, if the requirements of section
881(b)(1)(A), (B), and (C) are met for such corporation. The term does
not include an alien individual who is a resident of Puerto Rico, Guam,
the Commonwealth of Northern Mariana Islands, the U.S. Virgin Islands,
or American Samoa, as determined under Sec. 301.7701(b)-1(d) of this
chapter.
(3) United States partner. In applying this section, a United States
partner is any United States person who holds a direct or indirect
interest in the partnership.
(4) Indirect interest. An indirect interest is any interest held
through one or more passthrough partners, as defined in section
6231(a)(9).
(e) Procedural requirements--(1) Place for filing. The return of a
partnership must be filed with the service center prescribed in the
relevant IRS revenue procedure, publication, form, or instructions to
the form (see Sec. 601.601(d)(2)).
(2) Time for filing. The return of a partnership must be filed on or
before the fifteenth day of the fourth month following the close of the
taxable year of the partnership.
[[Page 101]]
(3) Magnetic media filing. For magnetic media filing requirements
with respect to partnerships, see section 6011(e)(2) and the regulations
thereunder.
(f) Effective dates. This section applies to taxable years of a
partnership beginning after December 31, 1999, except that--
(1) Paragraph (b)(3) of this section applies to taxable years of a
foreign partnership beginning after December 31, 2000; and
(2) Paragraph (a)(3)(ii) of this section applies to taxable years of
a partnership beginning on or after November 5, 2003.
[T.D. 8841, 64 FR 61500, Nov. 12, 1999, as amended by T.D. 9000, 67 FR
41328, June 18, 2002; T.D. 9094, 68 FR 63734, Nov. 10, 2003; 68 FR
70584, Dec. 18, 2003; T.D. 9123, 69 FR 24078, May 3, 2004; T.D. 9177, 70
FR 7176, Feb. 11, 2005]
Sec. 1.6031(b)-1T Statements to partners (temporary).
(a) Statement required to be furnished to partners--(1) In general.
Except as provided in this paragraph (a)(1) and paragraph (a)(2)(ii) of
this section, any partnership required under section 6031(a) and the
regulations thereunder to file a partnership return for a taxable year
shall furnish to every person who was a partner (within the meaning of
section 7701(a)(2)) at any time during the taxable year a written
statement containing the information described in paragraph (a)(3) of
this section. This section shall not apply to a real estate mortgage
investment conduit (REMIC) treated as a partnership under subtitle F of
the Code by reason of section 860F(e). For the reporting requirements
applicable to REMICs see Sec. 1.6031(b)-2T.
(2) Special rules applicable to partnership interests held by
nominees--(i) Statements furnished to nominees. For any partnership
taxable year beginning after October 22, 1986, a partnership shall
provide a person that holds (directly or indirectly) an interest in such
partnership as a nominee on behalf of another person at any time during
such year with a statement under paragraph (a)(1) of this section with
respect to such interest if--
(A) Such nominee has not furnished the statement required under
Sec. 1.6031(c)-1T(a)(1)(i) to the partnership with respect to such
other person;
(B) Such nominee either holds legal title to such partnership
interest in its own name or is identified in a statement provided to the
partnership pursuant to Sec. 1.6031(c)-1T(a)(1)(i) by another nominee
as the person on whose behalf such other nominee holds such interest;
and
(C) Such nominee is not a person described in Sec. 1.6031(c)-
1T(a)(2) (relating to the special rule for clearing agencies).
In such case, the partnership shall assume, for purposes of this
section, that the nominee is the beneficial owner of the partnership
interest.
(ii) Statements not required to be furnished to partners holding
partnership interests through nominees. A partnership shall not be
required to furnish a statement under paragraph (a)(1) of this section
to a partner with respect to any portion of such partner's interest in
the partnership that is owned through a nominee if--
(A) Such nominee has not furnished (or is not required to furnish
under Sec. 1.6031(c)-1T(a)(2)), a statement to the partnership under
Sec. 1.6031(c)-1T(a)(1)(i) with respect to such partner; and
(B) Such partner has not furnished (or is not required to furnish) a
statement to the partnership under Sec. 1.6031(c)-1T(a)(3), with
respect to such interest in the partnership.
(3) Contents of statement. The statement required under paragraph
(a)(1) of this section shall include the following information:
(i) The partner's distributive share of partnership income, gain,
loss, deduction, or credit required to be shown on the partnership
return (or, for taxable years beginning before January 1, 1987, the
partner's distributive share of partnership income, gain, loss,
deduction, or credit shown on the partnership return); and
(ii) To the extent provided by form or the accompanying
instructions, any additional information that may be required to apply
particular provisions of subtitle A of the Code to the partner with
respect to items related to the partnership.
(b) Time for furnishing statement. The statement required to be
furnished by
[[Page 102]]
the partnership under paragraph (a)(1) of this section shall be
furnished on or before the day on which the partnership return for that
taxable year is required to be filed (determined with regard to
extensions). For partnership returns the due date for which (determined
without regard to extensions) is before January 1, 1987, the statement
required to be furnished by the partnership under paragraph (a)(1) of
this section shall be furnished on or before the day on which the
partnership return is filed.
(c) Statement may be provided to agent. If a partner designates
another person, such as an attorney or an investment advisor, as the
partner's (or nominee's) agent in dealing with the partnership, the
partnership may provide the statement required under paragraph (a)(1) of
this section with respect to such partner to such other person instead
of the partner.
(d) Penalties. For penalties for failure to comply with the
requirements of section 6031(b) and paragraph (a) of this section, see
section 6722(a).
(e) Effective date. Except as otherwise provided in this section,
the provisions of this section apply to partnership taxable years
beginning after September 3, 1982.
[T.D. 8225, 53 FR 34490, Sept. 7, 1988]
Sec. 1.6031(b)-2T REMIC reporting requirements (temporary). [Reserved]
Sec. 1.6031(c)-1T Nominee reporting of partnership information
(temporary).
(a) Statements required to be furnished to partnership--(1)
Statement from nominee--(i) In general. Except as otherwise provided in
this section, any person who holds, directly or indirectly, an interest
in a partnership (required under section 6031(a) and the regulations
thereunder to file a partnership return for a taxable year) as a nominee
on behalf of another person at any time during the partnership taxable
year shall furnish to the partnership a written statement (or
statements) for that taxable year with respect to such other person
containing the information described in paragraph(a)(1)(ii) of this
section.
(ii) Contents of statement. The statement required under paragraph
(a)(1)(i) of this section shall, except as otherwise provided in
paragraph (a)(4) of this section, include the following information:
(A) The name, address, and taxpayer identification number of the
nominee;
(B) The name, address, and taxpayer identification number of such
other person;
(C) Whether such other person is--
(1) A person that is not a United States person;
(2) A foreign government, an international organization, or any
wholly-owned agency or instrumentality of either of the foregoing; or
(3) A tax-exempt entity (within the meaning of section 168(h)(2));
(D) A description of any interest in the partnership held by the
nominee on behalf of such other person at the beginning of the
partnership taxable year;
(E) A description of any interest in the partnership that the
nominee acquires (within the meaning of paragraph (g)(1) of this
section) on behalf of such other person during the partnership taxable
year, the method of acquisition (e.g., purchase, exchange, acquisition
at death, gift, or commencement of nominee relationship) and acquisition
cost (within the meaning of paragraph (g)(2) of this section) of such
interest, and the date of the acquisition of such interest; and
(F) A description of any interest in the partnership that the
nominee transfers (within the meaning of paragraph (g)(5) of this
section) on behalf of such other person during the partnership taxable
year, the net proceeds from the transfer (within the meaning of
paragraph (g)(6) of this section) of such interest, and the date of the
transfer of such interest.
A description of a partnership interest must include sufficient detail
to enable the partnership to furnish to such other person the statement
required under Sec. 1.6031(b)-1T (a).
(2) Special rule for clearing agencies. A clearing agency registered
pursuant to the provisions of section 17A of the Securities Exchange Act
of 1934 (or its nominee) that holds an interest in a partnership as a
nominee on behalf of
[[Page 103]]
another person shall not be required to furnish any statement described
in paragraph (a)(1)(i) of this section with respect to such interest.
(3) Special rule for brokers and financial institutions--(i)
Additional statement required. Any broker (within the meaning of
paragraph (g)(3) of this section) or financial institution (within the
meaning of paragraph (g)(4) of this section) that holds an interest in a
partnership indirectly through a nominee described in paragraph (a)(2)
of this section at any time during a partnership taxable year shall
furnish (in addition to any statement (or statements) required under
paragraph (a)(1)(i) of this section) to the partnership a written
statement (or statements) containing the information described in
paragraph (a)(3)(ii) of this section with respect to any interest in
such partnership that it holds (directly or indirectly) for its own
account at any time during such partnership taxable year.
(ii) Contents of statement. The statement required under paragraph
(a)(3)(i) of this section shall, except as otherwise provided in
paragraph (a)(4) of this section, include the following information:
(A) The name, address, and taxpayer identification number of the
broker or financial institution;
(B) Whether such broker of financial institution is a person that is
not a United States person;
(C) A description of any interest in the partnership held by the
broker or financial institution for its own account at the beginning of
the partnership taxable year;
(D) A description of any interest in the partnership that the broker
or financial institution acquires for its own account during the
partnership taxable year, the method of acquisition and acquisition cost
of such interest, and the date of the acquisition of such interest; and
(E) A description of any interest in the partnership that the broker
or financial institution transfers for its own account during the
partnership taxable year, the net proceeds from the transfer of such
interest, and the date of the transfer of such interest.
A description of a partnership interest held by a broker or financial
institution for its own account must include sufficient detail to enable
the partnership to furnish to the broker or financial institution the
statement required under Sec. 1.6031(b)-1T (a).
(4) Exception--(i) In general. Except as otherwise provided in this
paragraph (a)(4), any statement required under paragraph (a) (1)(i) or
(3)(i) of this section for a taxable year is not required to include--
(A) That part of the information described in paragraph (a)
(1)(ii)(E) and (3)(ii)(D) of this section regarding the method of
acquisition and acquisition cost; or
(B) That part of the information described in paragraph
(a)(1)(ii)(F) and (3)(ii)(E) of this section regarding the net proceeds
from the transfer;
to the extent that, prior to the beginning of the partnership taxable
year, the partnership has provided the nominee with a written statement
that the nominee need not provide such information to the partnership,
and the partnership has not modified or revoked such statement. For
purposes of the preceding sentence, the modification or revocation of a
statement furnished to a nominee is effective for a partnership taxable
year if and only if the partnership notifies the nominee of such
modification or revocation by a written statement more than 60 days
before the beginning of the partnership taxable year. The nominee shall
retain a copy of any statement that is furnished to it by the
partnership under this paragraph (a)(4) in the nominee's records so long
as the contents thereof may become material in the administration of any
internal revenue law.
(ii) Effect of election under section 754. Paragraph (a)(4)(i)(A) of
this section shall not apply to a partnership taxable year if--
(A) The partnership has an election in effect under section 754
(relating to optional adjustment to basis of partnership property) for
such taxable year; and
(B) The nominee knows or has reason to know of such election more
than 60 days before the beginning of such taxable year.
(5) Examples. The following examples illustrate the application of
this paragraph (a):
[[Page 104]]
Example (1). B, a broker, holds 50 units of interest in Partnership
P, a calendar year partnership, in street name for customer A, the
beneficial owner. B holds the units on behalf of A at all times during
1989. B must furnish a statement to P for calendar year 1989 under
paragraph (a)(1)(i) of this section that includes the information
required under paragraph (a)(1)(ii) (A) through (D) of this section. The
description of the partnership interest held by B on A's behalf on
January 1, 1989, must identify the number of units of P held by B on A's
behalf at that time (50), and the class of the partnership interest
(including the Committee on Uniform Security Identification Procedures
(CUSIP) number of the partnership interest, if known).
Example (2). The facts are the same as in example (1), except that
pursuant to A's instructions, B sells 25 of A's units of interest in P
on August 1, 1989, receiving net proceeds from the transfer of $500. In
addition to the information described in example (1), the statement that
B must furnish to P must include the class of the partnership interest
transferred (including the CUSIP number of the partnership interest, if
known), the number of units transferred (25), the net proceeds from the
transfer ($500), and the date of the transfer (August 1, 1989.)
Example (3). The facts are the same as in example (1), except that A
is not the beneficial owner, but rather holds the units as a nominee on
behalf of C, the beneficial owner, at all times during 1989. In addition
to the statement that B must furnish to P (as described in Example (1)
of this paragraph (a)(5)), A must furnish a statement to P for calendar
year 1989 under paragraph (a)(1)(i) of this section that includes the
information required under paragraph (a)(1)(ii) (A) through (D) of this
section. If both A and B provide P with the statement required under
paragraph (a)(1)(i) of this section, P must provide C with the statement
required under Sec. 1.6031(b)-1T (a)(1).
(b) Time for furnishing statements. A nominee may furnish to the
partnership any statement required under paragraph (a) of this section
annually, quarterly, monthly, or on any other basis, provided that all
statements required to be furnished under paragraph (a) of this section
for a partnership taxable year shall be furnished on or before the last
day of the first month following the close of such partnership taxable
year.
(c) Use of magnetic media. A nominee required to furnish a written
statement under paragraph (a) of this section, may, in lieu of
furnishing such written statement, furnish the required information on
magnetic tape or by other media if the partnership and the nominee so
agree.
(d) Use of single document. Any person who holds interests in a
partnership as a nominee on behalf of more than one other person during
the partnership taxable year, may, in lieu of furnishing to the
partnership a separate statement for each such other person, furnish to
the partnership a single document which includes, for each such other
person, the information described in paragraph (a)(1)(ii) of this
section. To the extent that a single document is used, references in
this section to the statement required under paragraph (a)(1)(i) of this
section shall be deemed to refer also to the information included in a
single document under this paragraph (d).
(e) Retention of information. The nominee shall retain a copy of any
statement that is furnished to the partnership under this section in the
nominee's records so long as the contents thereof may become material in
the administration of any internal revenue law.
(f) Use of agent. If a partnership has designated another person,
such as a clearing organization, as the partnership's agent for purposes
of receiving the statements required under paragraph (a) of this
section, such statements may be furnished to that other person instead
of the partnership. If a nominee has designated another person as its
agent for purposes of furnishing to the partnership (or its agent) the
statements required under paragraph (a) of this section, that other
person may furnish such statements to the partnership (or its agent) on
behalf of the nominee.
(g) Meaning of terms. For purposes of this section, the following
terms have the meanings set forth below:
(1) The term acquires means--
(i) A purchase or other acquisition of a partnership interest; or
(ii) The commencement of a nominee relationship, including the
substitution of one nominee for another.
(2) The term acquisition cost means the sum of any money paid and
the fair market value of any property (other than money) transferred to
acquire a partnership interest increased by any expenses paid or
incurred with respect
[[Page 105]]
to the acquisition (such as broker's fees or commissions).
(3) The term broker shall have the meaning set forth in paragraph
(a)(1) of Sec. 1.6045ca-1.
(4) The term financial institution means a financial institution
such as a bank, mutual savings bank, savings and loan association,
building and loan association, cooperative bank, homestead association,
credit union, industrial loan association or bank or other similar
organization.
(5) The term transfer means--
(i) A sale, exchange, or other disposition of a partnership
interest; or
(ii) The termination of a nominee relationship, including the
substitution of one nominee for another.
(6) The term net proceeds from the transfer means the sum of any
money and the fair market value of any property (other than money)
received in connection with a transfer of a partnership interest reduced
by any expenses paid or incurred with respect to the transfer (such as
broker's fees or commissions).
(7) The term person includes the United States, a State, the
District of Columbia, a foreign government, a political subdivision of a
State or foreign government, or an international organization.
(h) Statement required by nominees that do not comply with Sec.
1.6031(c)-1T (a)--(1) In general. Any person that--
(i) Holds an interest in a partnership as a nominee (other than a
nominee described in paragraph (a)(3) of this section) on behalf of
another person at any time during the partnership taxable year;
(ii) Does not furnish to such partnership the statement required
under paragraph (a)(1)(i) of this section for such other person with
respect to such interest in the partnership; and
(iii) Receives from such partnership the statement described in
paragraph (a)(1) of Sec. 1.6031(b)-1T with respect to such interest in
the partnership;
shall furnish to such other person a written statement containing the
information described in paragraph (h)(2) of this section with respect
to such interest in the partnership.
(2) Contents of statement. The statement required under paragraph
(h)(1) of this section shall contain the following information:
(i) The distributive share of partnership income, gain, loss,
deduction or credit required to be shown on the partnership return that
is allocable to such interest in the partnership; and
(ii) Any additional information that may be required to apply
particular provisions of subtitle A of the Code to the beneficial owner
of such interest in the partnership in connection with items related to
the partnership.
(3) Time for furnishing statements. A nominee shall furnish the
statement required under paragraph (h)(1) of this section within 30 days
after receiving the statement described in paragraph (a) of Sec.
1.6031(b)-1T.
(i) REMICs. This section shall not apply with respect to any
interest in a real estate mortgage investment conduit (REMIC) treated as
a partnership under subtitle F of the Code by reason of section 860F(e).
For the nominee reporting requirements with respect to REMICs see Sec.
1.6031(c)-2T.
(j) Penalties. [Reserved]
(k) Effective date--(1) In general. Except as otherwise provided in
paragraph (k)(2) of this section, the provisions of this section shall
apply to partnership taxable years beginning after October 22, 1986.
(2) Transitional rule for taxable years beginning before January 1,
1989. For partnership taxable years beginning before January 1, 1989,--
(i) Any statement that a nominee is required to furnish to a
partnership under paragraph (a)(1) of this section shall not be required
to include the following information:
(A) The information described in paragraph (a)(1)(ii)(C) of this
section;
(B) That part of the information described in paragraph
(a)(1)(ii)(E) of this section regarding the method of acquisition and
acquisition cost of a partnership interest; or
(C) That part of the information described in paragraph
(a)(1)(ii)(F) of this section regarding the net proceeds from the
transfer of a partnership interest.
[[Page 106]]
(ii) A broker or financial institution shall not be required to
furnish the additional statement described in paragraph (a)(3)(i) of
this section.
[T.D. 8225, 53 FR 34491, Sept. 7, 1988]
Sec. 1.6031(c)-2T Nominee reporting of REMIC information (temporary).
[Reserved]
Sec. 1.6032-1 Returns of banks with respect to common trust funds.
Every bank (as defined in section 581) maintaining a common trust
fund shall make a return of income of the common trust fund, regardless
of the amount of its taxable income. Member banks of an affiliated group
that serve as co-trustees with respect to a common trust fund must act
jointly in making a return for the fund. If a bank maintains more than
one common trust fund, a separate return shall be made for each. No
particular fund is prescribed for making the return under this section,
but form 1065 may be used if it is designated by the bank as the return
of a common trust fund. The return shall be made for the taxable year of
the common trust fund and shall be filed on or before the 15th day of
the fourth month following the close of such taxable year with the
district director for the district in which the income tax return of the
bank is filed. Such return shall state specifically with respect to the
fund the items of gross income and the deductions allowed by subtitle A
of the Code, shall include each participant's name and address, the
participant's proportionate share of taxable income or net loss
(exclusive of gains and losses from sales or exchanges of capital
assets), the participant's proportionate share of gains and losses from
sales or exchanges of capital assets, and the participant's share of
items which enter into the determination of the tax imposed by section
56. See Sec. 1.584-2 and Sec. 1.58-5. If the common trust fund is
maintained by two or more banks that are members of the same affiliated
group, the return must also identify the member bank in the group that
has contributed each participant's property or money to the fund. A copy
of the plan of the common trust fund must be filed with the return. If,
however, a copy of such plan has once been filed with a return, it need
not again be filed if the return contains a statement showing when and
where it was filed. If the plan is amended in any way after such copy
has been filed, a copy of the amendment must be filed with the return
for the taxable year in which the amendment was made. For the signing of
a return of a bank with respect to common trust funds, see Sec. 1.6062-
1, relating to the manner prescribed for the signing of a return of a
corporation.
[T.D. 7564, 43 FR 40497, Sept. 12, 1978, as amended by T.D. 7935, 49 FR
1695, Jan. 13, 1984]
Sec. 1.6033-1 Returns by exempt organizations; taxable years beginning
before January 1, 1970.
(a) In general. (1) Except as provided in section 6033(a) and
paragraph (g) of this section, every organization exempt from taxation
under section 501(a) shall file an annual return of information
specifically stating its items of gross income, receipts and
disbursements, and such other information as may be prescribed in the
instructions issued with respect to the return. Such information return
shall be filed annually regardless of the amount or source of the income
or receipts of the organization. Except as provided in paragraph (d) of
this section, such return shall be filed annually regardless of whether
such organization is chartered by, or affiliated or associated with, any
central, parent, or other organization.
(2)(i) Except as otherwise provided in this subparagraph, every
organization exempt from taxation under section 501 (a), and required to
file a return under section 6033 and this section, other than an
organization described in section 401 (a), 501(c)(3), or 501(d), shall
file its annual return on Form 990. However, such an exempt
organization, instead of filing Form 990, may file its annual return on
Form 990 (SF), a short form, if its gross receipts for the taxable year
do not exceed $10,000 and its total assets on the last day of its
taxable year do not exceed $10,000.
(ii) For purposes of this subparagraph and subparagraph (4) of this
paragraph, ``gross receipts'' means the gross amount received by the
organization during its annual accounting period
[[Page 107]]
from all sources without reduction for any costs or expenses including,
for example, cost of goods or assets sold, cost of operations, or
expenses of earning, raising, or collecting such amounts. Thus, ``gross
receipts'' includes, but is not limited to, (a) the gross amount
received as contributions, gifts, grants, and similar amounts without
reduction for the expenses of raising and collecting such amounts, (b)
the gross amount received as dues or assessments from members or
affiliated organizations without reduction for expenses attributable to
the receipt of such amounts, (c) gross sales or receipts from business
activities (including business activities unrelated to the purpose for
which the organization received an exemption, the net income or loss
from which may be required to be reported on Form 990-T), (d) the gross
amount received from the sale of assets without reduction for cost or
other basis and expenses of sale, and (e) the gross amount received as
investment income such as interest, dividends, rents, and royalties.
(3) Every employees' trust described in section 401 (a) which is
exempt from taxation under section 501 (a) shall file an annual return
on Form 990-P. The return shall include the information required by
paragraph (b)(5)(ii) of Sec. 1.401-1. In addition, the trust must file
the information required to be filed by the employer pursuant to the
provisions of Sec. 1.404(a)-2, unless the employer has notified the
trustee in writing that he has or will timely file such information. If
the trustee has received such notification from the employer, then such
notification, or a copy thereof, shall be retained by the trust as a
part of its records.
(4) Except as otherwise provided in this subparagraph, every
organization described in section 501(c)(3), which is required to file a
return under section 6033 and this section, shall file its annual return
on Form 990-A. However, such an exempt organization, instead of filing
Form 990-A, may file its annual return on Form 990-A (SF), a short form,
if its gross receipts for the taxable year do not exceed $10,000 and its
total assets on the last day of its taxable year do not exceed $10,000.
For purposes of this subparagraph, ``gross receipts'' shall be defined
in the manner prescribed in subparagraph (2)(ii) of this paragraph. The
forms prescribed by this subparagraph shall be as follows:
(i) Form 990-A shall consist of parts I and II. Part I shall
contain, in addition to information required in part II, such
information as may be prescribed in the return and instructions which is
required to be furnished by section 6033(a) or which is necessary to
show whether or not such organization is exempt from tax under section
501(a). Part II, which shall be open to public inspection pursuant to
section 6104 and other applicable sections and the regulations
thereunder, shall contain principally the information required by
section 6033(b) and the regulations thereunder. The information
contained in part II, to be furnished by the organization in duplicate
in the manner prescribed by the instructions issued with respect to the
return, is as follows:
(a) Its gross income for the year. For this purpose, gross income
includes tax-exempt income, but does not include contributions, gifts,
grants, and similar amounts received. Whether or not an item constitutes
a contribution, gift, grant, or similar amount, depends upon all the
surrounding facts and circumstances.
(b) Its expenses attributable to such income and incurred within the
year.
(c) Its disbursements out of income (including prior years'
accumulations) made within the year for the purposes for which it is
exempt. Information shall be included as to the class of activity with a
separate total for each activity as well as the name, address, and
amount received by each individual or organization receiving cash, other
property, or services within the taxable year. If the donee is related
by blood, marriage, adoption, or employment (including children of
employees) to any person or corporation having an interest in the exempt
organization, such as a creator, donor, director, trustee, or officer,
the relationship of the donee shall be stated. Activities shall be
classified according to purpose in greater detail than merely
charitable, educational, religious, or scientific. For example, payments
for
[[Page 108]]
nursing service, for laboratory construction, for fellowships, or for
assistance to indigent families shall be so identified. Where the fair
market value of the property at the time of disbursement is used as the
measure of the disbursement, the book value of such property (and a
statement of how book value was determined) shall also be furnished, and
any difference between the fair market value at the time of disbursement
and the book value should be reflected in the books of account. The
expenses allocable to making the disbursements shall be set forth in
such detail as is prescribed by the form or instructions.
(d) Its accumulation of income within the year. The amount of such
accumulation is obtained by subtracting from the amount in (a) of this
subdivision the sum of the amounts determined in (b) and (c) of this
subdivision and the expenses allocable to carrying out the purposes for
which it is exempt.
(e) Its aggregate accumulation of income at the beginning and end of
the year. The aggregate accumulation of income shall be divided between
that which is attributable to the gain or loss on the sale of assets
(excluding inventory items) and that which is attributable to all other
income. For this purpose expenses and disbursements shall be allocated
on the basis of accounting records, the governing instrument, or
applicable local law.
(f) Its disbursements out of principal in the current and prior
years for the purposes for which it is exempt. In addition, the same
type of information shall be required with respect to disbursements out
of principal made in the current year as is prescribed by (c) of this
subdivision with respect to disbursements out of income.
(g) A balance sheet showing its assets, liabilities, and net worth
as of the beginning and end of such year. Detailed information on the
assets, liabilities, and net worth shall be furnished on the schedule
provided for this purpose on the Form 990-A. Such schedule shall be
supplemented by attachments where appropriate.
(h) The total of the contributions and gifts received by it during
the year. A statement shall be included showing the gross amount of
contributions and gifts collected by the organization, the expenses
incurred by the organization in collecting such amount, and the net
proceeds.
(i) In addition to the information required in (a) through (h) of
this subdivision, the organization shall furnish such specific
information and answer such specific questions as are required by the
form or instructions.
(ii) Form 990-A (SF) is a short form consisting of a single part
which contains such information as may be prescribed in the return and
instructions which is required to be furnished by section 6033(a) or
which is necessary to show whether or not such organization is exempt
from tax under section 501(a). In addition, Form 990-A (SF) shall
contain the information required by section 6033(b) which must be
furnished in the manner prescribed in the instructions issued with
respect to the return. Form 990-A (SF) shall be open to public
inspection pursuant to section 6104 and other applicable sections and
the regulations thereunder.
(5)(i) Every religious or apostolic association or corporation
described in section 501 (d) which is exempt from taxation under section
501(a) shall file a return on Form 1065 for each taxable year, stating
specifically the items of gross income and deductions, and its taxable
income. There shall be attached to the return as a part thereof a
statement showing the name and address of each member of the association
or corporation and the amount of his distributive share of the taxable
income of the association or corporation for such year.
(ii) If the taxable year of any member is different from the taxable
year of the association or corporation, the distributive share of the
taxable income of the association or corporation to be included in the
gross income of the member for his taxable year shall be based upon the
taxable income of the association or corporation for its taxable year
ending with or within the taxable year of the member.
(b) Accounting period for filing return. A return on Form 990, 990-
A, 990 (SF), 990-A (SF), or 990-P shall be on the basis of the
established annual accounting period of the organization. If
[[Page 109]]
the organization has no such established accounting period, such return
shall be on the basis of the calendar year.
(c) Returns when exempt status not established. An information
return on Form 990, 990-A, 990 (SF), or 990-A (SF) is not required to be
filed by an organization claiming an exempt status under section 501(a)
prior to the establishment by the organization of such exempt status
under section 501 and Sec. 1.501(a)-1. If the date for filing an income
tax return and paying the tax occurs before the tax-exempt status of the
organization has been established, the organization is required to file
the income tax return and pay the tax. However, see sections 6081 and
6161 and the regulations thereunder for extensions of time for filing
the return and paying the tax. Upon establishment of its exempt status,
the organization may file a claim for a refund of income taxes paid for
the period for which its exempt status is established.
(d) Group returns. (1) A central, parent, or like organization
(referred to in this paragraph as ``central organization''), exempt
under section 501(a) and described in section 501(c), although required
to file a separate annual return for itself under section 6033 and
paragraph (a) of this section, may file annually, in addition to such
separate annual return, a group return on Form 990 or 990-A, 990 (SF),
or 990-A (SF), as may be appropriate. Form 990 (SF) or 990-A (SF) may be
used where each local organization qualifies under paragraph (a) of this
section. Such group return may be filed for two or more of the local
organizations, chapters, or the like (referred to in this paragraph as
``local organizations'') which are (i) affiliated with such central
organization at the close of its annual accounting period, (ii) subject
to the general supervision or control of the central organization, and
(iii) exempt from taxation under the same paragraph of section 501(c) of
the Code, although the local organizations are not necessarily exempt
under the paragraph under which the central organization is exempt.
(2)(i) The filing of the group return shall be in lieu of the filing
of a separate return by each of the local organizations included in the
group return. The group return shall include only those local
organizations which in writing have authorized the central organization
to include them in the group return, and which have made and filed, with
the central organization, their statements, specifically stating their
items of gross income, receipts, and disbursements, and such other
information relating to them as is required to be stated in the group
return. Such an authorization by a local organization shall be made
annually, under the penalties of perjury, and shall be signed by a duly
authorized officer of the local organization in his official capacity
and shall contain the following statement, or a statement of like
import: ``I hereby declare under the penalties of perjury that this
authorization (including any accompanying schedules and statements) has
been examined by me and to the best of my knowledge and belief is true,
correct and complete and made in good faith for the taxable year
stated.'' Such authorizations and statements shall be permanently
retained by the central organization.
(ii) There shall be attached to the group return and made a part
thereof a schedule showing the name and address of each of the local
organizations and the total number thereof included in such return, and
a schedule showing the name and address of each of the local
organizations and the total number thereof not included in the group
return.
(3) The group return shall be on the basis of the established annual
accounting period of the central organization. Where such central
organization has no established annual accounting period, such return
shall be on the basis of the calendar year. The same income, receipts,
and disbursements of a local organization shall not be included in more
than one group return.
(4) The group return shall be filed in accordance with these
regulations and the instructions issued with respect to Form 990, 990-A,
990 (SF), or 990-A (SF), whichever is appropriate, and shall be
considered the return of each local organization included therein. The
tax-exempt status of a local organization
[[Page 110]]
must be established under a group exemption letter issued to the central
organization before a group return including the local organization will
be considered as the return of the local organization. See Sec.
1.501(a)-1 for requirements for establishing a tax-exempt status.
(e) Time and place for filing. The annual return of information on
Form 990, 990-A, 990 (SF), 990-A (SF), or 990-P shall be filed on or
before the 15th day of the fifth calendar month following the close of
the period for which the return is required to be filed. The annual
return on Form 1065 required to be filed by a religious or apostolic
association or corporation shall be filed on or before the 15th day of
the fourth month following the close of the taxable year for which the
return is required to be filed. Each such return shall be filed in
accordance with the instructions applicable thereto.
(f) Penalties. For criminal penalties for failure to file a return
and filing a false or fraudulent return, see sections 7203, 7206, and
7207.
(g) Organizations not required to file annual returns. (1)(i) Annual
returns on Form 990-A or Form 990-A (SF) are not required to be filed by
an organization described in section 501(c)(3) which has established its
right to exemption from taxation under section 501 (a) and which is:
(a) Organized and operated exclusively for religious purposes;
(b) Operated, supervised, or controlled by or in connection with an
organization which is organized and operated exclusively for religious
purposes;
(c) An educational organization which normally maintains a regular
faculty and curriculum and normally has a regularly organized body of
pupils or students in attendance at the place where its educational
activities are regularly carried on; or
(d) A charitable organization, or an organization for the prevention
of cruelty to children or animals, which is supported, in whole or in
part, by funds contributed by the United States or any State or
political subdivision thereof, or which is primarily supported by
contributions of the general public.
(ii) An educational organization which normally maintains and has a
regular faculty, curriculum, and student body and meets the conditions
of subdivision (i)(c) of this subparagraph, which relieves it from the
requirement of filing annual returns, shall not be considered as having
thereafter failed to continue meeting such conditions if it is
temporarily compelled to curtail or discontinue its normal and regular
activities during the existence of abnormal circumstances and
conditions.
(iii) An organization organized and operated exclusively for
charitable purposes or for the prevention of cruelty to children or
animals is ``primarily supported by contributions of the general
public'' for any accounting period if more than 50 percent of its income
and receipts for such period is actually derived from voluntary
contributions and gifts made by the general public, as distinguished
from a few contributors or donors or from related or associated persons.
For purposes of this subdivision, the words ``related or associated
persons'' refer to persons of a particular group who are connected with
or are interested in the activities of the organization, such as
founders, incorporators, shareholders, members, fiduciaries, officers,
employees, or the like, or who are connected with such persons by family
or business relationships. An organization claiming an exception from
the filing of an information return under this subdivision must maintain
adequate records in order to substantiate such claim. Furthermore, if it
is doubtful to an organization that it falls within this exception for
filing annual information returns, it must file the return on Form 990-A
or Form 990-A (SF).
(2) The annual return on Form 990 or Form 990 (SF) need not be filed
by:
(i) A fraternal beneficiary society, order, or association,
described in section 501(c)(8), or
(ii) An organization described in section 501(c)(1) if it is a
corporation wholly owned by the United States or any agency or
instrumentality thereof, or is a wholly owned subsidiary of such a
corporation,
which has established its exemption from tax under section 501(a).
[[Page 111]]
(3) The provisions of section 6033(a) relieving certain specified
types of organizations exempt from tax under section 501(a) from filing
annual returns do not abridge or impair in any way the powers and
authority of district directors or directors of service centers provided
for in other provisions of the Code and in the regulations thereunder to
require the filing of such returns by such organizations. See section
6001 and Sec. 1.6001-1.
(h) Records, statements, and other returns of tax-exempt
organizations. (1) An organization which has established its right to
exemption from tax under section 501(a) and has also established that it
is not required to file annually the return of information on Form 990,
990-A, 990 (SF), or 990-A (SF) shall immediately notify in writing the
district director for the internal revenue district in which its
principal office is located of any changes in its character, operations,
or purpose for which it was originally created.
(2) Every organization which has established its right to exemption
from tax, whether or not it is required to file an annual return of
information, shall submit such additional information as may be required
by the district director for the purpose of enabling him to inquire
further into its exempt status and to administer the provisions of
subchapter F (section 501 and following), chapter 1 of the Code, and of
section 6033. See section 6001 and Sec. 1.6001-1 with respect to the
authority of the district director or directors of service centers to
require such additional information and with respect to the permanent
books of account or records to be kept by such organizations.
(3) An organization which has established its right to exemption
from tax under section 501(a), including an organization which is
relieved under section 6033 and this section from filing annual returns
of information, is not, however, relieved from the duty of filing other
returns of information. See, for example, sections 6041 and 6051 and the
regulations thereunder.
(i) Unrelated business tax returns. In addition to the foregoing
requirements of this section, certain organizations otherwise exempt
from tax under section 501(a) and described in section 501(c) (2), (3),
(5), (6), or (17) or section 401(a) which are subject to tax on
unrelated business taxable income are also required to file returns on
Form 990-T. See paragraph (e) of Sec. 1.6012-2 and paragraph (a)(5) of
Sec. 1.6012-3 for requirements with respect to such returns.
(j) Effective date. The provisions of this section shall apply with
respect to returns filed for taxable years beginning before January 1,
1970.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6722, 29 FR
5075, Apr. 14, 1964; T.D. 6972, 33 FR 12907, Sept. 12, 1968; T.D. 6980,
33 FR 16446, Nov. 9, 1968; T.D. 7122, 36 FR 11026, June 8, 1971]
Sec. 1.6033-2 Returns by exempt organizations (taxable years
beginning after December 31, 1969) and returns by certain
nonexempt organizations (taxable years beginning after
December 31, 1980).
(a) In general. (1) Except as provided in section 6033(a)(2) and
paragraph (g) of this section, every organization exempt from taxation
under section 501(a) shall file an annual information return
specifically setting forth its items of gross income, gross receipts and
disbursements, and such other information as may be prescribed in the
instructions issued with respect to the return. Except as provided in
paragraph (d) of this section, such return shall be filed annually
regardless of whether such organization is chartered by, or affiliated
or associated with, any central, parent, or other organization.
(2)(i) Except as otherwise provided in this paragraph and paragraph
(g) of this section, every organization exempt from taxation under
section 501(a), and required to file a return under section 6033 and
this section (including, for taxable years ending before December 31,
1972, private foundations, as defined in section 509(a)), other than an
organization described in section 401(a) or 501(d), shall file its
annual return on Form 990. For taxable years ending on or after December
31, 1972, every private foundation shall file Form 990-PF as its annual
information return. For taxable years beginning after December 31, 1977,
every section 501(c)(21) black lung trust shall file an annual
information return on Form 990-BL or
[[Page 112]]
any other form prescribed by the Internal Revenue Service for that
purpose.
(ii) The information generally required to be furnished by an
organization exempt under section 501(a) is:
(a) Its gross income for the year. For this purpose, gross income
includes tax-exempt income, but does not include contributions, gifts,
grants, and similar amounts received. Whether an item constitutes a
contribution, gift, grant, or similar amount depends upon all the
surrounding facts and circumstances. The computation of gross income
shall be made by subtracting the cost of goods sold from all receipts
other than gross contributions, gifts, grants, and similar amounts
received and nonincludible dues and assessments from members and
affiliates.
(b) To the extent not included in gross income, its dues and
assessments from members and affiliates for the year.
(c) Its expenses incurred within the year attributable to gross
income.
(d) Its disbursements (including prior years' accumulations) made
within the year for the purposes for which it is exempt.
(e) A balance sheet showing its assets, liabilities, and net worth
as of the beginning and end of such year. Detailed information relating
to the assets, liabilities, and net worth shall be furnished on the
schedule provided for this purpose on the return required by this
section. Such schedule shall be supplemented by attachments where
appropriate.
(f) The total of the contributions, gifts, grants and similar
amounts received by it during the taxable year, and the names and
addresses of all persons who contributed, bequeathed, or devised $5,000
or more (in money or other property) during the taxable year. In the
case of a private foundation (as defined in section 509(a)), the names
and addresses of all persons who became substantial contributors (as
defined in section 507(d)(2)) during the taxable year shall be
furnished. In addition, for its first taxable year beginning after
December 31, 1969, each private foundation shall furnish the names and
addresses of all persons who became substantial contributors before such
taxable year. For special rules with respect to contributors and donors,
see subdivision (iii) of this subparagraph.
(g) The names and addresses of all officers, directors, or trustees
(or any person having responsibilities or powers similar to those of
officers, directors, or trustees) of the organization, and, in the case
of a private foundation, all persons who are foundation managers, within
the meaning of section 4946(b)(1). Organizations described in section
501(c)(3) must also attach a schedule showing the names and addresses of
the five employees (if any) who received the greatest amount of annual
compensation in excess of $30,000; the total number of other employees
who received annual compensation in excess of $30,000; the names and
addresses of the five independent contractors (if any) who performed
personal services of a professional nature for the organization (such as
attorneys, accountants, and doctors, whether such services are performed
by such persons in their individual capacity or as employees of a
professional service corporation) and who received the greatest amount
of compensation in excess of $30,000 from the organization for the year
for the performance of such services; and the total number of other such
independent contractors who received in excess of $30,000 for the year
for the performance of such services.
(h) A schedule showing the compensation and other payments made
during the organization's annual accounting period (or during the
calendar year ending within such period) which are includible in the
gross income of each individual whose name is required to be listed in
(g) of this subdivision.
(i) For any taxable year ending on or after December 31, 1971, such
information as is required by Forms 4848 and 4849 and, only with respect
to any such taxable year ending before December 31, 1972, such
information as is required by Form 2950. Such forms are required by this
section to be filed by an organization exempt from tax under section
501(a) which is an employer who maintains a funded pension or annuity
plan for its employees. See paragraph (g) of this section for exceptions
from filing. Form 4849 need not be filed by the organization if the
fiduciary for the plan
[[Page 113]]
has given written notification to the organization that such form will
be filed as an attachment to Form 990-P filed by the fiduciary. Form
4848 (and Form 4849 if required to be filed by the organization) shall
be filed as a separate return on or before the due date for Form 990.
For rules relating to the extension of time for filing, see section 6081
and the regulations thereunder and the instructions for Form 4848. A
central organization which files Form 990 as a group return under
paragraph (d) of this section may also file Form 4848 as a group return.
The rules provided by paragraph (d) of this section with respect to a
group return filed on Form 990 shall apply to a group return filed on
Form 4848. Unless otherwise expressly provided therein, an authorization
to include a local organization in a group for purposes of filing Form
990 as a group return shall be treated as an authorization to include
such local organization in a group for purposes of filing Form 4848 as a
group return. A group return on Form 4848 shall be filed in accordance
with this section and the instructions to Form 4848 and shall be
considered the return of each local organization included therein. In
addition to the information required to be furnished by Forms 4848 and
4849, the district director may require any further information that he
considers necessary to determine qualification of the plan under section
401 or the taxability under section 403(b) of a beneficiary under an
annuity purchased by a section 501(c)(3) organization.
(j) In the case of a private foundation liable for tax imposed under
chapter 42, such information as is required by Form 4720.
(k) Its lobbying expenditures, grass roots expenditures, exempt
purpose expenditures, lobbying nontaxable amount, and grass roots
nontaxable amount for the taxable year and for prior taxable years that
are base years (within the meaning of Sec. 1.501(h)-3(c)(7)), if the
organization has an election under section 501(h) in effect for the
taxable year. An organization that is a member of an affiliated group of
organizations (as defined in Sec. 56.4911-7(e)) but that is not a
member of a limited affiliated group (as defined in Sec. 56.4911-10(b))
shall report this information based on the expenditures of all members
of the group during the taxable year of the group that ends with or
within the member's taxable year and for prior taxable years of the
group that are base years (within the meaning of Sec. 56.4911-9(b)).
For additional information required to be furnished by members of an
affiliated group of organizations, and by controlling members in a
limited affiliated group, see Sec. Sec. 56.4911-9(d) and 56.4911-
10(f)(1), respectively.
(iii) Special rules. In providing the names and addresses of
contributors and donors under subdivision (ii)(f) of this subparagraph:
(a) An organization described in section 501(c)(3) which meets the
33\1/3\ percent-of-support test of the regulations under section
170(b)(1)(A)(vi) (without regard to whether such organization otherwise
qualifies as an organization described in section 170(b)(1)(A)) is
required to provide the name and address of a person who contributed,
bequeathed, or devised $5,000 or more during the year only if his amount
is in excess of 2 percent of the total contributions, bequests and
devises received by the organization during the year.
(b) An organization other than a private foundation is required to
report only the names and addresses of contributors of whom it has
actual knowledge. For instance, an organization need not require an
employer who withholds contributions from the compensation of employees
and pays over to the organization periodically the total amounts
withheld, to specify the amounts paid over with respect to a particular
employee. In such case, unless the organization has actual knowledge
that a particular employee gave more than $5,000 (and in excess of 2
percent if (a) of this subdivision is applicable), the organization need
report only the name and address of the employer, and the total amount
paid over by him.
(c) Separate and independent gifts made by one person in a
particular year need be aggregated to determine if his contributions and
bequests exceed $5,000 (and in excess of 2 percent if (a) of this
subdivision is applicable), only if such gifts are of $1,000 or more.
[[Page 114]]
(d)(1) Organizations described in section 501(c) (8) or (10) (and,
for taxable years beginning after December 31, 1970, organizations
described in section 501(c)(7)) that receive contributions or bequests
to be used exclusively for purposes described in section 170(c)(4),
2055(a)(3), or 2522(a)(3), must attach a schedule with respect to all
gifts which aggregate more than $1,000 from any one person showing the
name of the donor, the amount of the contribution or bequest, the
specific purpose for which such amount was received, and the specific
use to which such amount was put. In the case of an amount set aside for
such purposes, the organization shall indicate the manner in which such
amount is held (for instance, whether such amount is commingled with
amounts held for other purposes). If the contribution or bequest was
transferred to another organization, the schedule must include the name
of the transferee organization, a description of the nature of such
organization, and a description of the relationship between the
transferee and transferor organizations.
(2) For taxable years beginning after December 31, 1970, such
organizations must also attach a statement showing the total dollar
amount of contributions and bequests received for such purposes which
are $1,000 or less.
(iv) Listing of States. A private foundation is required to attach
to its return required by this section a list of all States:
(a) To which the organization reports in any fashion concerning its
organization, assets, or activities, or
(b) With which the organization has registered (or which it has
otherwise notified in any manner) that it intends to be, or is, a
charitable organization or a holder of property devoted to a charitable
purpose.
(3)(i) For taxable years beginning after December 31, 1969, and
ending before December 31, 1971, every employee's trust described in
section 401(a) which is exempt from taxation under section 501(a) shall
file an annual return on Form 990-P. The return shall include the
information required by paragraph (b)(5)(ii) of Sec. 1.401-1. For such
years, in addition, the trust must file the information required to be
filed by the employer pursuant to the provisions of Sec. 1.404(a)-2,
unless the employer has notified the trustee in writing that he has
filed or will timely file such information. If the trustee has received
such notification from the employer, then such notification, or a copy
thereof, shall be retained by the trust as a part of its records.
(ii) For taxable years ending on or after December 31, 1971, and
before December 31, 1975, every employee's trust described in section
401(a) which is exempt from taxation under section 501(a) shall file an
annual return on Form 990-P. The trust shall furnish such information as
is required by such form and the instructions issued with respect
thereto.
(4) For taxable years beginning after December 31, 1980, trusts
described in section 4947(a)(1) and nonexempt private foundations shall
comply with the requirements of section 6033 and this section in the
same manner as organizations described in section 501(c)(3) which are
exempt from tax under section 501(a). This section shall be applied for
taxable years beginning after December 31, 1980 as if trusts described
in section 4947(a)(1) and nonexempt private foundations were described
in section 501(c)(3). Therefore, for purposes of this section, all
references to exempt organizations shall include section 4947(a)(1)
trusts and nonexempt private foundations and all references to private
foundations shall include section 4947(a)(1) trusts that would be
private foundations if they were described in section 501(c)(3) and all
nonexempt private foundations. Similarly, for purposes of paragraph
(a)(2)(ii)(d), the purposes for which a section 4947(a)(1) trust or a
nonexempt private foundation is organized shall be treated as the
purposes for which it is exempt. For purposes of this section, the term
``nonexempt private foundation'' means a taxable organization (other
than a section 4947(a)(1) trust) that is a private foundation. See
section 509(b) and Sec. 1.509(b)-1. See also section 642(c)(6) and
Sec. 1.642(c)-4.
(b) Accounting period for filing return. A return required by this
section shall be on the basis of the established annual accounting
period of the organization. If the organization has no such
[[Page 115]]
established accounting period, such return shall be on the basis of the
calendar year.
(c) Returns when exempt status not established. An organization
claiming an exempt status under section 501(a) prior to the
establishment of such exempt status under section 501 and Sec.
1.501(a)-1, shall file a return required by this section in accordance
with the instructions applicable thereto. In such case the organization
must indicate on such return that it is being filed in the belief that
the organization is exempt under section 501(a), but that the Internal
Revenue Service has not yet recognized such exemption.
(d) Group returns. (1) A central, parent, or like organization
(referred to in this paragraph as ``central organization''), exempt
under section 501(a) and described in section 501(c) (other than a
private foundation), although required to file a separate annual return
for itself under section 6033 and paragraph (a) of this section, may
file annually, in addition to such separate annual return, a group
return on Form 990. Such group return may be filed for two or more of
the local organizations, chapters, or the like (referred to in this
paragraph as ``local organizations'') which are (i) affiliated with such
central organization at the close of its annual accounting period, (ii)
subject to the general supervision or control of the central
organization, and (iii) exempt from taxation under the same paragraph of
section 501(c) of the Code, although the local organizations are not
necessarily exempt under the paragraph under which the central
organization is exempt. Such group return may not be filed for a local
organization which is a private foundation.
(2)(i) The filing of the group return shall be in lieu of the filing
of a separate return by each of the local organizations included in the
group return. The group return shall include only those local
organizations which in writing have authorized the central organization
to include them in the group return, and which have made and filed, with
the central organization, their statements, specifically stating their
items of gross income, receipts, and disbursements, and such other
information relating to them as is required to be stated in the group
return. Such an authorization and statement by a local organization
shall be made under the penalties of perjury, shall be signed by a duly
authorized officer of the local organization in his official capacity,
and shall contain the following statement, or a statement of like
import: ``I hereby declare under the penalties of perjury that this
authorization (including any accompanying schedules and statements) has
been examined by me and to the best of my knowledge and belief is true,
correct and complete and made in good faith.'' Such authorization and
statement with respect to a local organization shall be retained by the
central organization until the expiration of 6 years after the last
taxable year for which a group return filed by such central organization
includes such local organization.
(ii) There shall be attached to the group return and made a part
thereof a schedule showing the name, address, and employer
identification number of each of the local organizations and the total
number thereof included in such return, and a schedule showing the name,
address, and employer identification number of each of the local
organizations and the total number thereof not included in the group
return.
(3) The group return shall be on the basis of the established annual
accounting period of the central organization. Where such central
organization has no established annual accounting period, such return
shall be on the basis of the calendar year. The same income, receipts,
and disbursements of a local organization shall not be included in more
than one group return.
(4) The group return shall be filed in accordance with these
regulations and the instructions issued with respect to Form 990, and
shall be considered the return of each local organization included
therein. The tax exempt status of a local organization must be
established under a group exemption letter issued to the central
organization before a group return including the local organization will
be considered as the return of the local organization. See Sec.
1.501(a)-1 for requirements for establishing a tax-exempt status.
[[Page 116]]
(5) In providing the information required by paragraph (a)(2)(ii)
(f), (g), and (h) of this section, such information may be provided:
(i) With respect to the central or parent organization on its Form
990, and with respect to the local organizations on separate schedules
attached to the group return for the year, or
(ii) On a consolidated basis for all the local organizations and the
central or parent organization on the group return.
Such information need be provided only with respect to those local
organizations which are not excepted from filing under the provisions of
paragraph (g) of this section. A central or parent organization shall
indicate whether it has provided such information in the manner
described in subdivision (i) or in subdivision (ii) of this
subparagraph, and may not change the manner in which it provides such
information without the consent of the Commissioner.
(e) Time and place for filing. The annual return required by this
section shall be filed on or before the 15th day of the fifth calendar
month following the close of the period for which the return is required
to be filed. The annual return on Form 1065 required to be filed by a
religious or apostolic association or corporation shall be filed on or
before the 15th day of the fourth month following the close of the
taxable year for which the return is required to be filed. Each such
return shall be filed in accordance with the instructions applicable
thereto.
(f) Penalties and additions to tax. For penalties and additions to
tax for failure to file a return and filing a false or fraudulent
return, see sections 6652, 7203, 7206, and 7207.
(g) Organizations not required to file annual returns. (1) Annual
returns required by this section are not required to be filed by an
organization exempt from taxation under section 501(a) which is:
(i) A church, an interchurch organization of local units of a
church, a convention or association of churches, or an integrated
auxiliary of a church (as defined in paragraph (h) of this section);
(ii) An exclusively religious activity of any religious order;
(iii) An organization (other than a private foundation) the gross
receipts of which in each taxable year are normally not more than $5,000
(as described in subparagraph (3) of this paragraph);
(iv) A mission society sponsored by or affiliated with one or more
churches or church denominations, more than one-half of the activities
of which society are conducted in, or directed at persons in foreign
countries;
(v) A State institution, the income of which is excluded from gross
income under section 115(a);
(vi) An organization described in section 501(c)(1); or
(vii) An educational organization (below college level) that is
described in section 170(b)(1)(A)(ii), that has a program of a general
academic nature, and that is affiliated (within the meaning of paragraph
(h)(2) of this section) with a church or operated by a religious order.
(2) The provisions of section 6033(a) relieving certain specified
types of organizations exempt from taxation under section 501(a) from
filing annual returns do not abridge or impair in any way the powers and
authority of district directors or directors of service centers provided
for in other provisions of the Code and in regulations thereunder to
require the filing of returns or notices by such organizations. See
section 6001 and Sec. 1.6001-1.
(3) For purposes of subparagraph (1)(iii) of this paragraph, the
gross receipts (as defined in subparagraph (4) of this paragraph) of an
organization are normally not more than $5,000 if:
(i) In the case of an organization which has been in existence for 1
year or less, the organization has received, or donors have pledged to
give, gross receipts of $7,500 or less during the first taxable year of
the organization,
(ii) In the case of an organization which has been in existence for
more than one but less than 3 years, the average of the gross receipts
received by the organization in its first 2 taxable years is $6,000 or
less, and
(iii) In the case of an organization which has been in existence for
3 years
[[Page 117]]
or more, the average of the gross receipts received by the organization
in the immediately preceding 3 taxable years, including the year for
which the return would be required to be filed, is $5,000 or less.
(4) For purposes of this paragraph and paragraph (a)(2) of this
section, ``gross receipts'' means the gross amount received by the
organization during its annual accounting period from all sources
without reduction for any costs or expenses including, for example, cost
of goods or assets sold, cost of operations, or expenses of earning,
raising, or collecting such amounts. Thus ``gross receipts'' includes,
but is not limited to (i) the gross amount received as contributions,
gifts, grants, and similar amounts without reduction for the expenses of
raising and collecting such amounts, (ii) the gross amount received as
dues or assessments from members or affiliated organizations without
reduction for expenses attributable to the receipt of such amounts,
(iii) gross sales or receipts from business activities (including
business activities unrelated to the purpose for which the organization
qualifies for exemption, the net income or loss from which may be
required to be reported on Form 990-T), (iv) the gross amount received
from the sale of assets without reduction for cost or other basis and
expenses of sale, and (v) the gross amount received as investment
income, such as interest, dividends, rents, and royalties.
(5) [Reserved]
(6) The Commissioner may relieve any organization or class of
organizations from filing, in whole or in part, the annual return
required by this section where he determines that such returns are not
necessary for the efficient administration of the internal revenue laws.
(h) Integrated auxiliary--(1) In general. For purposes of this
title, the term integrated auxiliary of a church means an organization
that is--
(i) Described both in sections 501(c)(3) and 509(a) (1), (2), or
(3);
(ii) Affiliated with a church or a convention or association of
churches; and
(iii) Internally supported.
(2) Affiliation. An organization is affiliated with a church or a
convention or association of churches, for purposes of paragraph
(h)(1)(ii) of this section, if--
(i) The organization is covered by a group exemption letter issued
under applicable administrative procedures, (such as Rev. Proc. 80-27
(1980-1 C.B. 677); See Sec. 601.601(a)(2)(ii)(b)), to a church or a
convention or association of churches;
(ii) The organization is operated, supervised, or controlled by or
in connection with (as defined in Sec. 1.509(a)-4) a church or a
convention or association of churches; or
(iii) Relevant facts and circumstances show that it is so
affiliated.
(3) Facts and circumstances. For purposes of paragraph (h)(2)(iii)
of this section, relevant facts and circumstances that indicate an
organization is affiliated with a church or a convention or association
of churches include the following factors. However, the absence of one
or more of the following factors does not necessarily preclude
classification of an organization as being affiliated with a church or a
convention or association of churches--
(i) The organization's enabling instrument (corporate charter, trust
instrument, articles of association, constitution or similar document)
or by-laws affirm that the organization shares common religious
doctrines, principles, disciplines, or practices with a church or a
convention or association of churches;
(ii) A church or a convention or association of churches has the
authority to appoint or remove, or to control the appointment or removal
of, at least one of the organization's officers or directors;
(iii) The corporate name of the organization indicates an
institutional relationship with a church or a convention or association
of churches;
(iv) The organization reports at least annually on its financial and
general operations to a church or a convention or association of
churches;
(v) An institutional relationship between the organization and a
church or a convention or association of churches is affirmed by the
church, or convention or association of churches, or a designee thereof;
and
[[Page 118]]
(vi) In the event of dissolution, the organization's assets are
required to be distributed to a church or a convention or association of
churches, or to an affiliate thereof within the meaning of this
paragraph (h).
(4) Internal support. An organization is internally supported, for
purposes of paragraph (h)(1)(iii) of this section, unless it both--
(i) Offers admissions, goods, services or facilities for sale, other
than on an incidental basis, to the general public (except goods,
services, or facilities sold at a nominal charge or for an insubstantial
portion of the cost); and
(ii) Normally receives more than 50 percent of its support from a
combination of governmental sources, public solicitation of
contributions, and receipts from the sale of admissions, goods,
performance of services, or furnishing of facilities in activities that
are not unrelated trades or businesses.
(5) Special rule. Men's and women's organizations, seminaries,
mission societies, and youth groups that satisfy paragraphs (h)(1) (i)
and (ii) of this section are integrated auxiliaries of a church
regardless of whether such an organization meets the internal support
requirement under paragraph (h)(1)(iii) of this section.
(6) Effective date. This paragraph (h) applies for returns filed for
taxable years beginning after December 31, 1969. For returns filed for
taxable years beginning after December 31, 1969 but beginning before
December 20, 1995, the definition for the term integrated auxiliary of a
church set forth in Sec. 1.6033-2(g)(5) (as contained in the 26 CFR
edition revised as of April 1, 1995) may be used as an alternative
definition to such term set forth in this paragraph (h).
(7) Examples of internal support. The internal support test of this
paragraph (h) is illustrated by the following examples, in each of which
it is assumed that the organization's provision of goods and services
does not constitute an unrelated trade or business:
Example 1. Organization A is described in sections 501(c)(3) and
509(a)(2) and is affiliated (within the meaning of this paragraph (h))
with a church. Organization A publishes a weekly newspaper as its only
activity. On an incidental basis, some copies of Organization A's
publication are sold to nonmembers of the church with which it is
affiliated. Organization A advertises for subscriptions at places of
worship of the church. Organization A is internally supported,
regardless of its sources of financial support, because it does not
offer admissions, goods, services, or facilities for sale, other than on
an incidental basis, to the general public. Organization A is an
integrated auxiliary.
Example 2. Organization B is a retirement home described in sections
501(c)(3) and 509(a)(2). Organization B is affiliated (within the
meaning of this paragraph (h)) with a church. Admission to Organization
B is open to all members of the community for a fee. Organization B
advertises in publications of general distribution appealing to the
elderly and maintains its name on non-denominational listings of
available retirement homes. Therefore, Organization B offers its
services for sale to the general public on more than an incidental
basis. Organization B receives a cash contribution of $50,000 annually
from the church. Fees received by Organization B from its residents
total $100,000 annually. Organization B does not receive any government
support or contributions from the general public. Total support is
$150,000 ($100,000 + $50,000), and $100,000 of that total is from
receipts from the performance of services (66\2/3\% of total support).
Therefore, Organization B receives more than 50 percent of its support
from receipts from the performance of services. Organization B is not
internally supported and is not an integrated auxiliary.
Example 3. Organization C is a hospital that is described in
sections 501(c)(3) and 509(a)(1). Organization C is affiliated (within
the meaning of this paragraph (h)) with a church. Organization C is open
to all persons in need of hospital care in the community, although most
of Organization C's patients are members of the same denomination as the
church with which Organization C is affiliated. Organization C maintains
its name on hospital listings used by the general public, and
participating doctors are allowed to admit all patients. Therefore,
Organization C offers its services for sale to the general public on
more than an incidental basis. Organization C annually receives $250,000
in support from the church, $1,000,000 in payments from patients and
third party payors (including Medicare, Medicaid and other insurers) for
patient care, $100,000 in contributions from the public, $100,000 in
grants from the federal government (other than Medicare and Medicaid
payments) and $50,000 in investment income. Total support is $1,500,000
($250,000 + $1,000,000 + $100,000 + $100,000 + $50,000), and $1,200,000
($1,000,000 + $100,000 + $100,000) of that total is support from
receipts from the performance of services, government sources, and
public contributions (80% of
[[Page 119]]
total support). Therefore, Organization C receives more than 50 percent
of its support from receipts from the performance of services,
government sources, and public contributions. Organization C is not
internally supported and is not an integrated auxiliary.
(i) Records, statements, and other returns of tax-exempt
organizations. (1) An organization which is exempt from taxation under
section 501(a) and is not required to file annually an information
return required by this section shall immediately notify in writing the
district director for the internal revenue district in which its
principal office is located of any changes in its character, operations,
or purpose for which it was originally created.
(2) Every organization which is exempt from tax, whether or not it
is required to file an annual information return, shall submit such
additional information as may be required by the Internal Revenue
Service for the purpose of inquiring into its exempt status and
administering the provisions of subchapter F (section 501 and
following), chapter 1 of subtitle A of the Code, section 6033, and
chapter 42 of subtitle D of the Code. See section 6001 and Sec. 1.6001-
1 with respect to the authority of the district directors or directors
of service centers to require such additional information and with
respect to the books of account or records to be kept by such
organizations.
(3) An organization which has established its exemption from
taxation under section 501(a), including an organization which is
relieved under section 6033 and this section from filing annual returns
of information, is not relieved of the duty of filing other returns of
information. See, for example, sections 6041, 6043, 6051, 6057, and 6058
and the regulations thereunder.
(j) Unrelated business tax returns. In addition to the foregoing
requirements of this section, certain organizations otherwise exempt
from tax under section 501(a) which are subject to tax on unrelated
business taxable income are also required to file returns on Form 990-T.
See paragraph (e) of Sec. 1.6012-2 and paragraph (a)(5) of Sec.
1.6012-3 for requirements with respect to such returns.
(k) Effective date. The provisions of this section shall apply with
respect to returns filed for taxable years beginning after December 31,
1969.
[T.D. 7122, 36 FR 11026, June 8, 1971; 36 FR 11730, June 18, 1971]
Editorial Note: For Federal Register citations affecting Sec.
1.6033-2, see the List of Sections Affected in the Finding Aids section
of this volume.
Sec. 1.6033-3 Additional provisions relating to private foundations.
(a) In general. The foundation managers (as defined in section
4946(b)) of every organization (including a trust described in section
4947(a)(1)) which is (or is treated as) a private foundation (as defined
in section 509) the assets of which are at least $5,000 at any time
during a taxable year shall include the following information on its
annual return in addition to that information required under Sec.
1.6033-2(a):
(1) An itemized statement of its securities and all other assets at
the close of the year, showing both book and market value,
(2) An itemized list of all grants and contributions made or
approved for future payment during the year, showing the amount of each
such grant or contribution, the name and address of the recipient (other
than a recipient who is not a disqualified person and who receives, from
the foundation, grants to indigent or needy persons that, in the
aggregate, do not exceed $1,000 during the year), any relationship
between any individual recipient and the foundation's managers or
substantial contributors, and a concise statement of the purpose of each
such grant or contribution,
(3) The address of the principal office of the foundation and (if
different) of the place where its books and records are maintained,
(4) The names and addresses of its foundation managers (within the
meaning of section 4946(b)), that are substantial contributors (within
the meaning of section 507(d)(2)) or that own 10 percent or more of the
stock of any corporation of which the foundation owns 10 percent or more
of the stock, or corresponding interests in partnerships or other
entities, in which the
[[Page 120]]
foundation has a 10 percent or greater interest.
For purposes of subparagraph (2) of this paragraph, the business address
of an individual grant recipient or foundation manager may be used by
the foundation in its annual return in lieu of the home address of such
recipient or manager, and the term ``relationship'' shall include, but
is not limited to, any case in which an individual recipient of a grant
or contribution by a private foundation is (i) a member of the family
(as defined in section 4946(d)) of a substantial contributor or
foundation manager of such foundation, (ii) a partner of such
substantial contributor or foundation manager, or (iii) an employee of
such substantial contributor or foundation manager or of an organization
which is effectively controlled (within the meaning of section
4946(a)(1)(H)(i) and the regulations thereunder), directly or
indirectly, by one or more such substantial contributors or foundation
managers.
(b) Notice to public of availability of annual return. A copy of the
notice required by section 6104(d) (relating to public inspection of
private foundations' annual returns), and proof of publication thereof,
shall be filed with the annual return required by Sec. 1.6033-2(a). A
copy of such notice as published, and a statement signed by a foundation
manager stating that such notice was published, setting forth the date
of publication and the publication in which it appeared, shall be
sufficient proof of publication for purposes of this paragraph.
(c) Special rules--(1) Furnishing of copies to State officers. The
foundation managers of a private foundation shall furnish a copy of the
annual return required by section 6033 and Sec. 1.6033-2 to the
Attorney General of:
(i) Each State which the foundation is required to list on its
return pursuant to Sec. 1.6033-2(a)(2)(iv),
(ii) The State in which is located the principal office of the
foundation, and
(iii) The State in which the foundation was incorporated or created.
The annual return shall be sent to each Attorney General described in
paragraphs (c)(1) (i), (ii), or (iii) of this section at the same time
as it is sent to the Internal Revenue Service. Upon request the
foundation managers shall also furnish a copy of the annual return to
the Attorney General or other appropriate State officer (within the
meaning of section 6104 (c)(2)) of any State. The foundation managers
shall attach to each copy of the annual return sent to State officers
under this subparagraph a copy of the Form 4720, if any, filed by the
foundation for the year.
(2) Cross-reference. For additional rules with respect to private
foundations' returns and the public inspection of such returns, see
section 6104(d) and the regulations thereunder.
(d) Special rules for certain foreign organizations. The provisions
of paragraphs (b) and (c) of this section shall not apply with respect
to an organization described in section 4948(b). The foundation managers
of such organizations are not required to publish notice of availability
of the annual return for inspection, to make the annual return available
at the principal office of the foundation for public inspection under
section 6104(d), or to send copies of the annual return to State
officers.
(e) Effective date. The provisions of this section shall apply with
respect to returns filed for taxable years beginning after December 31,
1980.
[T.D. 8026, 50 FR 20756, May 20, 1985]
Sec. 1.6033-4T Required use of magnetic media for returns by
organizations required to file returns under section 6033 (temporary).
The return of an organization that is required to be filed on
magnetic media under Sec. 301.6033-4T of this chapter must be filed in
accordance with Internal Revenue Service revenue procedures,
publications, forms, or instructions. (See Sec. 601.601(d)(2) of this
chapter).
[T.D. 9175, 70 FR 2014, Jan. 12, 2005]
Sec. 1.6034-1 Information returns required of trusts described
in section 4947(a)(2) or claiming charitable or other deductions
under section 642(c).
(a) In general. Every trust (other than a trust described in
paragraph (b) of this section) claiming a charitable or other deduction
under section 642(c) for the taxable year shall file, with respect
[[Page 121]]
to such taxable year, a return of information on form 1041-A. In
addition, for taxable years beginning after December 31, 1969, every
trust (other than a trust described in paragraph (b) of this section)
described in section 4947(a)(2) (including trusts described in section
664) shall file such return for each taxable year, unless all transfers
in trust occurred before May 27, 1969. The return shall set forth the
name and address of the trust and the following information concerning
the trust in such detail as is prescribed by the form or in the
instructions issued with respect to such form:
(1) The amount of the charitable or other deduction taken under
section 642(c) for the taxable year (and, for taxable years beginning
prior to January 1, 1970, showing separately for each class of activity
for which disbursements were made (or amounts were permanently set
aside) the amounts which, during such year, were paid out (or which were
permanently set aside) for charitable or other purposes under section
642(c));
(2) The amount paid out during the taxable year which represents
amounts permanently set aside in prior years for which charitable or
other deductions have been taken under section 642(c), and separately
listing for each class of activity, for which disbursements were made,
the total amount paid out;
(3) The amount for which charitable or other deductions have been
taken in prior years under section 642(c) and which had not been paid
out at the beginning of the taxable year;
(4)(i) The amount paid out of principal in the taxable year for
charitable, etc., purposes, and separately listing for each such class
of activity, for which disbursements were made, the total amount paid
out;
(ii) The total amount paid out of principal in prior years for
charitable, etc., purposes;
(5) The gross income of the trust for the taxable year and the
expenses attributable thereto, in sufficient detail to show the
different categories of income and of expense; and
(6) A balance sheet showing the assets, liabilities, and net worth
of the trust as of the beginning of the taxable year.
(b) Exceptions--(1) In general. A trust is not required to file a
Form 1041-A for any taxable year with respect to which the trustee is
required by the terms of the governing instrument and applicable local
law to distribute currently all of the income of the trust. For this
purpose, the income of the trust shall be determined in accordance with
section 643(b) and Sec. Sec. 1.643(b)-1 and 1.643(b)-2.
(2) Trusts described in section 4947(a)(1). For taxable years
beginning after December 31, 1980, a trust described in section
4947(a)(1) is not required to file a Form 1041-A.
(c) Time and place for filing return. The return on form 1041-A
shall be filed on or before the 15th day of the 4th month following the
close of the taxable year of the trust, with the internal revenue
officer designated by the instructions applicable to such form. For
extensions of time for filing returns under this section, see Sec.
1.6081-1.
(d) Other provisions. For publicity of information on Form 1041-A,
see section 6104 and the regulations thereunder in part 301 of this
chapter. For provisions relating to penalties for failure to file a
return required by this section, see section 6652(d). For the criminal
penalties for a willful failure to file a return and filing a false or
fraudulent return, see sections 7203, 7206, and 7207.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 7563, 43 FR
40221, Sept. 11, 1978; T.D. 8026, 50 FR 20757, May 20, 1985]
Sec. 1.6035-1 Returns of U.S. officers, directors and 10-percent
shareholders of foreign personal holding companies for taxable years
beginning after September 3, 1982.
(a) Requirement of returns--(1) In general. For taxable years of a
foreign personal holding company beginning after September 3, 1982, each
United States citizen or resident who is an officer, director, or 10-
percent shareholder of the foreign personal holding company (as defined
in section 552) shall file with his income tax return, on or before the
date that return is due, Form 5471 and
[[Page 122]]
the applicable schedules to be completed in accordance with the
instructions setting forth corporate, shareholder, and income
information for the foreign personal holding company's annual accounting
period that ends with or within the officer's, director's, or
shareholder's taxable year. In the case of a foreign personal holding
company which is a specified foreign corporation (as defined in section
898), the taxable year of such corporation shall be treated as its
annual accounting period.
(2) General corporate information. The general foreign personal
holding company information required by this section with respect to
each taxable year is as follows:
(i) The name and address and employer identification number (if any)
of the corporation;
(ii) The kind of business in which the corporation is engaged;
(iii) The date of its incorporation;
(iv) The country under the laws of which the corporation is
incorporated;
(v) A description of each class of stock issued and outstanding by
the corporation for the beginning and end of the annual accounting
period;
(vi) The number of shares and par value of common stock of the
corporation issued and outstanding as of the beginning and end of the
taxable year;
(vii) The number of shares and par value of preferred stock of the
corporation issued and outstanding as of the beginning and end of the
taxable year, the rate of dividend on such stock and whether such
dividend is cumulative or noncumulative; and
(viii) Any other information required by the appropriate form and
its instructions.
For purposes of this paragraph, the term ``share'' includes any security
convertible into a share in the corporation and any option granted by
the corporation with respect to any share in the corporation.
(3) Shareholder information. The shareholder information required by
this section is as follows:
(i) The name, address and taxpayer identification number (if any) of
each person, whether foreign or U.S., who was a shareholder during the
taxable year and the class and number of shares held by each, together
with an explanation of any changes in stock holdings during the taxable
year,
(ii) The name and address of each holder during the taxable year of
securities convertible into stock of the corporation and the class,
number, and face value of the securities held by each, together with and
explanation of any changes in the holdings of such securities during the
taxable year,
(iii) The name and address of each holder during the taxable year of
any option granted by the corporation with respect to any share in the
corporation, and a full description of the options held by each,
together with an explanation of any changes in the holdings of such
options during the taxable year, and
(iv) Any other information required by the appropriate form and its
instructions.
(4) Income information. The income information required by this
section is the gross income, deductions and credits, taxable income,
foreign personal holding company income, and undistributed foreign
personal holding company income for the taxable year and other
information required by the appropriate form and its instructions.
(b) Persons required to file return--(1) In general. The
determination of whether a United States citizen or resident is person
who is an officer, director, or 10-percent shareholder required to file
a return with respect to any foreign corporation is made as of the date
that Form 5471 is required to be filed. If there is no such person
required to file on that date (because, for example, the corporation has
been dissolved), then filing is required of the persons who were
officers, directors or 10-percent shareholders on the last day of the
most recent taxable year of the corporation for which there was such a
person who was a United States citizen or resident.
(2) 10-percent shareholder. (i) The term ``10-percent shareholder''
means any individual who owns directly or indirectly (within the meaning
of section 544) 10 percent or more in value of the outstanding stock of
a foreign corporation.
(ii) An individual who does not own 10 percent or more in value of
the outstanding stock directly but is required
[[Page 123]]
to file solely by attribution of another United States person's stock
ownership is excused from filing if the direct owner that is an
individual furnishes all the information required.
(3) Two or more persons required to submit the same information. If
two or more persons are required to furnish the information for the same
foreign personal holding company for the same period, one person may
make one return on Form 5471. The single Form 5471 may be filed with the
income tax return of any one of the persons and shall disclose the name,
address, and identifying number of each other person or persons on whose
behalf the return is filed. Each person on whose behalf the return is
filed remains liable for any penalties imposed under sections 6679,
7203, 7206, and 7207.
(4) Statement required. Any United States citizen or resident
required to furnish information under this section with his return who
does not do so by reason of the provisions of subparagraph (2)(ii) or
(3) of this paragraph shall file a statement with his income tax return
indicating that such requirement has been or will be satisfied and
identifying the return with which the information was or will be filed
and the place of filing.
(c) Separate returns for each corporation. If a person is required
to file returns under section 6035 and this section with respect to more
than one foreign personal holding company, separate returns must be
filed with respect to each company.
(d) Corrective filing. If an information return with respect to a
taxable year of a foreign personal holding company beginning after
September 3, 1982, is filed before [date which is 30 days after the date
of publication of a Treasury decision in the Federal Register] and that
return does not contain all of the information required by this section,
then the filer of the return shall file an amended information return
containing all of such information within 90 days after June 4, 1985.
(e) Penalties--(1) Criminal penalties. For criminal penalties for
failure to file a return and filing a false or fraudulent return, see
sections 7203, 7206, and 7207.
(2) Civil penalties. For civil penalties for failure to file a
proper foreign personal holding company information return, see section
6679 and the regulations thereunder.
[T.D. 8028, 50 FR 23408, June 4, 1985; 50 FR 26359, June 26, 1985, as
amended by T.D. 8573, 59 FR 64301, Dec. 14, 1994]
Sec. 1.6035-2 Returns of U.S. officers and directors of foreign
personal holding companies for taxable years beginning before
September 4, 1982.
For rules relating to information returns required to be filed by
officers and directors of foreign personal holding companies for taxable
years beginning before September 4, 1982, see section 6035(a) (as in
effect before the enactment of the Tax Equity and Fiscal Responsibility
Act of 1982) and 26 CFR 1.6035-1 (Revised as of April 1, 1981).
[T.D. 8028, 50 FR 23409, June 4, 1985]
Sec. 1.6035-3 Returns of 50-percent U.S. shareholders of foreign
personal holding companies for taxable years beginning before
September 4, 1982.
For rules relating to information returns required to be filed by
shareholders of foreign personal holding companies for taxable years
beginning before September 4, 1982, see section 6035(b) (as in effect
before the enactment of the Tax Equity and Fiscal Responsibility Act of
1982) and 26 CFR 1.6035-2 (Revised as of April 1, 1961).
[T.D. 8028, 50 FR 23409, June 4, 1985]
Sec. 1.6036-1 Notice of qualification as executor or receiver.
For provisions relating to the notice required of fiduciaries, see
the regulations under section 6036 contained in part 301 of this chapter
(Regulations on Procedure and Administration).
Sec. 1.6037-1 Return of electing small business corporation.
(a) In general. Every small business corporation (as defined in
section 1371(a)) which has made an election under section 1372(a) not to
be subject to the tax imposed by chapter 1 of the Code shall file, with
respect to each taxable year for which the election is in effect, a
return of income on Form 1120-S. The return shall set forth the
[[Page 124]]
items of gross income and the deductions allowable in computing taxable
income as required by the return form or in the instructions issued with
respect thereto and shall be signed in accordance with section 6062 by
the person authorized to sign a return. The return shall also set forth
the following information concerning the electing small business
corporation:
(1) The names and addresses of all persons owning stock in the
corporation at any time during the taxable year;
(2) The number of shares of stock owned by each shareholder at all
times during the taxable year;
(3) The amount of money and other property distributed by the
corporation during the taxable year to each shareholder;
(4) The date of each distribution of money and other property; and
(5) Such other information as is required by the form or by the
instructions issued with respect to such form.
(b) Time and place for filing return. The return shall be filed on
or before the 15th day of the third month following the close of the
taxable year with the internal revenue officer designated in the
instructions applicable to Form 1120-S. (See section 6072.)
(c) Other provisions. The return on Form 1120-S will be treated as a
return filed by the corporation under section 6012, relating to persons
required to make returns of income, for purposes of the provisions of
chapter 66 of the Code, relating to limitations. Thus, for example, the
period of limitation on assessment and collection of any corporate tax
found to be due upon a subsequent determination that the corporation was
not entitled to the benefits of subchapter S, chapter 1 of the Code,
will run from the date of filing the return under section 6037, or from
the date prescribed for filing such return, whichever is the later. For
the rules requiring the disclosure of certain transactions, see Sec.
1.6011-4T.
(d) Penalties. For criminal penalties for failure to file a return,
supply information, or pay tax, and for filing a false or fraudulent
return, statement, or other document, see sections 7203, 7206, and 7207.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 7012, 34 FR
7690, May 15, 1969; T.D. 9000, 67 FR 41328, June 18, 2002]
Sec. 1.6037-2T Required use of magnetic media for income tax returns
of electing small business corporations (temporary).
The return of an electing small business corporation that is
required to be filed on magnetic media under Sec. 301.6037-2T of this
chapter must be filed in accordance with Internal Revenue Service
revenue procedures, publications, forms, or instructions. (See Sec.
601.601(d)(2) of this chapter).
[T.D. 9175, 70 FR 2014, Jan. 12, 2005]
Sec. 1.6038-1 Information returns required of domestic corporations
with respect to annual accounting periods of certain foreign
corporations beginning before
January 1, 1963.
(a) Requirement of return. For taxable years beginning after
December 31, 1960, every domestic corporation shall make a separate
annual information return on Form 2952, in duplicate, with respect to
each foreign corporation which it controls, as defined in paragraph (b)
of this section, and with respect to each foreign subsidiary, as defined
in paragraph (c) of this section, for each annual accounting period
(described in paragraph (d) of this section) of each such controlled
foreign corporation or foreign subsidiary beginning after December 31,
1960, and before January 1, 1963. Such information shall not be required
to be furnished, however, with respect to a corporation defined in
section 1504(d) of the Code which makes a consolidated return for the
taxable year. For annual accounting periods beginning after December 31,
1962, see Sec. 1.6038-2.
(b) Control. A domestic corporation shall be deemed to be in control
of a foreign corporation if at any time during its taxable year it owns
more than 50 percent of the voting stock of such foreign corporation.
(c) Foreign subsidiary. A foreign corporation more than 50 percent
of the voting stock of which is owned by a controlled foreign
corporation at any
[[Page 125]]
time during the annual accounting period of such controlled foreign
corporation shall be considered a foreign subsidiary.
(d) Period covered by return--(1) Controlled foreign corporation.
The information with respect to a controlled foreign corporation shall
be furnished for its annual accounting period ending with or within the
domestic corporation's taxable year.
(2) Foreign subsidiary. The information with respect to a foreign
subsidiary shall be furnished for such subsidiary's annual accounting
period ending with or within the controlled foreign corporation's annual
accounting period.
(3) Annual accounting period defined. For purposes of this section,
the annual accounting period of a controlled foreign corporation or of a
foreign subsidiary is the annual period on the basis of which the
controlled foreign corporation or foreign subsidiary regularly computes
its income in keeping its books. The term ``annual accounting period''
may refer to a period of less than 1 year, where for example the foreign
income, war profits, and excess profits taxes are determined on the
basis of an accounting period of less than 1 year as described in
section 902(c)(2).
(e) Contents of return. The return on Form 2952 shall contain the
following information with respect to each controlled corporation and
each foreign subsidiary:
(1) The name and address of the corporation;
(2) The principal place of business of the corporation;
(3) The date of incorporation and the country under whose laws
incorporated;
(4) The nature of the corporation's business;
(5) As regards the outstanding stock of the corporation:
(i) A description of each class of the corporation's stock, and
(ii) The number of shares of each class outstanding at the beginning
and the end of the annual accounting period;
(6) A list showing the name and address of, and the number of shares
of each class of the corporation's stock held by, each citizen or
resident of the United States, and each domestic corporation, who is a
shareholder of record owning at any time during the annual accounting
period 5 percent or more in value of any class of the corporation's
outstanding stock;
(7) The amount of the corporation's gross receipts, net profits
before taxes and provision for foreign income taxes, for the annual
accounting period, as reflected on the financial statements required
under paragraph (f) of this section to be filed with the return; and
(8) A summary showing the total amount of each of the following
types of transactions of the corporation, which took place during the
annual accounting period, with the domestic corporation or any
shareholder of the domestic corporation owning at the time of the
transaction 10 percent or more of the value of any class of stock
outstanding of the domestic corporation:
(i) Sales and purchases of stock in trade;
(ii) Purchases of property of a character which is subject to the
allowance for depreciation;
(iii) Compensation paid and compensation received for the rendition
of technical, managerial, engineering, construction, scientific, or like
services;
(iv) Commissions paid and commissions received;
(v) Rents and royalties paid and rents and royalties received;
(vi) Amounts loaned and amounts borrowed (other than open accounts
which arise and are collected in the ordinary course of business);
(vii) Dividends paid and dividends received;
(viii) Interest paid and interest received; and
(ix) Premiums received for insurance or reinsurance.
If the domestic corporation is a bank, as defined in section 581, or is
controlled within the meaning of section 368(c) by a bank, the term
``transactions'' shall not, as to a corporation with respect to which a
return is filed, include banking transactions entered into on behalf of
customers; in any event, however, deposits in accounts
[[Page 126]]
between a controlled foreign corporation or a foreign subsidiary and the
domestic corporation or a 10-percent shareholder described in this
subparagraph and withdrawals from such accounts shall be summarized by
reporting end-of-month balances.
(f) Financial statements. The following information with respect to
each controlled foreign corporation and each foreign subsidiary shall be
attached to and filed as part of the return required by this section:
(1) A statement of the corporation's profit and loss for the annual
accounting period;
(2) A balance sheet as of the end of the annual accounting period of
the corporation showing:
(i) The corporation's assets,
(ii) The corporation's liabilities, and
(iii) The corporation's net worth; and
(3) An analysis of changes in the corporation's surplus accounts
during the annual accounting period including both opening and closing
balances.
The statements listed in subparagraphs (1), (2), and (3) of this
paragraph shall be prepared in conformity with generally accepted
accounting principles, and in such form and detail as is customary for
the corporation's accounting records.
(g) Method of reporting. All amounts furnished under paragraphs (e)
and (f) of this section shall be expressed in United States currency
with a statement of the exchange rates used.
(h) Time and place for filing return. Returns on Form 2952 required
under paragraph (a) of this section shall be filed with the domestic
corporation's income tax return on or before the fifteenth day of the
third month following the close of such corporation's taxable year.
(i) Extensions of time for filing. District directors are authorized
to grant reasonable extensions of time for filing returns on Form 2952
in accordance with the applicable provisions of Sec. 1.6081-1. An
application by a domestic corporation for an extension of time for
filing a return of income shall also be considered as an application for
an extension of time for filing returns on Form 2952.
(j) Failure to furnish information--(1) Effect on foreign tax
credit. (i) Failure by a domestic corporation to furnish, in accordance
with the provisions of this section, any return or any information in
any return, required to be filed for a taxable year under authority of
section 6038 on or before the date prescribed in paragraph (h) of this
section (determined with regard to any extension of time for such
filing) shall affect the application of section 902 as provided in
subparagraph (2) of this paragraph. Such failure shall affect the
application of section 902 to such domestic corporation or to any person
who acquires from any person any portion (but only to the extent of such
portion) of the interest of such domestic corporation in any controlled
foreign corporation or foreign subsidiary.
(ii) Where the domestic corporation, having filed the return
required by this section except for an omission of, or error with
respect to, some of the information referred to in paragraphs (e) and
(f) of this section, establishes to the satisfaction of the Commissioner
that such omission or error was inadvertent or for reasonable cause and
that such domestic corporation has substantially complied with this
section, such omission or error shall not constitute a failure under
this section.
(2) Reduction of foreign taxes. In the application of section 902 to
the domestic corporation or person referred to in subparagraph (1)(i) of
this paragraph for any taxable year, the amount of taxes paid or deemed
paid by each controlled foreign corporation and each foreign subsidiary
for the accounting period or periods for which the domestic corporation
was required for the taxable year of the failure to furnish information
under this section shall be reduced by 10 percent. The 10 percent
reduction is not limited to the taxes paid or deemed paid by the
controlled foreign corporation or foreign subsidiary with respect to
which there is a failure to file information but shall apply to the
taxes paid or deemed paid by all controlled foreign corporations and
foreign subsidiaries.
(3) Reduction for continued failure. (i) If the failure, referred to
in subparagraph (1)(i) of this paragraph, continues for 90 days or more
after date of written notice by the district director to the domestic
corporation, then the
[[Page 127]]
amount of the reduction referred to in subparagraph (2) of this
paragraph shall be 10 percent plus an additional 5 percent for each 3-
month period, or fraction thereof, during which such failure continues
after the expiration of such 90-day period.
(ii) Taxes paid by a foreign subsidiary when once reduced for a
failure shall not be reduced again for the same failure in their status
as taxes deemed paid by a controlled foreign corporation. Where a
failure continues, each additional periodic 5 percent reduction,
referred to in subdivision (i) of this subparagraph, shall be considered
as part of the one reduction.
(4) Reasonable cause. (i) For purposes of subsection (b) of section
6038 and this section the time prescribed for furnishing information
under this paragraph, and the beginning of the 90-day period after
notice by the district director, shall be treated as being not earlier
than the last day on which (as shown to the satisfaction of the district
director) reasonable cause existed for failure to furnish such
information.
(ii) A domestic corporation, which wishes to avoid a reduction in
foreign tax credit as provided in subparagraphs (2) and (3) of this
paragraph for failure to furnish information in accordance with this
section, must make an affirmative showing of all facts alleged as a
reasonable cause for such failure in the form of a written statement
containing a declaration that it is made under the penalties of perjury.
(5) Penalties. The information required by section 6038 of the Code
must be furnished even though there are no foreign taxes which would be
reduced under the provisions of subparagraph (2) of this paragraph. For
criminal penalties for failure to file a return and filing a false or
fraudulent return, see sections 7203, 7206, and 7207 of the Code.
[T.D. 6506, 25 FR 12241, Nov. 30, 1960, as amended by T.D. 6621, 27 FR
11878, Dec. 1, 1962]
Sec. 1.6038-2 Information returns required of United States persons
with respect to annual accounting periods of certain foreign
corporations beginning after
December 31, 1962.
(a) Requirement of return. Every U.S. person shall make a separate
annual information return with respect to each annual accounting period
(described in paragraph (e) of this section) beginning after December
31, 1962, of each foreign corporation which that person controls (as
defined in paragraph (b) of this section) for an uninterrupted period of
30 days or more during such annual accounting period. Such information
shall not be required to be furnished, however, with respect to a
corporation defined in section 1504(d) of the Code which makes a
consolidated return for the taxable year. The return shall be made, with
respect to annual accounting periods ending with or within the United
States person's taxable year, on--
(1) Form 2952 if such taxable year ends before December 31, 1982,
(2) Form 5471 if such taxable year ends on or after December 31,
1983, or
(3) Either Form 5471 or Form 2952 if such taxable year ends on or
after December 31, 1982 and before December 31, 1963.
(b) Control. A person shall be deemed to be in control of a foreign
corporation if at any time during that person's taxable year it owns
stock possessing more than 50 percent of the total combined voting power
of all classes of stock entitled to vote, or more than 50 percent of the
total value of shares of all classes of stock of the foreign
corporation. A person in control of a corporation which, in turn, owns
more than 50 percent of the combined voting power, or of the value, of
all classes of stock of another corporation is also treated as being in
control of such other corporation. The provisions of this paragraph may
be illustrated by the following example:
Example. Corporation A owns 51 percent of the voting stock in
Corporation B. Corporation B owns 51 percent of the voting stock in
Corporation C. Corporation C in turn owns 51 percent of the voting stock
in Corporation D. Corporation D is controlled by Corporation A.
[[Page 128]]
(c) Attribution rules. For the purpose of determining control of
domestic or foreign corporations the constructive ownership rules of
section 318(a) shall apply except that:
(1) Stock owned by or for a partner or a beneficiary of an estate or
trust shall not be considered owned by the partnership, estate, or trust
when the effect is to consider a United States person as owning stock
owned by a person who is not a United States person;
(2) A corporation will not be considered as owning stock owned by or
for a 50 percent or more shareholder when the effect is to consider a
United States person as owning stock owned by a person who is not a
United States person; and
(3) If 10 percent or more in value of the stock in a corporation is
owned, directly or indirectly, by or for any person, section
318(a)(2)(C) shall apply.
The constructive ownership rules of section 318(a) apply only for
purposes of determining control as defined in paragraph (b) of this
section.
(d) [Reserved]. For further guidance, see Sec. 1.6038-2T(d).
(e) Period covered by return. The information required under
paragraphs (f) and (g) of this section with respect to a foreign
corporation shall be furnished for the annual accounting period of the
foreign corporation ending with or within the United States person's
taxable year. For purposes of this section, the annual accounting period
of a foreign corporation is the annual period on the basis of which that
corporation regularly computes its income in keeping its books. In the
case of a specified foreign corporation (as defined in section 898), the
taxable year of such corporation shall be treated as its annual
accounting period. The term annual accounting period may refer to a
period of less than one year, where, for example, the foreign income,
war profits, and excess profits taxes are determined on the basis of an
accounting period of less than one year as described in section
902(c)(5). If more than one annual accounting period ends with or within
the United States person's taxable year, separate annual information
returns shall be submitted for each annual accounting period.
(f) Contents of return. The return on Form 5471 shall contain so
much of the following information, and in such form or manner, as the
form shall prescribe with respect to each foreign corporation:
(1) The name, address, and employer identification number, if any,
of the corporation;
(2) The principal place of business of the corporation;
(3) The date of incorporation and the country under whose laws
incorporated;
(4) The name and address of the foreign corporation's statutory or
resident agent in the country of incorporation;
(5) The name, address, and identifying number of any branch office
or agent of the foreign corporation located in the United States;
(6) The name and address of the person (or persons) having custody
of the books of account and records of the foreign corporation, and the
location of such books and records if different from such address;
(7) The nature of the corporation's business and the principal
places where conducted;
(8) As regards the outstanding stock of the corporation--
(i) A description of each class of the corporation's stock, and
(ii) The number of shares of each class outstanding at the beginning
and end of the annual accounting period;
(9) A list showing the name, address, and identifying number of, and
the number of shares of each class of the corporation's stock held by,
each United States person who is a shareholder owning at any time during
the annual accounting period 5 percent or more in value of any class of
the corporation's outstanding stock;
(10) For the annual accounting period, the amount of the
corporation's:
(i) Current earnings and profits;
(ii) Foreign income, war profits, and excess profits taxes paid or
accrued;
(iii) Distributions out of current earnings and profits for the
period;
(iv) Distributions other than those described in paragraph
(f)(10)(iii) of this section and the source thereof; and
(v) For Forms 5471 filed for taxable years ending after December 15,
1990,
[[Page 129]]
such earnings and profits information as the form shall prescribe,
including post-1986 undistributed earnings described in section
902(c)(1), pre-1987 amounts, total earnings and profits, and previously
taxed earnings and profits described in section 959(c); and
(11) [Reserved]. For further guidance, see Sec. 1.6038-2T(f)(11).
(12) [Reserved]. For further guidance, see Sec. 1.6038-2T(f)(12).
(g) Financial statements. The following information with respect to
the foreign corporation shall be attached to and filed as part of the
return required by this section. Forms 5471 filed after September 30,
1991, shall contain this information in such form or manner as the form
shall prescribe with respect to each foreign corporation:
(1) A statement of the corporation's profit and loss for the annual
accounting period;
(2) A balance sheet as of the end of the annual accounting period of
the corporation showing--
(i) The corporation's asset;
(ii) The corporation's liabilities; and
(iii) The corporation's net worth; and
(3) An analysis of changes in the corporation's surplus accounts
during the annual accounting period including both opening and closing
balances.
The information listed in this paragraph (g) shall be prepared in
conformity with generally accepted accounting principles, and in such
detail as is customary for the corporation's accounting records.
(h) Method of reporting. Except as provided in this paragraph (h),
all amounts furnished under paragraphs (f) and (g) of this section shall
be expressed in United States dollars with a statement of the exchange
rates used. The following rules shall apply for taxable years ending
after December 31, 1994, with respect to returns filed after December
31, 1995. All amounts furnished under paragraph (g) of this section
shall be expressed in United States dollars computed and translated in
conformity with United States generally accepted accounting principles.
Amounts furnished under paragraph (g)(1) of this section shall also be
furnished in the foreign corporation's functional currency as required
on the form. Earnings and profits amounts furnished under paragraphs
(f)(10) (i), (iii), (iv), and (v) of this section shall be expressed in
the foreign corporation's functional currency except to the extent the
form requires specific items to be translated into United States
dollars. Tax amounts furnished under paragraph (f)(10)(ii) of this
section shall be furnished in the foreign currency in which the taxes
are payable and in United States dollars translated in accordance with
section 986(a). All amounts furnished under paragraph (f)(11) of this
section shall be expressed in U.S. dollars translated from functional
currency at the weighted average exchange rate for the year as defined
in Sec. 1.989(b)-1. The foreign corporation's functional currency is
determined under section 985. All statements submitted on or with the
return required under this section shall be rendered in the English
language.
(i) Time and place for filing return. Returns on Form 5471 required
under paragraph (a) of this section shall be filed with the United
States person's income tax return on or before the date required by law
for the filing of that person's income tax return. Directors of Field
Operations and Field Directors are authorized to grant reasonable
extensions of time for filing returns on Form 5471 in accordance with
the applicable provisions of Sec. 1.6081-1 of this chapter. An
application for an extension of time for filing a return of income shall
also be considered as an application for an extension of time for filing
returns on Form 5471.
(j) Two or more persons required to submit the same information--(1)
Return jointly made. If two or more persons are required to furnish
information with respect to the same foreign corporation for the same
period, such persons may, in lieu of making separate returns, jointly
make one return. Such joint return shall be filed with the income tax
return of any one of the persons making such joint return.
(2) Persons excepted from furnishing information--(i) Conditions.
Any person required to furnish information under this section with
respect to a foreign corporation need not furnish that information
provided all of the following conditions are met:
[[Page 130]]
(A) Such person does not directly own an interest in the foreign
corporation;
(B) Such person is required to furnish the information solely by
reason of attribution of stock ownership from a United States person
under paragraph (c) of this section; and
(C) The person from whom the stock ownership is attributed furnishes
all of the information required under this section of the person to whom
the stock ownership is attributed. (For a rule regarding attribution
from a nonresident alien, see paragraph (l) of this section).
(ii) If an individual who is a United States person required to
furnish information with respect to a foreign corporation under section
6038 is entitled under a treaty to be treated as a nonresident of the
United States, and if the individual claims this treaty benefit, and if
there are no other United States persons that are required to furnish
information under section 6038 with respect to the foreign corporation,
then the individual may satisfy the requirements of paragraphs (f)(10),
(f)(11), (g), and (h) of this section by filing the audited foreign
financial statements of the foreign corporation with the individual's
return required under section 6038.
(iii) Illustrations. The rule of this paragraph (j)(2) is
illustrated by the following examples:
Example (1). A, a U.S. person owns 100 percent of the stock of M, a
domestic corporation. A also owns 100 percent of the stock of N, a
foreign corporation organized under the laws of foreign country Y. A, in
filing the information return required by this section with respect to N
Corporation, in fact furnishes all of the information required of M
Corporation with respect to N Corporation. M Corporation need not file
the information.
Example (2). X, a domestic corporation owns 100 percent of the stock
of Y, a domestic corporation, Y Corporation owns 100 percent of the
stock of Z, a foreign corporation. X Corporation is not excused by this
paragraph (j)(2) from filing information with respect to Z Corporation
because X Corporation is deemed to control Z Corporation under the
provisions of paragraph (b) of this section without recourse to the
attribution rules in paragraph (c) of this section.
(3) Statement required. Any United States person required to furnish
information under this section with his return who does not do so by
reason of the provisions of paragraph (j)(1) or (2) of this section
shall file a statement with his income tax return indicating that such
liability has been (or, in the case of a joint return made under
paragraph (j)(1) of this section, will be) satisfied and identifying the
return with which the information was or will be filed and the place of
filing.
(k) Failure to furnish information--(1) [Reserved]. For further
guidance, see Sec. 1.6038-2T(k)(1).
(2) Penalty of reducing foreign tax credit--(i) Effect on foreign
tax credit. Failure of a United States person to furnish, in accordance
with the provisions of this section, any return or any information in
any return, required to be filed for a taxable year under authority of
section 6038 on or before the date prescribed in paragraph (i) of this
section may affect the application of section 901 as provided in
paragraph (k)(2)(ii) of this section and may affect the application of
sections 902 and 960 as provided in paragraph (k)(2)(iii) of this
section. Such failure may affect the application of sections 902 and 960
to any such United States person which is a corporation or to any person
who acquires from any other person any portion (but only to the extent
of such portion) of the interest of such other person in any such
foreign corporation.
(ii) Application of section 901. In the application of section 901
to a United States person referred to in paragraph (k)(2)(i) of this
section, the amount of taxes paid or deemed paid by such person for any
taxable year, with or within which the annual accounting period of a
foreign corporation for which such person failed to furnish information
required under this section ended, may be reduced by 10 percent.
However, no tax reduced under paragraph (k)(2)(iii) of this section or
deemed paid under section 904(c) shall be reduced under the provisions
of this paragraph (k)(2)(ii).
(iii) Application of sections 902 and 960. In the application of
sections 902 and 960 to a United States person referred to in paragraph
(k)(2)(i) of this section for any taxable year, the amount of taxes paid
or deemed paid by each foreign corporation for the accounting period or
periods for which such person
[[Page 131]]
was required for the taxable year of the failure to furnish information
under this section may be reduced by 10 percent. The 10-percent
reduction is not limited to the taxes paid or deemed paid by the foreign
corporation with respect to which there is a failure to file information
but may apply to the taxes paid or deemed paid by all foreign
corporations controlled by that person. In applying subsections (a) and
(b) of section 902, and in applying subsection (a) of section 960, the
reduction provided by this paragraph (k)(2) shall not apply for purposes
of determining the amount of accumulated profits in excess of income,
war profits, and excess profits taxes.
(iv) Reduction for continued failure after notice. (A) If the
failure referred to in paragraph (k)(2)(i) of this section continues for
more than 90 days after the date on which the Director of Field
Operations mails notice of such failure to such United States person,
then the amount of the reduction referred to in paragraphs (k)(2) (ii)
and (iii) of this section may be 10 percent plus an additional 5 percent
for each 3-month period, or fraction thereof, during which such failure
continues after the expiration of such 90-day period.
(B) No taxes shall be reduced under this paragraph (k)(2) more than
once for the same failure. Taxes paid by a foreign corporation when once
reduced for a failure shall not be reduced again for the same failure in
their status as taxes deemed paid by a corporate shareholder. Where a
failure continues, each additional periodic 5-percent reduction,
referred to in paragraph (k)(2)(iv)(A) of this section, shall be
considered as part of the one reduction.
(v) Limitation on reduction of foreign tax credit. The amount of the
reduction under this paragraph (k)(2) for each failure to furnish
information with respect to a foreign corporation as required under this
section shall not exceed the greater of:
(A) $10,000, or
(B) The income of the foreign corporation for its annual accounting
period with respect to which the failure occurs. For purposes of this
section if a person is required to furnish information with respect to
more than one foreign corporation, controlled (within the meaning of
paragraph (b) of this section) by that person, each failure to submit
information for each such corporation constitutes a separate failure.
(vi) Offset for dollar amount penalty imposed. The total amount of
the reduction or reductions which, but for this paragraph (k)(2)(vi),
may be made under this paragraph (k)(2) with respect to any separate
failure, shall not exceed the maximum amount of such reductions which
may be imposed, reduced (but not below zero) by the amount of the dollar
amount penalty imposed by paragraph (k)(1) of this section with respect
to such separate failure.
(3) Reasonable cause. (i) For purposes of section 6038 (b) and (c)
and this section, the time prescribed for furnishing information under
paragraph (i) of this section, and the beginning of the 90-day period
after mailing of notice by the Director of Field Operations under
paragraphs (k)(1)(ii) and (2)(iv)(A) of this section, shall be treated
as being not earlier than the last day on which reasonable cause existed
for failure to furnish the information.
(ii) To show that reasonable cause existed for failure to furnish
information as required by section 6038 and this section, the person
required to report such information must make an affirmative showing of
all facts alleged as reasonable cause for such failure in a written
statement containing a declaration that it is made under the penalties
of prejury. The statement must be filed with the district director for
the district or the director of the service center where the return is
required to be filed. The district director or the director of the
service center shall determine whether the failure to furnish
information was due to reasonable cause, and if so, the period of time
for which such reasonable cause existed. In the case of a return that
has been filed as required by this section except for an omission of, or
error with respect to, some of the information required, if the person
who filed the return establishes to the satisfaction of the district
director or the director of the service center that the person has
substantially complied with this section, then the omission or error
shall not constitute a failure under this section.
[[Page 132]]
(4) Other penalties. The information required by section 6038 and
this section must be furnished even though there are no foreign taxes
which would be reduced under the provisions of this section, and even
though the information required may not affect the amount of any tax due
under the Internal Revenue Code. For criminal penalties for failure to
file a return and filing a false or fraudulent return, see sections
7203, 7206, and 7207 of the Code.
(5) Illustrations. 1'The provisions of this paragraph may
be illustrated by the following examples.
Example (1). M, a domestic corporation owns 100 percent of the stock
of N, a foreign corporation. Both M and N use the calendar year as a
taxable year and annual accounting period, and all of the following
events occur in or with respect to the 1980 taxable year. The dividend
from N is the only dividend from a foreign corporation received by M
during the taxable year, and the foreign taxes listed are the only
foreign taxes paid or deemed paid by M and N for the taxable year. On
March 15, 1981, M filed its income tax return and paid its income tax,
but M did not file Form 2952 with respect to N's 1980 annual accounting
period. On June 1, 1961, the district director mailed notice to M of M's
failure to file Form 2952 with respect to N. On November 30, 1981, M
filed a complete Form 2952 with respect to N's 1980 annual accounting
period.
(a) Gains, profits, and income of N........................ $100,000
(b) Foreign tax paid by N with respect to such gains, 40,000
profits, and income.......................................
(c) Reduction of foreign tax paid by N (for purposes of M's 6,000
section 902 deemed paid credit) resulting from M's failure
to file information with respect to N as required under
section 6038(a) and this section: failure to file within
the time prescribed in paragraph (i) of this section, 10-
percent reduction; continued failure for one additional 3-
month period after 90-day period after notice mailed, 5-
percent reduction; total reduction, 15 percent ($40,000
times 15 percent).........................................
(d) Foreign tax paid by N after section 6038(c)(1)(B) 34,000
reduction.................................................
(e) Dividend paid by N to M................................ 45,000
(f) Accumulated profits of N as defined in section 100,000
902(c)(1) (determined without regard to the section
6038(c)(1)(B) reduction)..................................
(g) Accumulated profits of N as described in section 902(a) 60,000
(determined without regard to the section 6038(c)(1)(B)
reduction)................................................
(h) For purposes of the section 902 credit, M is deemed to 25,500
have paid the same proportion of foreign taxes paid
(reduced as provided under section 6038(c)) with respect
to the accumulated profits described in section 902(a)
(determined without regard to the reduction provided under
section 6038(c)) as the amount of the dividend (determined
without regard to section 78) bears to such amount of
accumulated profits.......................................
(45,000/60,000)x34,000=25,500.......................
M must include $25,500 in gross income as a dividend under the
provisions of section 78 of the Code. This example illustrates that the
reductions in foreign taxes paid by the foreign corporation provided
under section 8038(c) are taken into account in determining the amount
included in gross income of the domestic corporation under section 78 of
the Code as foreign taxes deemed paid, but such reductions are not taken
into account in computing accumulated profits for purposes of
determining the portion of foreign taxes deemed paid with respect to a
particular dividend. The dollar amount penalty imposed by section 8038
(b) and paragraph (k)(1) of this section does not apply with respect to
information for annual accounting periods ending before September 4,
1982, and therefore does not apply to M with respect to M's failure to
file Form 2952 in this example.
Example (2). The facts are the same as in example (1) except that
all of the events occur in or with respect to the 1982 taxable year. On
March 15, 1983. M filed its income tax return and paid its income tax,
but M did not file Form 2952 or Form 5471 with respect to N's 1982
annual accounting period. On June 1, 1983, the district director mailed
notice to M of M's failure to file Form 2952 or Form 5471 with respect
to N. On November 30, 1983, M filed a complete Form 5471 with respect to
N's 1982 annual accounting period. Under paragraph (k)(1)(i) of this
section, M is subject to a penalty of $1,000. Under paragraph (k)(1)(ii)
of this section, that penalty is increased by $4,000 because the failure
continued for 92 days (three full 30-day periods and a fraction of a
fourth 30-day period) after the end of the 90-day period following
mailing of the notice by the district director, bringing M's dollar
amount penalty under paragraph (k)(1) of this section to $5,000. For
purpose of determining the foreign tax credit available to M, there may
be imposed a reduction of foreign tax paid by N of $6,000, which would
be the total of reductions under paragraph (k)(2) of this section with
respect to M's failure to file under section 6038 for N's 1982 annual
accounting period, before application of paragraph (k)(2)(vi) of this
section. Under said paragraph (k)(2)(vi), the amount of the foreign tax
reduction imposed is reduced by the amount of the dollar amount penalty,
leaving a foreign tax reduction penalty of $1,000 which may be imposed
[[Page 133]]
in addition to the $5,000 dollar amount penalty. If imposed, the $1,000
tax reduction would then be applied in the calculation of taxes deemed
paid by M under section 902 as in example (1), items (c), (d), and (h).
(l) Other persons excepted from filing. For tax years of foreign
corporations ending on or after December 29, 1999, any person required
to furnish information under this section with respect to a foreign
corporation does not have to furnish that information if the following
conditions are met--
(1) Such person does not own a direct or indirect interest in the
foreign corporation; and
(2) Such person is required to furnish information solely by reason
of attribution of stock ownership from a nonresident alien(s) under
paragraph (c) of this section.
(m) [Reserved]. For further guidance, see Sec. 1.6038-2T(m).
[T.D. 8040, 50 FR 30163, July 24, 1985, as amended by T.D. 8573, 59 FR
64302, Dec. 14, 1994; T.D. 8733, 62 FR 53385, Oct. 14, 1997; T.D. 8850,
64 FR 72550, Dec. 28, 1999; T.D. 9194, 70 FR 18946, Apr. 11, 2005; T.D.
9268, 71 FR 35525, June 21, 2006]
Sec. 1.6038-2T Information returns required of United States persons
with respect to annual accounting periods of certain foreign
corporations (temporary).
(a) through (c) [Reserved]. For further guidance, see Sec. 1.6038-
2(a) through (c).
(d) U.S. person--(1) In general. For purposes of section 6038 and
this section, the term United States person has the meaning assigned to
it by section 7701(a)(30), except as provided in paragraphs (d)(2) and
(3) of this section.
(2) Special rule for individuals residing in certain possessions.
With respect to individuals who are bona fide residents of Puerto Rico
or any section 931 possession, as defined in Sec. 1.931-1T(c)(1), the
term United States person has the meaning assigned to it by Sec. 1.957-
3T.
(3) Special rule for certain nonresident aliens. An individual for
whom an election under section 6013(g) or (h) is in effect shall,
subject to the exceptions contained in paragraph (d)(2) of this section,
be considered a United States person for purposes of section 6038 and
this section.
(e) through (f)(10) [Reserved]. For further guidance, see Sec.
1.6038-2(e) through (f)(10).
(f)(11) Transactions with certain related parties. (i) A summary
showing the total amount of each of the following types of transactions
of the corporation, which took place during the annual accounting
period, with the person required to file this return, any other
corporation or partnership controlled by that person, or any United
States person owning at the time of the transaction 10 percent or more
in value of any class of stock outstanding of the foreign corporation,
or of any corporation controlling that foreign corporation--
(A) Sales and purchases of stock in trade;
(B) Sales and purchases of tangible property other than stock in
trade;
(C) Sales and purchases of patents, inventions, models, or designs
(whether or not patented), copyrights, trademarks, secret formulas or
processes, or any other similar property rights;
(D) Compensation paid and compensation received for the rendition of
technical, managerial, engineering, construction, scientific, or like
services;
(E) Commissions paid and commissions received;
(F) Rents and royalties paid and rents and royalties received;
(G) Amounts loaned and amounts borrowed (except open accounts
resulting from sales and purchases reported under other items listed in
this paragraph (f)(11) that arise and are collected in full in the
ordinary course of business);
(H) Dividends paid and dividends received;
(I) Interest paid and interest received; and
(J) Premiums paid and premiums received for insurance or
reinsurance.
(ii) Special rule for banks. For purposes of this paragraph (f)(11),
if the United States person is a bank, as defined in section 581, or is
controlled within the meaning of section 368(c) by a bank, the term
transactions shall not, as to a corporation with respect to which a
return is filed, include banking transactions entered into on behalf of
[[Page 134]]
customers; in any event, however, deposits in accounts between a foreign
corporation, controlled (within the meaning of paragraph (b) of this
section) by a United States person, and a person described in this
paragraph (f)(11) and withdrawals from such accounts shall be summarized
by reporting end-of-month balances.
(12) Accrued payments and receipts. For purposes of the required
summary under paragraph (f)(11) of this section, a corporation that uses
an accrual method of accounting shall use accrued payments and accrued
receipts for purposes of computing the total amount of each of the types
of transactions listed.
(g) through (j)(3) [Reserved]. For further guidance, see Sec.
1.6038-2(g) through (j)(3).
(k) Failure to furnish information--(1) Dollar amount penalty--(i)
In general. If any person required to file Form 5471 under section 6038
and this section fails to furnish any information described in
paragraphs (f) and (g) of this section within the time prescribed by
paragraph (i) of this section, such person shall pay a penalty of
$10,000 for each annual accounting period of each foreign corporation
with respect to which such failure occurs.
(ii) Increase in penalty for continued failure after notification.
If a failure described in paragraph (k)(1)(i) of this section continues
for more than 90 days after the date on which the Director of Field
Operations mails notice of such failure to the person required to file
Form 5471, such person shall pay a penalty of $10,000, in addition to
the penalty imposed by section 6038(b)(1) and paragraph (k)(1)(i) of
this section, for each 30-day period (or a fraction of) during which
such failure continues after such 90-day period has expired. The
additional penalty imposed by section 6038(b)(2) and this paragraph
(k)(1)(ii) shall be limited to a maximum of $50,000 for each failure.
(k)(2) through (k)(4) [Reserved]. For further guidance, see Sec.
1.6038-2(k)(2) through (k)(4).
(k)(5) Illustrations. [Reserved]. For further guidance, see Sec.
1.6038-2(k)(5).
Example 1 and 2. [Reserved]. For further guidance, see Sec. 1.6038-
2(k)(5) Examples 1 and 2.
Example 3. A, a U.S. person, owns 100 percent of the stock of FC. On
April 15, 2008, A timely filed its 2007 income tax return but did not
file Form 5471 with respect to FC's 2007 annual accounting period. On
June 1, 2008, the Director of Field Operations mailed a notice to A of
A's failure to file Form 5471 for 2007 with respect to FC. On August 1,
2008, A submits a written statement asserting facts for reasonable cause
for failure to file the 2007 Form 5471 for FC. Based on A's statement
and discussions with A, the Director of Field Operations agrees that A
had reasonable cause for failure to file FC's 2007 Form 5471 and
determined that it is reasonable for A to file FC's 2007 Form 5471 by
September 15, 2008. The time prescribed for furnishing information under
paragraph (i) of this section is September 15, 2008, and the 90-day
period described under paragraphs (k)(1)(ii) and (k)(2)(iv)(A) of this
section begins on that same date. Thus, if A files a completed Form 5471
by September 15, 2008, A is not subject to the penalties under
paragraphs (k)(1) and (k)(2) of this section. If A does not file a
completed Form 5471 by December 14, 2008, in addition to the penalties
under paragraphs (k)(1) and (k)(2) of this section, A will also be
subject to the penalties for continued failure under paragraphs
(k)(1)(ii) and (k)(2)(iv)(A) of this section.
Example 4. The facts are the same as in Example 3 except A submits
the written statement to the Director before a notice of failure to
furnish information is mailed to A. The notice is mailed to A on
September 7, 2008. Under these facts, the time prescribed for furnishing
information under paragraph (i) of this section is September 15, 2008,
and the 90-day period after mailing of notice of failure under
paragraphs (k)(1)(ii) and (k)(2)(iv)(A) of this section begins on that
same date.
(l) through (l)(2) [Reserved]. For further guidance, see Sec.
1.6038-(2)(l) through (l)(2).
(m) Effective dates. (1) Except as otherwise provided, this section
applies with respect to information for annual accounting periods
beginning on or after June 21, 2006. Paragraph (d) of this section
applies to taxable years ending after October 22, 2004. Paragraphs
(k)(1) and (k)(5), Examples 3 and 4, of this section apply June 21,
2006.
(2) The applicability of paragraphs (f)(11), (f)(12), (k)(1), and
(k)(5), Examples 3 and 4, of this section will expire on or before June
22, 2009.
[T.D. 9194, 70 FR 18946, Apr. 11, 2005, as amended by T.D. 9268, 71 FR
35525, June 21, 2006]
[[Page 135]]
Sec. 1.6038-3 Information returns required of certain United States
persons with respect to controlled foreign partnerships (CFPs).
(a) Persons required to make return--(1) Controlling fifty-percent
partners. The term controlling fifty-percent partner means a United
States person that controlled (as defined in paragraph (b)(1) of this
section) the foreign partnership at any time during the partnership's
tax year (as defined in paragraph (b)(8) of this section). Except as
provided in paragraph (c), (d), or (e) of this section, for each tax
year of a foreign partnership during which the partnership has one or
more controlling fifty-percent partners, each controlling fifty-percent
partner must complete and file Form 8865, ``Return of U.S. Persons With
Respect to Certain Foreign Partnerships,'' containing the information
described in paragraph (g) of this section.
(2) Controlling ten-percent partners. If at any point during a
foreign partnership's tax year (as defined in paragraph (b)(8) of this
section) a United States person owned a ten-percent or greater interest
in the partnership while the partnership was controlled by United States
persons owning ten-percent or greater interests, such United States
person is a controlling ten-percent partner. See paragraph (b)(1) of
this section for the definition of control. However, a United States
person is not a controlling ten-percent partner with respect to a
particular foreign partnership for a particular tax year of the foreign
partnership if at any point during that year the partnership had a
controlling fifty-percent partner, as defined in paragraph (a)(1) of
this section. Except as provided in paragraph (c), (d), or (e) of this
section, for each tax year of a partnership during which the partnership
has controlling ten-percent partners, each controlling ten-percent
partner must complete and file Form 8865 containing the information
described in paragraph (g)(1) of this section.
(3) Separate returns for each partnership. A United States person
required to report under this paragraph (a) must file a separate Form
8865 for each foreign partnership with respect to which the person is a
controlling fifty-percent partner or a controlling ten-percent partner.
(b) Ownership determinations and definitions--(1) Control. Control
of a foreign partnership is ownership of more than a fifty-percent
interest in the partnership.
(2) Fifty-percent interest. A fifty-percent interest in a
partnership is an interest equal to fifty percent of the capital
interest in such partnership, an interest equal to fifty percent of the
profits interest in such partnership, or an interest to which fifty
percent of the deductions or losses of such partnership are allocated.
(3) Ten-percent interest. A ten-percent interest in a partnership is
an interest equal to ten percent of the capital interest in such
partnership, an interest equal to ten percent of the profits interest in
such partnership, or an interest to which ten percent of the deductions
or losses of such partnership are allocated.
(4) Constructive ownership rules. For purposes of determining an
interest in a partnership, the constructive ownership rules of section
267(c) (other than section 267(c)(3)) apply, taking into account that
such rules refer to corporations and not to partnerships. However, an
interest will be attributed from a nonresident alien under the family
attribution rules of section 267(c)(2) and (4) only if the person to
whom the interest is attributed owns a direct or indirect (under the
rules of 267(c)(1) or (5)) interest in the foreign partnership.
(5) Determination of amount of interest. Whether a person owns a
fifty-percent interest, or a ten-percent interest, as described in
paragraphs (b)(2) and (3) of this section, is determined for each tax
year of the foreign partnership by reference to the agreement of the
partners relating to such interests during that tax year.
(6) Definition of United States person. The term United States
person is defined in section 7701(a)(30).
(7) Definition of a foreign partnership. A foreign partnership is a
partnership described in section 7701(a)(5).
(8) Tax year of a foreign partnership. The tax year of a foreign
partnership is determined under section 706.
(9) Examples. The rules of paragraph (a) of this section and this
paragraph
[[Page 136]]
(b) are illustrated by the following examples:
Example 1. Sole U.S. partner does not own more than a fifty-percent
interest. No United States person owns any interest (directly or
constructively) in FPS, a foreign partnership whose tax year under
section 706 is the calendar year. On January 1, 2001, US, a United
States person with the calendar year as its tax year, contributes
property to FPS in exchange for a 40% interest in a section 721
transaction. No United States persons acquire directly or constructively
any other interests in FPS during FPS's 2001 tax year. US is not a
controlling fifty-percent partner during FPS's 2001 tax year. US did not
own during that tax year, either directly or constructively, more than a
50% interest in the partnership under paragraphs (b)(2) and (4) of this
section. Also, US is not a controlling ten-percent partner; although US
owned a 10% or greater interest, US persons owning at least 10%
interests did not control FPS. Therefore, US does not have to file with
its 2001 income tax return a Form 8865 with respect to FPS under section
6038. (But see section 6038B for the reporting obligations of US with
respect to its transfer of property to FPS and section 6046A for the
reporting obligation of US with respect to its acquisition of an
interest in FPS. See also Sec. 1.6046A-1(f)(1) regarding the overlap
between sections 6038B and 6046A.
Example 2. Controlling ten-percent partners. Assume the same facts
as in Example 1. In addition, on January 1, 2002, US1, a United States
person unrelated to US and a calendar year taxpayer, purchases a 15%
interest in FPS from a foreign partner of FPS. Neither US nor US1 is a
controlling fifty-percent partner during FPS's 2002 tax year because
neither one owns more than a 50% percent interest in FPS during that
year. However, US and US1 are controlling ten-percent partners for that
year because each owns at least a 10% interest (US owns a 40% interest
and US1 owns a 15% interest) and together they control FPS because
collectively they own more than a 50% interest in FPS. As controlling
ten-percent partners, under section 6038, each is required to file a
Form 8865 with its 2002 income tax return. (US1 must also report its
acquisition of the 15% interest in FPS under section 6046A on its Form
8865 filed with its 2002 income tax return.)
Example 3. Constructive ownership rules. Assume the same facts as in
Example 2. In addition, on January 1, 2003, US2, a United States person
and the brother of US, purchases 50% of the stock of FC, a foreign
corporation. FC owns a 20% interest in FPS. Thus, under sections
6038(e)(3) and 267(c)(1), US2 indirectly owns a 10% interest in FPS (10%
is US2's proportionate share of FC's 20% interest in FPS), and under
sections 6038(e)(3) and 267(c)(2), US2 is attributed US's 40% interest.
Additionally, US directly owns a 40% interest in FPS and is attributed
US2's 10% interest pursuant to section 6038(e)(3) and section 267(c)(2).
Therefore, US2 is considered to own a 50% interest (10% indirectly and
40% from US) in FPS, and US is considered to own a 50% interest in FPS
(40% directly and 10% from US2). FPS has no controlling fifty-percent
partners, because neither US, US1, nor US2, owns a greater than 50%
interest. However, US, US1, and US2 are each controlling ten-percent
partners and each must file Form 8865 pursuant to section 6038 for FPS's
2003 tax year ending December 31, 2003. Each must attach Form 8865 to
its tax return for its 2003 tax year.
Example 4. Controlling fifty-percent partners. Assume the same facts
as in Example 3. In addition, on June 1, 2004, US acquires an additional
1% direct interest in FPS. US is now a controlling fifty-percent partner
of FPS, because US owns a 41% interest directly and a 10% interest
constructively from US2. US2 is also a controlling fifty-percent
partner, because US2 owns 10% indirectly and 41% constructively from US.
Both US and US2 are required to file Form 8865 containing all the
information required to be submitted by controlling fifty-percent
partners. (But see paragraph (c)(1) of this section, which contains
filing exceptions when there are multiple controlling fifty-percent
partners). US1 is no longer a controlling ten-percent partner because
FPS now has at least one controlling fifty-percent partner, and US1 does
not qualify as a controlling fifty-percent partner. Therefore, US1 is
not required to file Form 8865 under section 6038.
Example 5. Constructive ownership from a nonresident alien. US, a
United States person, does not own directly or constructively an
interest in FPS, a foreign partnership. The tax year of FPS is the
calendar year. NRA, a nonresident alien, is the mother of US. In 2002,
NRA acquires a 55% interest in FPS. Because US owns neither a direct nor
a constructive interest in FPS under sections 6038(e)(3) and 267(c)(1)
or (5), NRA's interest is not attributed to US under sections 6038(e)(3)
and 267(c)(2). If in 2003 NRA becomes a United States person, NRA's
interest will be attributed to US. However, US is excused from filing
Form 8865 if US satisfies the requirements of the constructive owners
exception in paragraph (c)(2) of this section. In 2003, NRA is a
controlling fifty-percent partner and must file a Form 8865 under
section 6038 for FPS's 2003 tax year.
(c) Exceptions when more than one United States person is required
to file Form 8865 pursuant to section 6038--(1) Multiple controlling
fifty-percent partners--(i) In general. If, with respect to the same
foreign partnership for the same tax year, more than one United
[[Page 137]]
States person is a controlling fifty-percent partner, then in lieu of
each controlling fifty-percent partner filing a separate Form 8865, only
one Form 8865 from one of the controlling fifty-percent partners is
required, provided all of the requirements of paragraph (c)(1)(ii) of
this section are satisfied. A person that is a controlling fifty-percent
partner solely because of an interest to which deductions or losses are
allocated may file the single return only if there is no United States
person that is a controlling fifty-percent partner by reason of an
interest in capital or profits.
(ii) Requirements--(A) The person undertaking the filing obligation
must file Form 8865 with that person's income tax return in the manner
provided by Form 8865 and the accompanying instructions. The return must
contain all of the information that would have been required to be
reported by this section if each controlling fifty-percent partner had
filed its own Form 8865.
(B) Any controlling fifty-percent partner not filing Form 8865 must
file with its income tax return a statement titled ``Controlled Foreign
Partnership Reporting'' containing the following information--
(1) A statement that the person qualified as a controlling fifty-
percent partner, but is not submitting Form 8865 pursuant to the
multiple controlling fifty-percent partners exception;
(2) The name, address, and taxpayer identification number (if any)
of the foreign partnership of which the person qualified as a
controlling fifty-percent partner;
(3) A representation that the filing requirement has been or will be
satisfied;
(4) The name and address of the person filing the single return;
(5) The Internal Revenue Service Center where the single return is
required to be filed; and
(6) Any additional information that Form 8865 and the accompanying
instructions require.
(iii) Penalties. If the requirements listed in paragraph (c)(1)(ii)
of this section are not satisfied, a United States person that did not
file a Form 8865 pursuant to this paragraph will be subject to the
penalties in paragraph (k) of this section, unless the reasonable cause
provision in paragraph (k)(4) of this section is satisfied.
(2) Certain constructive owners excepted from furnishing
information--(i) In general. A United States person that does not own a
direct interest in the foreign partnership and that is required to file
Form 8865 under this section solely by reason of constructive ownership
from a United States person(s) pursuant to paragraph (b)(4) of this
section (an indirect partner) is not required to file Form 8865 if all
of the requirements listed in paragraph (c)(2)(ii) of this section are
met.
(ii) Requirements--(A) The United States person(s) whose interest
the indirect partner constructively owns reports all the information
such person(s) is required to submit under this section, unless such
person also is required to file solely by reason of constructive
ownership from a United States person(s) pursuant to paragraph (b)(4) of
this section, or another person reports the information pursuant to
paragraph (c)(1) of this section.
(B) The indirect partner files with its income tax return a
statement titled ``Controlled Foreign Partnership Reporting'' containing
the following information--
(1) A representation that the indirect partner was required to file
Form 8865, but is not doing so pursuant to the constructive owners
exception;
(2) The names and addresses of the United States persons whose
interests the indirect partner constructively owns;
(3) The name and address of the foreign partnership with respect to
which the indirect partner would have had to have filed Form 8865 but
for this exception; and
(4) Any additional information that Form 8865 and the accompanying
instructions require.
(iii) Penalties. A United States person that pursuant to this
paragraph (c)(2) does not file a return will be subject to the penalties
in paragraph (k) of this section if the requirements listed in paragraph
(c)(2)(ii) of this section are not satisfied, unless such failure is due
to reasonable cause, as defined in paragraph (k)(4) of this section.
[[Page 138]]
(iv) Overlap with multiple controlling fifty-percent partners
exception--(A) If a United States person qualifies for both the
exception in paragraph (c)(1) of this section and the exception in this
paragraph (c)(2), such person may only utilize the multiple controlling
fifty-percent partners exception in paragraph (c)(1) of this section to
avoid filing Form 8865.
(B) Example. The following example illustrates the operation of this
paragraph (c)(2)(iv):
Example. US is a U.S. citizen. US owns 100% of the stock of DC, a
domestic corporation. DC owns a 60% direct interest in FPS, a foreign
partnership. DC and US are the only U.S. persons that own interests
directly or constructively in FPS. DC owns directly a greater than 50%
interest in FPS. US constructively owns DC's interest pursuant to
sections 6038(e)(3) and 267(c)(1). Therefore, both DC and US are
controlling fifty-percent partners. US qualifies for both the exception
in paragraph (c)(1) of this section (multiple controlling fifty-percent
partners) and the exception in paragraph (c)(2) of this section
(constructive owner exception). US may only utilize the paragraph (c)(1)
exception to avoid its filing obligation. Accordingly, DC may file a
single Form 8865 on behalf of US and itself. However, that form must
contain all the information that would have been submitted had DC and US
each submitted a separate Form 8865.
(3) Members of an affiliated group of corporations filing a
consolidated return. If one or more members of an affiliated group of
corporations filing a consolidated return are required under section
6038 to file a Form 8865 for a particular foreign partnership, the
common parent corporation may file one Form 8865 on behalf of all of the
members of the group required to report under section 6038. Except with
respect to group members who also qualify under the exception in
paragraph (c)(2) of this section, the Form 8865 must contain all the
information that would have been required to be submitted if each group
member were required to file its own Form 8865.
(d) Exception for certain trusts. Trusts relating to state and local
government employee retirement plans are not required to report under
this section, unless the instructions to Form 8865 provide otherwise.
(e) Reporting under this section not required with respect to
partnerships excluded from the application of subchapter K. The
reporting requirements of this section will not apply to any United
States person in respect of an eligible partnership as described in
Sec. 1.761-2(a) if such partnership has validly elected to be excluded
from all of the provisions of subchapter K of chapter 1 of the Internal
Revenue Code in the manner specified in Sec. 1.761-2(b)(2)(i), or such
partnership is deemed to have elected to be excluded from all of the
provisions of subchapter K of chapter 1 of the Internal Revenue Code in
accordance with the provisions of Sec. 1.761-2(b)(2)(ii).
(f) Period covered by return. The information required under this
section must be furnished for the tax year of the foreign partnership
ending with or within the United States person's tax year. See section
706 for rules regarding tax years of partnerships.
(g) Contents of return--(1) Information required to be submitted by
controlling fifty-percent partners and controlling ten-percent partners.
All controlling fifty-percent partners and all controlling ten-percent
partners must submit the following information on Form 8865 in the form
and manner and to the extent prescribed by Form 8865 and its
instructions--
(i) The name, address, and taxpayer identification number (if any)
of the foreign partnership of which the person qualified as a
controlling fifty-percent partner or a controlling ten-percent partner;
(ii) A statement of the income, gain, losses, deductions and credits
allocated to the direct interest in the partnership of the person
reporting under section 6038;
(iii) A list of all partnerships (foreign or domestic) in which the
foreign partnership owned a direct interest, or owned a constructive
interest of ten percent of more under the rules of section 267(c)(1) or
(5), during the partnership's tax year for which the Form 8865 is being
filed;
(iv) Information about all foreign entities that were disregarded as
entities separate from their owner under Sec. Sec. 301.7701-2 and
301.7701-3 that were owned by the foreign partnership during the
partnership's tax year for which the Form 8865 is being filed;
[[Page 139]]
(v) A summary of the transactions that took place during the
partnership's tax year between the partnership and the person filing the
return, between the partnership and any other partnership of which the
person filing the return is a controlling fifty-percent partner, and
between the partnership and any corporation controlled (under section
6038(e)(2) and the regulations thereunder) by the person filing the
return; and
(vi) Any other information that Form 8865 or its accompanying
instructions require to be submitted.
(2) Additional information required to be submitted by controlling
fifty-percent partners. In addition to the information required pursuant
to paragraph (g)(1) of this section, controlling fifty-percent partners
must also submit the following information in the form and manner and to
the extent required by Form 8865 and its instructions--
(i) A list of the names, addresses and tax identification numbers
(if any) of each United States person that owned a direct interest of
ten percent or more in the partnership during the partnership's tax
year, and of each United States and foreign person whose interests in
the partnership the controlling fifty-percent partner constructively
owned under paragraph (b)(4) of this section during the partnership's
tax year;
(ii) A list of transactions between the partnership and any United
States person owning at the time of the transaction at least a 10-
percent direct interest (as defined in paragraph (b)(3) of this section)
in the foreign partnership;
(iii) A statement of the aggregate of the partners' distributive
shares of items of income, gain, losses, deductions and credits;
(iv) A statement of income, gain, losses, deductions and credits
allocated to each United States person holding a direct interest in the
foreign partnership of ten percent or more; and
(v) Any other information Form 8865 or its accompanying instructions
require controlling fifty-percent partners to submit.
(h) Method of reporting. Except as otherwise provided on Form 8865
or the accompanying instructions, all amounts required to be furnished
on Form 8865 must be expressed in United States dollars. All statements
required on or with Form 8865 pursuant to this section must be in
English.
(i) Time and place for filing return--(1) In general. Form 8865 must
be filed with the United States person's income tax return on or before
the due date (including extensions) of that return. If the United States
person is not required to file an income tax return for its tax year
with which or within which the foreign partnership's tax year ends, but
is required to file an information return for that year (for example,
Form 1065, ``U.S. Partnership Return of Income,'' or Form 990, ``Return
of Organization Exempt from Income Tax''), the Form 8865 must be filed
with the United States person's information return filed on or before
the due date (including extensions) of that return.
(2) Duplicate return. If required by the instructions to Form 8865,
a duplicate Form 8865 (including attachments and schedules) must also be
filed.
(j) Overlap with section 6031. A partner may be required to file
Form 8865 under this section and the foreign partnership in which it is
a partner may also be required to file a Form 1065 or Form 1065-B under
section 6031(e) for the same partnership tax year. For cases where a
United States person is a controlling fifty-percent partner or a
controlling ten-percent partner with respect to a foreign partnership,
and that foreign partnership completes and files Form 1065 or Form 1065-
B, the instructions for Form 8865 will specify the filing requirements
that address this overlap in reporting obligations.
(k) Failure to comply with reporting requirement--(1) In general.
Any United States person required to file Form 8865 under Section 6038
and this section that fails to comply (as defined in paragraph (k)(2) of
this section) with the reporting requirements of this section, will be
subject to the penalties described in paragraph (k)(3) of this section.
(2) Failure to comply. A failure to comply is separately determined
for each foreign partnership for which a United States person has a
section 6038 reporting obligation. A failure to comply with the
requirements of section 6038 includes the following--
[[Page 140]]
(i) The failure to report at the proper time and in the proper
manner any information required to be reported under the rules of this
section; or
(ii) The provision of false or inaccurate information in purported
compliance with the requirements of this section.
(3) Penalties. A United States person that fails to comply (as
defined in paragraph (k)(2) of this section) with the reporting
requirements of this section must pay the following penalties, subject
to the reasonable cause exception in paragraph (k)(4) of this section:
(i) Dollar amount penalty--(A) $10,000 penalty. A penalty of $10,000
shall be imposed for each tax year of each foreign partnership with
respect to which a failure to comply occurs.
(B) Increase in penalty. If a failure to comply with the applicable
reporting requirements of section 6038 and this section continues for
more than 90 days after the date on which the Commissioner or the
Commissioner's delegate mails notice of the failure to the United States
person required to file Form 8865, the person must pay an additional
penalty of $10,000 for each 30-day period (or fraction thereof) during
which the failure continues after the 90-day period has expired.
(C) Limitation. The additional penalty imposed on any United States
person by section 6038(b)(2) and paragraph (k)(3)(i)(B) of this section
is limited to a maximum of $50,000 for each partnership for each tax
year with respect to which the failure occurs.
(ii) Penalty of reducing foreign tax credit--(A) Effect on foreign
tax credit. Failure to comply with the reporting requirements of section
6038 and this section may cause a reduction of foreign tax credits under
section 901 (taxes of foreign countries and of possessions of the United
States). In applying section 901 to a United States person for any tax
year with or within which its foreign partnership's tax year ended, the
amount of taxes paid (and deemed paid under sections 902 and 960) by the
United States person will be reduced by 10 percent if the person fails
to comply. However, no tax deemed paid under section 904(c) will be
reduced under the provisions of this paragraph (k)(3)(ii).
(B) Reduction for continued failure. If a failure to comply with the
reporting requirements of section 6038 and this section continues for
more than 90 days after the date on which the Commissioner or the
Commissioner's delegate mails notice of the failure to the person
required to file Form 8865, then the amount of the reduction in
paragraph (k)(3)(ii)(A) of this section will be 10 percent, plus an
additional 5 percent for each 3-month period (or fraction thereof)
during which the failure continues after the 90-day period has expired.
(C) Limitation on reduction. The amount of the reduction under
paragraphs (k)(3)(ii)(A) and (B) of this section for each failure to
furnish information required under this section will not exceed the
greater of $10,000, or the gross income of the foreign partnership for
its tax year with respect to which the failure occurred.
(D) Offset for dollar amount penalty imposed. The total amount of
the reduction which, but for this paragraph (k)(3)(ii)(D), may be made
under this paragraph (k)(3)(ii) with respect to any separate failure,
may not exceed the maximum amount of the reductions that may be imposed,
reduced (but not below zero) by the dollar amount penalty imposed by
paragraph (k)(3)(i) of this section with respect to the failure.
(4) Reasonable cause limitation. The time prescribed for filing a
complete Form 8865, and the beginning of the 90-day period after the
Commissioner or the Commissioner's delegate mails notice under
paragraphs (k)(3)(i)(B) and (ii)(B) of this section, will be treated as
being not earlier than the last day on which reasonable cause existed
for failure to furnish the information. The United States person may
show reasonable cause by providing a written statement to the
Commissioner's delegate having jurisdiction over the person's return to
which the Form 8865 should have been attached, setting forth the reasons
for the failure to comply. Whether a failure to comply was due to
reasonable cause will be determined by the Commissioner, or the
Commissioner's delegate, under all the facts and circumstances.
(5) Statute of limitations. For exceptions to the limitations on
assessment
[[Page 141]]
in the event of a failure to provide information under section 6038, see
section 6501(c)(8).
(1) Effective date. Except as otherwise provided, this section shall
apply for tax years of a foreign partnership ending on or after December
31, 2000. For tax years of a foreign partnership ending before December
23, 2002, see Sec. 1.6038-3(j) in effect prior to the amendments made
by T.D. 9033 (see 26 CFR part 1 revised April 1, 2002).
[T.D. 8850, 64 FR 72550, Dec. 28, 1999, as amended by T.D. 9033, 67 FR
78175, Dec. 23, 2002; T.D. 9065, 68 FR 39012, July 1, 2003]
Sec. 1.6038A-0 Table of contents.
This section lists the captions that appear in the regulations under
section 6038A.
Sec. 1.6038A-1 General requirements and definitions.
(a) Purpose and scope.
(b) In general.
(c) Reporting corporation.
(1) In general.
(2) 25-percent foreign-owned.
(3) 25-percent foreign shareholder.
(i) In general.
(ii) Total voting power and value.
(iii) Direct 25-percent foreign shareholder.
(iv) Indirect 25-percent foreign shareholder.
(4) Application to prior open years.
(5) Exceptions.
(i) Treaty country residents having no permanent establishment.
(ii) Qualified exempt shipping income.
(iii) Status as a foreign related party.
(d) Related party.
(e) Attribution rules.
(1) Attribution under section 318.
(2) Attribution of transactions with related parties engaged in by a
partnership.
(f) Foreign person.
(g) Foreign related party.
(h) Small corporation exception.
(i) Safe harbor for reporting corporations with related party
transactions of de minimis value.
(1) In general.
(2) Aggregate value of gross payments made or received.
(j) Related reporting corporations.
(k) Consolidated return groups.
(1) Required information.
(2) Maintenance of records and authorization of agent.
(3) Monetary penalties.
(l) District Director.
(m) Examples.
(n) Effective dates.
(1) Section 1.6038A-1.
(2) Section 1.6038A-2.
(3) Section 1.6038A-3.
(4) Section 1.6038A-4.
(5) Section 1.6038A-5.
(6) Section 1.6038A-6.
(7) Section 1.6038A-7.
Sec. 1.6038A-2 Requirement of return.
(a) Form 5472 required.
(1) In general.
(2) Reportable transaction.
(b) Contents of return.
(1) Reporting corporation.
(2) Related party.
(3) Foreign related party transactions for which only monetary
consideration is paid or received by the reporting
corporation.
(4) Foreign related party transactions involving nonmonetary
consideration or less than full consideration.
(5) Additional information.
(6) Reasonable estimate.
(i) Estimate within 25 percent of actual amount.
(ii) Other estimates.
(7) Small amounts.
(8) Accrued payments and receipts.
(c) Method of reporting.
(d) Time and place for filing returns.
(e) Untimely filed return.
(f) Exceptions.
(1) No reportable transactions.
(2) Transactions solely with a domestic reporting corporation.
(3) Transactions with a corporation subject to reporting under section
6038.
(4) Transactions with a foreign sales corporation.
(g) Filing Form 5472 when transactions with related parties engaged in
by a partnership are attributed to a reporting corporation.
(h) Effective dates for certain reporting corporations.
Sec. 1.6038A-3 Record maintenance.
(a) General maintenance requirements.
(1) Section 6001 and section 6038A.
(2) Safe harbor.
(3) Examples.
(b) Other maintenance requirements.
(1) Indirectly related records.
(2) Foreign related party or third-party maintenance.
(3) Translation of records.
(4) Exception for foreign governments.
(c) Specific records to be maintained for safe harbor.
(1) In general.
(2) Descriptions of categories of documents to be maintained.
(i) Original entry books and transaction records.
(ii) Profit and loss statements.
(iii) Pricing documents.
(iv) Foreign country and third party filings.
[[Page 142]]
(v) Ownership and capital structure records.
(vi) Records of loans, services, and other non-sales transactions.
(3) Material profit and loss statements.
(4) Existing records test.
(5) Significant industry segment test.
(i) In general.
(ii) Form of the statements.
(iii) Special rule for component sales.
(iv) Level of specificity required.
(v) Examples.
(6) High profit test.
(i) In general.
(ii) Return on assets test.
(iii) Additional rules.
(7) Definitions.
(i) U.S.-connected products or services.
(ii) Industry segment.
(iii) Gross revenue of an industry segment.
(iv) Identifiable assets of an industry segment.
(v) Operating profit of an industry segment.
(vi) Product.
(vii) Related products or services.
(viii) Model.
(ix) Product line.
(8) Example.
(i) Facts.
(ii) Existing records test.
(iii) Significant industry segments.
(iv) High profit test.
(v) Material profit and loss statements.
(d) Liability for certain partnership record maintenance.
(e) Agreements with the District Director or the Assistant Commissioner
(International).
(1) In general.
(2) Content of agreement.
(i) In general.
(ii) Significant industry segment test.
(iii) Example.
(3) Circumstances of agreement.
(4) Agreement as part of APA process.
(f) U.S. maintenance.
(1) General rule.
(2) Non-U.S. maintenance requirements.
(3) Prior taxable years.
(4) Scheduled production for high volume or other reasons.
(5) Required U.S. maintenance.
(g) Period of retention.
(h) Application of record maintenance rules to banks and other financial
institutions. [Reserved]
(i) Effective dates.
Sec. 1.6038A-4 Monetary penalty.
(a) Imposition of monetary penalty.
(1) In general.
(2) Liability for certain partnership transactions.
(3) Calculation of monetary penalty.
(b) Reasonable cause.
(1) In general.
(2) Affirmative showing required.
(i) In general.
(ii) Small corporations.
(iii) Facts and circumstances taken into account.
(c) Failure to maintain records or to cause another to maintain records.
(d) Increase in penalty where failure continues after notification.
(1) In general.
(2) Additional penalty for another failure.
(3) Cessation of accrual.
(4) Continued failures.
(e) Other penalties.
(f) Examples.
Example (1)--Failure to file Form 5472.
Example (2)--Failure to maintain records.
(g) Effective dates.
Sec. 1.6038A-5 Authorization of agent.
(a) Failure to authorize.
(b) Authorization by related party.
(1) In general.
(2) Authorization for prior years.
(c) Foreign affiliated groups.
(1) In general.
(2) Application of noncompliance penalty adjustment.
(d) Legal effect of authorization of agent.
(1) Agent for purposes of commencing judicial proceedings.
(2) Foreign related party found where reporting corporation found.
(e) Successors in interest.
(f) Deemed compliance.
(1) In general.
(2) Reason to know.
(3) Effect of deemed compliance.
(g) Effective dates.
Sec. 1.6038A-6 Failure to furnish information.
(a) In general.
(b) Coordination with treaties.
(c) Enforcement proceeding not required.
(d) De minimis failure.
(e) Suspension of statute of limitations.
(f) Effective dates.
Sec. 1.6038A-7 Noncompliance.
(a) In general.
(b) Determination of the amount.
(c) Separate application.
(d) Effective dates.
[T.D. 8353, 56 FR 28060, June 19, 1991]
Sec. 1.6038A-1 General requirements and definitions.
(a) Purpose and scope. This section and Sec. Sec. 1.6038A-2 through
1.6038A-7 provide rules for certain foreign-owned U.S. corporations and
foreign corporations engaged in trade or business within the United
States (reporting corporations) relating to information that must be
furnished, records that
[[Page 143]]
must be maintained, and the authorization of the reporting corporation
to act as agent for related foreign persons for purposes of sections
7602, 7603, and 7604 that must be executed. Section 6038A(a) and this
section require that a reporting corporation furnish certain information
annually and maintain certain records relating to transactions between
the reporting corporation and certain related parties. This section also
provides definitions of terms used in section 6038A. Section 1.6038A-2
provides guidance concerning the information to be submitted and the
filing of the required return. Section 1.6038A-3 provides guidance
concerning the maintenance of records. Section 1.6038A-4 provides
guidance concerning the application of the monetary penalty for the
failure either to furnish information or to maintain records. Section
1.6038A-5 provides guidance concerning the authorization of an agent for
purposes of sections 7602, 7603, and 7604. Section 1.6038A-6 provides
guidance concerning the failure to furnish information requested by a
summons. Finally, Sec. 1.6038A-7 provides guidance concerning the
application of the noncompliance penalty for failure by the related
party to authorize an agent or by the reporting corporation to
substantially comply with a summons.
(b) In general. A reporting corporation must furnish the information
described in Sec. 1.6038A-2 by filing an annual information return
(Form 5472 or any successor), and must maintain records as described in
Sec. 1.6038A-3.
(c) Reporting corporation--(1) In general. For purposes of section
6038A, a reporting corporation is either a domestic corporation that is
25-percent foreign-owned as defined in paragraph (c)(2) of this section,
or a foreign corporation that is 25-percent foreign-owned and engaged in
trade or business within the United States. After November 4, 1990, a
foreign corporation engaged in a trade or business within the United
States at any time during a taxable year is a reporting corporation. See
section 6038C.
(2) 25-percent foreign-owned. A corporation is 25-percent foreign-
owned if it has at least one direct or indirect 25-percent foreign
shareholder at any time during the taxable year.
(3) 25-percent foreign shareholder--(i) In general. A foreign person
is a 25-percent foreign shareholder of a corporation if the person owns
at least 25 percent of--
(A) The total voting power of all classes of stock of the
corporation entitled to vote, or
(B) The total value of all classes of stock of the corporation.
(ii) Total voting power and value. In determining whether one
foreign person owns 25 percent of the total voting power of all classes
of stock of a corporation entitled to vote or 25 percent of the total
value of all classes of stock of a corporation, consideration will be
given to all the facts and circumstances of each case, under principles
similar to Sec. 1.957-1(b)(2) (consideration of arrangements to shift
formal voting power away from a foreign person).
(iii) Direct 25-percent foreign shareholder. A foreign person is a
direct 25-percent foreign shareholder if it owns directly at least 25
percent of the stock of the reporting corporation, either by vote or by
value.
(iv) Indirect 25-percent foreign shareholder. A foreign person is an
indirect 25-percent foreign shareholder if it owns indirectly (or under
the attribution rules of section 318 is considered to own indirectly) at
least 25 percent of the stock of the reporting corporation, either by
vote or by value.
(4) Application to prior open years. For taxable years beginning
before July 11, 1989, the definition of a reporting corporation under
this paragraph applies in determining whether a foreign-owned
corporation is a reporting corporation. An examination may be reopened
if the statute of limitations period for that taxable year has not
expired. A taxable year may not be reopened under section 6038A for
examination purposes if the taxable year is open under section 6511 only
for purposes of the carryback of net operating losses or net capital
losses.
(5) Exceptions--(i) Treaty country residents having no permanent
establishment. A foreign corporation that has no permanent establishment
in the United States under an applicable income tax convention is not a
reporting corporation for purposes of section 6038A and
[[Page 144]]
this section. Accordingly, such a foreign corporation is not subject to
Sec. Sec. 1.6038A-2, 1.6038A-3, and 1.6038A-5. It must timely and fully
provide the required notice to the Commissioner under section 6114. See
section 6114 and the regulations thereunder for the notice that such a
corporation must file and the applicable penalties for failure to file
such notice.
(ii) Qualified exempt shipping income. A foreign corporation whose
gross income is exempt from U.S. taxation under section 883 is not a
reporting corporation provided that it timely and fully complies with
the reporting requirements required to claim such exemption. In the
event that such a corporation does not timely and fully comply with the
reporting requirements under sections 887 and 883, it will be a
reporting corporation subject to section 6038A, including the
application of the monetary penalty for failure to file required
information.
(iii) Status as foreign related party. Nothing in this paragraph
affects the determination of whether a person is a foreign related party
as defined in paragraph (g) of this section.
(d) Related party. The term ``related party'' means--
(1) Any direct or indirect 25-percent foreign shareholder of the
reporting corporation,
(2) Any person who is related within the meaning of sections 267(b)
or 707(b)(1) to the reporting corporation or to a 25-percent foreign
shareholder of the reporting corporation, or
(3) Any other person who is related to the reporting corporation
within the meaning of section 482 and the regulations thereunder.
However, the term ``related party'' does not include any corporation
filing a consolidated federal income tax return with the reporting
corporation.
(e) Attribution rules--(1) Attribution under section 318. For
purposes of determining whether a corporation is 25-percent foreign-
owned and whether a person is a related party under section 6038A, the
constructive ownership rules of section 318 shall apply, and the
attribution rules of section 267(c) also shall apply to the extent they
attribute ownership to persons to whom section 318 does not attribute
ownership. However, ``10 percent'' shall be substituted for ``50
percent'' in section 318(a)(2)(C), and section 318(a)(3) (A), (B), and
(C) shall not be applied so as to consider a U.S. person as owning stock
that is owned by a person who is not a U.S. person. Additionally,
section 318(a)(3)(C) and Sec. 1.318-1(b) shall not be applied so as to
consider a U.S. corporation as being a reporting corporation if, but for
the application of such sections, the U.S. corporation would not be 25-
percent foreign owned.
(2) Attribution of transactions with related parties engaged in by a
partnership. The transactions in which a domestic or foreign partnership
engages shall be attributed to any reporting corporation whose interest
in the capital or profits of the partnership, either directly or
indirectly, combined with the interests of all related parties of the
reporting corporation partner, equals 25 percent or more of the total
partnership interests. Attribution of such transactions shall be made
only to the extent of the partnership interest held by that reporting
corporation partner. See sections 875 and 702(a) and the regulations
thereunder. (Attribution shall not be made however, of transactions
directly between the partnership and a reporting corporation.)
Accordingly, a reporting corporation partner that is deemed to engage in
transactions with related parties under this rule is subject to the
information reporting requirements of Sec. 1.6038A-2, to the record
maintenance requirements of Sec. 1.6038A-3, to the monetary penalty
under Sec. 1.6038A-4, to the requirement of authorization of agent
under Sec. 1.6038A-5, to the rules of Sec. 1.6038A-6 relating to the
requirement to produce records, and to the noncompliance penalty
adjustment under Sec. 1.6038A-7.
(f) Foreign person. For purposes of section 6038A, a foreign person
is--
(1) Any individual who is not a citizen or resident of the United
States, but not including any individual for whom an election under
section 6013 (g) or (h) (relating to an election to file a joint return)
is in effect;
(2) Any individual who is a citizen of any possession of the United
States and who is not otherwise a citizen or resident of the United
States;
[[Page 145]]
(3) Any partnership, association, company, or corporation that is
not created or organized in the United States or under the law of the
United States or any State thereof;
(4) Any foreign trust or foreign estate, as defined in section
7701(a)(31); or
(5) Any foreign government (or agency or instrumentality thereof).
To the extent that a foreign government is engaged in the conduct of
commercial activity as defined under section 892 and the regulations
thereunder, it will be treated as a foreign person under section 6038A
and this section only for purposes of the information reporting
requirements of Sec. 1.6038A-2. A foreign government will not be
treated as a foreign related party for purposes of Sec. Sec. 1.6038A-3
and 1.6038A-5.
For purposes of section 6038A, a possession of the United States shall
be considered to be a foreign country.
(g) Foreign related party. A foreign related party is a foreign
person as defined under paragraph (f) of this section that is also a
related party as defined under paragraph (d) of this section.
(h) Small corporation exception. A reporting corporation that has
less than $10,000,000 in U.S. gross receipts for a taxable year is not
subject to Sec. Sec. 1.6038A-3 and 1.6038A-5 for that taxable year.
Such a corporation, however, remains subject to the information
reporting requirements of Sec. 1.6038A-2 and the general record
maintenance requirements of section 6001. For purposes of this
paragraph, U.S. gross receipts includes all amounts received or accrued
to the extent that such amounts are taken into account for the
determination and computation of the gross income of the corporation.
For purposes of this test, the U.S. gross receipts of all related
reporting corporations shall be aggregated.
(i) Safe harbor for reporting corporations with related party
transactions of de minimis value--(1) In general. A reporting
corporation is not subject to Sec. Sec. 1.6038A-3 and 1.6038A-5 for any
taxable year in which the aggregate value of all gross payments it makes
to and receives from foreign related parties with respect to related
party transactions (including monetary consideration, nonmonetary
consideration, and the value of transactions involving less than full
consideration), is not more than $5,000,000 and is less than 10 percent
of its U.S. gross income. Such a corporation, however, remains subject
to the information reporting requirements of Sec. 1.6038A-2 and the
general record maintenance requirements of section 6001. For purposes of
this paragraph, U.S. gross income means the gross income reportable by
the reporting corporation (or the aggregate gross income reportable by
all related reporting corporations) for U.S. income tax purposes. Gross
payments made to or received from foreign related parties cannot be
netted; rather, the gross payments made to and received from foreign
related parties are to be aggregated. Thus, for example, if a reporting
corporation receives $4,700,000 of gross payments from a related party
and makes $500,000 of gross payments to the same related party, it has
aggregate gross payments of $5,200,000, and, therefore, does not qualify
for the safe harbor under this paragraph.
(2) Aggregate value of gross payments made or received. The
aggregate value of gross payments made to (or received from) a foreign
related party with respect to foreign related party transactions is
determined by totaling the dollar amounts of foreign related party
transactions as described in Sec. 1.6038A-2(b) (3) and (4) on all Forms
5472 filed by the reporting corporation or related reporting
corporations.
(j) Related reporting corporations. A reporting corporation is
related to another reporting corporation if it is related to that other
reporting corporation under the principles described in paragraphs (d)
and (e) of this section.
(k) Consolidated return groups--(1) Required information. If a
reporting corporation is a member of an affiliated group for which a
U.S. consolidated income tax return is filed, the return requirement of
Sec. 1.6038A-2 may be satisfied by filing a consolidated Form 5472. The
common parent, as identified on Form 851, must attach a schedule to the
consolidated Form 5472 stating which members of the U.S. affiliated
group are reporting corporations under section 6038A, and which of those
are joining in the consolidated Form 5472. The schedule must provide the
name,
[[Page 146]]
address, and taxpayer identification number of each member whose
transactions are included on the consolidated Form 5472. A member is not
required to join in filing a consolidated Form 5472 merely because other
members of the group choose to file one or more Forms 5472 on a
consolidated basis.
(2) Maintenance of records and authorization of agent. Either the
common parent or the principal operating company of an affiliated group
filing a consolidated income tax return may be authorized under Sec.
1.6038A-5 to act as the agent for foreign related persons engaged in
transactions with members of the group solely for purposes of section
7602, 7603, and 7604 under section 6038A(e)(1) and Sec. 1.6038A-5. Each
member of the group, however, must maintain the records required under
section 6038A (a) and Sec. 1.6038A-3 relating to its related party
transactions.
(3) Monetary penalties. The common parent (or principal operating
company) and all reporting corporations that join in the filing of a
consolidated Form 5472 are liable jointly and severally for penalties
for failure to file Form 5472 and for failure to mantain records under
section 6038A(d) and Sec. 1.6038A-4(e). See Sec. 1.1502-77(a)
regarding the scope of agency of the common parent corporation.
(l) District Director. For purposes of the regulations under section
6038A, the term ``District Director'' means any District Director, or
the Assistant Commissioner (International) when performing duties
similar to those of a District Director with respect to any person over
which the Assistant Commissioner (International) has appropriate
jurisdiction.
(m) Examples. The following examples illustrate the rules of this
section.
Example 1. P, a U.S. partnership that is engaged in a U.S. trade or
business, is 75 percent owned by FC1, a foreign corporation that, in
turn, is wholly owned by another foreign corporation, FC2. The remaining
25 percent of P is owned by Corp, a domestic corporation, that is wholly
owned by FC3. P engages in transactions solely with FC2 and FC3. These
transactions are attributed to FC1 and Corp. Under section 875, FC1 is
considered as being engaged in a U.S. trade or business. For purposes of
section 6038A and this section, FC1 and Corp are reporting corporations
and must report their pro rata shares of the value of the transactions
with FC2 and FC3. Thus, Corp must report 25 percent of P's transactions
with FC3 and FC1 must report 75 percent of P's transactions with FC2.
Example 2. FC2 and FC3 are both foreign corporations that are wholly
owned by FC1, also a foreign corporation. FC2 engages in a trade or
business in the United States through a branch. The branch engages in
related party transactions with FC1. FC2 is a reporting corporation. FC3
is a foreign related party. FC1 is a direct 25-percent foreign
shareholder of both FC2 and FC3. Neither FC1 nor FC3 is a reporting
corporation.
Example 3. FC1 owns 25 percent of total voting power in each of FC2
and FC3. FC2 and FC3 each own 20 percent of the total voting power of
Corp, a domestic corporation. The remaining stock of Corp is owned by an
unrelated domestic corporation. Neither FC2 nor FC3 is engaged in a U.S.
trade or business. Under section 318(a)(2)(C) and paragraph (e) of this
section, FC1 constructively owns its proportionate share of the stock of
Corp owned directly by FC2 and FC3. Thus, FCl is treated as
constructively owning five percent of Corp through each of FC2 and FC3
or a total of 10 percent of the Corp stock. Consequently, Corp is not a
reporting corporation because no 25 percent shareholder exists.
Example 4. FP owns 100 percent of FCl which, in turn, owns 100
percent of FC2. FC2 owns 100 percent of FC3 which owns 100 percent of
RC. FP, FC1, and FC2 are indirect 25-percent foreign shareholders of RC,
and FC3 is a direct 25-percent foreign shareholder.
Example 5. FP owns 100 percent of USS, a U.S. corporation, and 25
percent of FS, a foreign corporation. The remaining 75 percent of FS is
publicly owned by numerous small shareholders. Sales transactions occur
between USS and FS. Applying the rules of this section, USS is a
reporting corporation. It is determined that USS and FS are each
controlled by FP under section 482 and the regulations thereunder.
Therefore, FS is related to USS within the meaning of section 482 and is
a related party to USS. Accordingly, the sales transactions between USS
and FS are subject to section 6038A.
Example 6. The facts are the same as in Example 5, except that the
remaining 75 percent of FS is owned by one shareholder that is unrelated
to the FP group and it is determined that FS is not controlled by FP for
purposes of section 482. Under these facts, FS is not a related party of
either FP or USS. Accordingly, section 6038A does not apply to the sales
transactions between FS and USS.
Example 7. P, a U.S. multinational, is a holding company that wholly
owns X, a U.S. operating company, which in turn wholly owns FS, a
controlled foreign corporation. Applying the rule of section
318(a)(3)(C), FS
[[Page 147]]
is deemed to own the stock of X that is actually held by P. However,
under the rules of paragraph (e) of this section, X will not be a
reporting corporation by reason of section 318.
(n) Effective dates--(1) Section 1.6038A-1. Paragraphs (c) (relating
to the definition of a reporting corporation), (d) (relating to the
definition of a related party), (e)(1) (relating to the application of
section 318), and (f) (relating to the definition of a foreign person)
of this section are effective for taxable Years beginning after July 10,
1989. The remaining paragraphs of this section are effective December
10, 1990, without regard to when the taxable year began.
(2) Section 1.6038A-2. Section 1.6038A-2 (relating to the
requirement to file Form 5472) generally applies for taxable years
beginning after July 10, 1989. However, Sec. 1.6038A-2 as it applies to
reporting corporations whose sole trade or business in the United States
is a banking, financing, or similar business as defined in Sec. 1.864-
4(c)(5)(i) applies for taxable years beginning after December 10, 1990.
The final sentence of Sec. 1.6038A-2(d) applies for taxable years
ending on or after January 1, 2003. For taxable years ending prior to
January 1, 2003, see Sec. 1.6038A-2(d) in effect prior to January 1,
2003 (see 26 CFR part 1 revised as of April 1, 2002).
(3) Section 1.6038A-3. Section 1.6038A-3 (relating to the record
maintenance requirement) is generally effective December 10, 1990.
However, records described in Sec. 1.6038A-3 in existence on or after
March 20, 1990, must be maintained, without regard to when the taxable
year to which the records relate began.
(4) Section 1.6038A-4. Section 1.6038A-4 (relating to the monetary
penalty) is generally effective for taxable years beginning after July
10, 1989, for the failure to file Form 5472. For the failure to maintain
records or the failure to produce documents under Sec. 1.6038A-4(f)(2),
the section is effective December 10, 1990, without regard to when the
taxable year to which the records relate began.
(5) Section 1.6038A-5. Section 1.6038A-5 (relating to the
authorization of agent requirement) is effective December 10, 1990,
without regard to when the taxable year to which the records relate
began.
(6) Section 1.6038A-6. Section 1.6038A-6 (relating to the failure to
furnish information under a summons) is effective November 6, 1990,
without regard to when the taxable year to which the summons relates
began.
(7) Section 1.6038A-7. Section 1.6038A-7 (relating to the
noncompliance penalty adjustment) is effective December 10, 1990,
without regard to when the taxable year began.
[T.D. 8353, 56 FR 28061, June 19, 1991; T.D. 8353, 56 FR 41792, Aug. 23,
1991, as amended by T.D. 9161, 69 FR 55500, Sept. 15, 2004]
Sec. 1.6038A-2 Requirement of return.
(a) Form 5472 required--(1) In general. Each reporting corporation
as defined in Sec. 1.6038A-1(c) (or members of an affiliated group
filing together as described in Sec. 1.6038A-1(k)) shall make a
separate annual information return on Form 5472 with respect to each
related party as defined in Sec. 1.6038A-1(d) with which the reporting
corporation (or any group member joining in a consolidated Form 5472)
has had any reportable transaction during the taxable year. The
information required by section 6038A and this section must be furnished
even though it may not affect the amount of any tax due under the Code.
(2) Reportable transaction. A reportable transaction is any
transaction of the types listed in paragraphs (b) (3) and (4) of this
section. However, if neither party to the transaction is a United States
person as defined in section 7701(a)(30) and the transaction--
(i) Will not generate in any taxable year gross income from sources
within the United States or income effectively connected, or treated as
effectively connected, with the conduct of a trade or business within
the United States, and
(ii) Will not generate in any taxable year any expense, loss, or
other deduction that is allocable or apportionable to such income, the
transaction is not a reportable transaction.
(b) Contents of return--(1) Reporting corporation. Form 5472 must
provide the following information in the manner the form prescribes with
respect to each reporting corporation:
[[Page 148]]
(i) Its name, address (including mailing code), and U.S. taxpayer
identification number; each country in which the reporting corporation
files an income tax return as a resident under the tax laws of that
country; its country or countries of organization, and incorporation;
its total assets for U.S. reporting corporation; the places where it
conducts its business; and its principal business activity.
(ii) The name, address, and U.S. taxpayer identification number, if
applicable, of all its direct and indirect 25-percent foreign
shareholders (for an indirect 25-percent foreign shareholder, explain
the attribution of ownership); each country in which each 25-percent
foreign shareholder files an income tax return as a resident under the
tax laws of that country; the places where each 25-percent shareholder
conducts its business; and the country or countries of organization,
citizenship, and incorporation of each 25-percent foreign shareholder.
(iii) The number of Forms 5472 filed for the taxable year and the
aggregate value in U.S. dollars of gross payments as defined in Sec.
1.6038A-1(h)(2) made with respect to all foreign related party
transactions reported on all Forms 5472.
(2) Related party. The reporting corporation must provide
information on Form 5472, set forth in the manner the form prescribes,
about each related party, whether foreign or domestic, with which the
reporting corporation had a transaction of the types described in
paragraphs (b) (3) and (4) of this section during its taxable year,
including the following information:
(i) The name, U.S. taxpayer identification number, if applicable,
and address of the related party.
(ii) The nature of the reated party's business and the principal
place or places where it conducts its business.
(iii) Each country in which the related party files an income tax
return as a resident under the tax laws of that country.
(iv) The relationship of the reporting corporation to the related
party.
(3) Foreign related party transactions for which only monetary
consideration is paid or received by the reporting corporation. If the
related party is a foreign person, the reporting corporation must set
forth on Form 5472 the dollar amounts of all reportable transactions for
which monetary consideration (including U.S. and foreign currency) was
the sole consideration paid or received during the taxable year of the
reporting corporation. The total amount of such transactions, as well as
the separate amounts for each type of transaction described below, must
be reported on Form 5472, in the manner the form prescribes. Where
actual amounts are not determinable, a reasonable estimate (as described
in paragraph (b)(6) of this section) is permitted. The types of
transactions described in this paragraph are:
(i) Sales and purchases of stock in trade (inventory);
(ii) Sales and purchases of tangible property other than stock in
trade;
(iii) Rents and royalties paid and received (other than amounts
reported under paragraph (b)(3)(iv) of this section);
(iv) Sales, purchases, and amounts paid and received as
consideration for the use of all intangible property, including (but not
limited to) copyrights, designs, formulas, inventions, models, patents,
processes, trademarks, and other similar intangible property rights;
(v) Consideration paid and received for technical, managerial,
engineering, construction, scientific, or other services;
(vi) Commissions paid and received;
(vii) Amounts loaned and borrowed (except open accounts resulting
from sales and purchases reported under other items listed in this
paragraph (b)(3) that arise and are collected in full in the ordinary
course of business);
(viii) Interest paid and received;
(ix) Premiums paid and received for insurance and reinsurance; and
(x) Other amounts paid or received not specifically identified in
this paragraph (b)(3) to the extent that such amounts are taken into
account for the determination and computation of the taxable income of
the reporting corporation.
Amounts required to be reported under paragraph (b)(3)(vii) of this
section shall be reported as monthly averages
[[Page 149]]
or outstanding balances at the beginning and end of the taxable year, as
the form shall prescribe.
(4) Foreign related party transactions involving nonmonetary
consideration or less than full consideration. If the related party is a
foreign person, the reporting corporation must provide on Form 5472 a
description of any reportable transaction, or group of reportable
transactions, listed in paragraph (b)(3) of this section, for which any
part of the consideration paid or received was not monetary
consideration, or for which less than full consideration was paid or
received. A description required under paragraph (b)(4) of this section
shall include sufficient information from which to determine the nature
and approximate monetary value of the transaction or group of
transactions, and shall include:
(i) A description of all property (including monetary
consideration), rights, or obligations transferred from the reporting
corporation to the foreign related party and from the foreign related
party to the reporting corporation;
(ii) A description of all services performed by the reporting
corporation for the foreign related party and by the foreign related
party for the reporting corporation; and
(iii) A reasonable estimate of the fair market value of all
properties and services exchanged, if possible, or some other reasonable
indicator of value.
If, for any transaction, the entire consideration received includes both
tangible and intangible property and the consideration paid is solely
monetary consideration, the transaction should be reported under
paragraph (b)(3) of this section if the intangible property was related
and incidental to the transfer of the tangible property (for example, a
right to warranty services.)
(5) Additional information. In addition to the information required
under paragraphs (b) (3) and (4) of this section, a reporting
corporation must provide on Form 5472, in the manner the form
prescribes, the following information:
(i) If the reporting corporation imports goods from a foreign
related party, whether the costs taken into account in computing the
basis or inventory cost of such goods are greater than the costs taken
into account in computing the valuation of the goods for customs
purposes, adjusted pursuant to section 1059A and the regulations
thereunder, and if so, the reasons for the difference.
(ii) If the costs taken into account in computing the basis or
inventory cost of such goods are greater than the costs taken into
account in computing the valuation of the goods for customs purposes,
whether the documents supporting the reporting corporation's treatment
of the items set forth in paragraph (b)(5)(i) of this section are in
existence and available in the United States at the time Form 5472 is
filed.
(6) Reasonable estimate--(i) Estimate within 25 percent of actual
amount. Any amount reported under this section is considered to be a
reasonable estimate if it is at least 75 percent and not more than 125
percent of the actual amount.
(ii) Other estimates. If any amount reported under this paragraph
(b) of this section fails to meet the reasonable estimate test of
paragraph (b)(6)(i) of this section, the reporting corporation
nevertheless may show that such amount is a reasonable estimate by
making an affirmative showing of relevant facts and circumstances in a
written statement containing a declaration that it is made under the
penalties of perjury. The District Director shall determine whether the
amount reported was a reasonable estimate.
(7) Small amounts. If any actual amount required under this section
does not exceed $50,000, the amount may be reported as ``$50,000 or
less.''
(8) [Reserved]. For further guidance, see Sec. 1.6038A-2T(b)(8).
(c) Method of reporting. All statements required on or with the Form
5472 under this section and Sec. 1.6038A-5 shall be in the English
language. All amounts required to be reported under paragraph (b) of
this section shall be expressed in United States currency, with a
statement of the exchange rates used.
(d) Time and place for filing returns. A Form 5472 required under
this section shall be filed with the reporting corporation's income tax
return for the taxable year by the due date (including extensions) of
that return. A duplicate
[[Page 150]]
Form 5472 (including any attachments and schedules) shall be filed at
the same time with the Internal Revenue Service Center, Philadelphia, PA
19255. A Form 5472 that is timely filed electronically satisfies the
duplicate filing requirement.
(e) Untimely filed return. If the reporting corporation's income tax
return is untimely filed, Form 5472 (with a duplicate to Philadelphia)
nonetheless shall be timely filed at the service center where the return
is due. When the income tax return is ultimately filed, a copy of Form
5472 must be attached.
(f) Exceptions--(1) No reportable transactions. A reporting
corporation is not required to file Form 5472 if it has no transactions
of the types listed in paragraphs (b) (3) and (4) of this section during
the taxable year with any related party.
(2) Transactions solely with a domestic reporting corporation. If
all of a foreign reporting corporation's reportable transactions are
with one or more related domestic reporting corporations that are not
members of the same affiliated group, the foreign reporting corporation
shall furnish on Form 5472 only the information required under
paragraphs (b) (1) and (2) of this section, if the domestic reporting
corporations provide the information required under paragraphs (b) (3)
through (5) of this section. Such a foreign reporting corporation
nonetheless is subject to the record maintenance requirements of Sec.
1.6038A-3 and the requirements of Sec. Sec. 1.6038A-5 and 1.6038A-6.
The name, address, and taxpayer identification number of each domestic
reporting corporation that provided such information must be indicated
on Form 5472 in the space provided for the information under paragraphs
(b) (1) and (2) of this section.
(3) Transactions with a corporation subject to reporting under
section 6038. A reporting corporation is not required to make a return
of information on Form 5472 with respect to a related foreign
corporation for a taxable year for which a U.S. person that controls the
foreign related corporation makes a return of information on Form 5471
that is required under section 6038 and this section, if that return
contains information required under Sec. 1.6038-2(f)(11) with respect
to the reportable transactions between the reporting corporation and the
related corporation for that taxable year. Such a reporting corporation
also is not subject to Sec. Sec. 1.6038A-3 and 1.6038A-5. It remains
subject to the general record maintenance requirements of section 6001.
(4) Transactions with a foreign sales corporation. A reporting
corporation is not required to make a return of information on Form 5472
with respect to a related corporation that qualifies as a foreign sales
corporation for a taxable year for which the foreign sales corporation
files Form 1120-FSC.
(g) Filing Form 5472 when transactions with related parties engaged
in by a partnership are attributed to a reporting corporation. If
transactions engaged in by a partnership are attributed under Sec.
1.6038A-1(e)(2) to a reporting corporation, the reporting corporation
need report on Form 5472 only the percentage of the value of the
transaction or transactions equal to the percentage of its partnership
interest. Thus, for example, if a partnership buys $1000 of widgets from
the foreign parent of a reporting corporation whose partnership interest
in the partnership equals 50 percent of the partnership interests (and
the remaining 50 percent is held by unrelated parties), the reporting
corporation must report $500 of purchases from a foreign related party
on Form 5472.
(h) Effective dates for certain reporting corporations. For
effective dates for this section, see Sec. 1.6038A-1(n).
[T.D. 8353, 56 FR 28063, June 19, 1991, as amended by T.D. 9113, 69 FR
5932, Feb. 9, 2004; T.D. 9161, 69 FR 55500, Sept. 15, 2004; T.D. 9268,
71 FR 35526, June 21, 2006]
Editorial Note: By T.D. 9268, 71 FR 35526, June 21, 2006, Sec.
1.6038A-2T was amended. However, Sec. 1.6038A-T was removed by T.D.
9161, 69 FR 55500, Sept. 15, 2004 so this amendment could not be
incorporated.
Sec. 1.6038A-3 Record maintenance.
(a) General maintenance requirements--(1) Section 6001 and section
6038A. A reporting corporation must keep the permanent books of account
or records as required by section 6001 that are sufficient to establish
the correctness of the federal income tax return of the corporation,
including information,
[[Page 151]]
documents, or records (``records'') to the extent they may be relevant
to determine the correct U.S. tax treatment of transactions with related
parties. Under section 6001, the District Director may require any
person to make such returns, render such statements, or keep such
specific records as will enable the District Director to determine
whether or not that person is liable for any of the taxes to which the
regulations under part I have application. See section 6001 and the
regulations thereunder. Such records must be permanent, accurate, and
complete, and must clearly establish income, deductions, and credits.
Additionally, in appropriate cases, such records include sufficient
relevant cost data from which a profit and loss statement may be
prepared for products or services transferred between a reporting
corporation and its foreign related parties. This requirement includes
records of the reporting corporation itself, as well as to records of
any foreign related party that may be relevant to determine the correct
U.S. tax treatment of transactions between the reporting corporation and
foreign related parties. The relevance of such records with respect to
related party transactions shall be determined upon the basis of all the
facts and circumstances. Section 6038A and this section provide detailed
guidance regarding the required maintenance of records with respect to
such transactions and specify penalties for noncompliance. Banks and
other financial institutions shall follow the specific record
maintenance rules described in paragraph (h) of this section.
(2) Safe harbor. A safe harbor for record maintenance is provided
under paragraph (c) of this section, which sets forth detailed guidance
concerning the types of records to be maintained with respect to related
party transactions. The safe harbor consists of an all-inclusive list of
record types that could be relevant to different taxpayers under a
variety of facts and circumstances. It does not constitute a checklist
of records that every reporting corporation must maintain or that
generally should be requested by the Service. A specific reporting
corporation is required to maintain, and the Service will request, only
those records enumerated in the safe harbor (including material profit
and loss statements) that may be relevant to its business or industry
and to the correct U.S. tax treatment of its transactions with its
foreign related parties. Accordingly, not every item listed in the safe
harbor must be maintained by every reporting corporation. A corporation
that maintains or causes another person to maintain the records listed
in paragraph (c)(2) of this section that may be relevant to its foreign
related party transactions and to its business or industry will be
deemed to have met the record maintenance requirements of section 6038A.
(3) Examples. The following examples illustrate the rules of this
paragraph.
Example 1. RC, a U.S. reporting corporation, is owned by two
shareholders, F and P. F is a foreign corporation that owns 30 percent
of the stock of RC. P is a domestic corporation that owns the remaining
70 percent. RC purchases tangible property from F; however, the only
potential audit issue with respect to these transactions is their
treatment under section 482. It is determined that F does not in fact
control RC and the two corporations do not constitute a group of
``controlled taxpayers'' for purposes of section 482 and the regulations
thereunder. There are no other reportable transactions between RC and F.
Under Sec. 1.6038A-1(g), F is a foreign related party with respect to
RC. Accordingly, RC is required to report its purchases of property from
F under the reporting requirements of Sec. 1.6038A-2. Nevertheless,
because section 482 is not applicable to the transactions between RC and
F, the records created by F with respect to its sales to RC are not
relevant for purposes of determining the correct tax treatment of these
transactions. RC is required to maintain its own records of these
transactions under the requirements of section 6001, but the
transactions are not subject to the record maintenance requirements of
this section. If, however, on audit it is determined that F does control
RC, all records relevant to determining the arm's length consideration
for the tangible property under section 482 will be subject to these
requirements.
Example 2. FP, a foreign person, owns 30 percent of the stock of RC,
a reporting corporation. The remaining 70 percent of RC stock is held by
persons that are not 25-percent foreign shareholders. It is determined
that FP is related to RC within the meaning of section 482 and the
regulations thereunder. The only transactions between FP and RC are FP's
capital contributions, dividends paid from RC to FP, and loans from FP
to RC. Under section 6001, RC is required
[[Page 152]]
to maintain all documentation necessary to establish the U.S. tax
treatment of the capital contributions, dividends, and loans. RC is not
required to maintain records in other categories listed in paragraph
(c)(3) of this section because they are not relevant to the transactions
between FP and RC. Records of FP not related to these transactions are
not subject to the record maintenance requirements under section
6038A(a) and this section.
Example 3. G, a foreign multinational group, creates Sub, a wholly-
owned U.S. subsidiary, in order to purchase tangible property from
unrelated parties in the United States and resell such property to G.
The property purchased by Sub is either used in G's business or resold
to other unrelated parties by G. Sub's sole function is to act as a
buyer for G and these purchases are the only transactions that G has
with any U.S. affiliates. Under all the facts and circumstances of this
case, it is determined that an analysis of the group's worldwide profit
attributable to the property it purchases from Sub is not relevant for
purposes of determining the tax treatment of the sales from Sub to G.
Therefore, the records with respect to the profitability of G are not
subject to the record maintenance requirements of this section. However,
all records related to the appropriate method under section 482 for
determining an arm's-length consideration for the property sold by Sub
to G are subject to the record maintenance requirements of this section.
Example 4. [Reserved] For further guidance, see Sec. 1.6038A-3T,
Example 4.
(b) Other maintenance requirements--(1) Indirectly related records.
This section applies to records that are directly or indirectly related
to transactions between the reporting corporation and any foreign
related parties. An example of records that are indirectly related to
such transactions is records possessed by a foreign subsidiary of a
foreign related party that document the raw material or component costs
of a product that is manufactured or assembled by the subsdiary and sold
as a finished product by the foreign related party to the reporting
corporation.
(2) Foreign related party or third-party maintenance. If records
that are required to be maintained under this section are in the control
of a foreign related party, the records may be obtained or compiled (if
not already in the possession of the foreign related party or already
compiled) under the direction of the reporting corporation and then
maintained by the reporting corporation, the foreign related party, or a
third party. Thus, for example, a foreign related party may either
itself maintain such records outside the United States or permit a third
party to maintain such records outside the United States, provided that
the conditions described in paragraph (f) of this section are met. Upon
a request for such records by the Service, a foreign related party or
third party may make arrangements with the District Director to furnish
the records directly, rather than through the reporting corporation.
(3) Translation of records. When records are provided to the Service
under a request for production, any portion of such records must be
translated into the English language within 30 days of a request for
translation of that portion by the District Director. To the extent that
any requested documents are identical to documents that have already
been translated, an explanation of how such documents are identical
instead may be provided. An extension of this time period may be
requested under paragraph (f)(4) of this section. Appropriate extensions
will be liberally granted for translation requests where circumstances
warrant. If a good faith effort is made to translate accurately the
requested documents within the specified time period, the reporting
corporation will not be subject to the penalties in Sec. Sec. 1.6038A-4
and 1.6038A-7.
(4) Exception for foreign governments. A foreign government is not
subject to the obligation to maintain records under this section.
(5) Records relating to conduit financing arrangements. See Sec.
1.881-4 relating to conduit financing arrangements.
(c) Specific records to be maintained for safe harbor--(1) In
general. A reporting corporation that maintains or causes another person
to maintain the records specified in this paragraph (c) that are
relevant to its business or industry and to the correct U.S. tax
treatment of its transactions with its foreign related parties will
deemed to have met the record maintenance requirements of this section.
This paragraph provides general descriptions of the categories
[[Page 153]]
of records to be maintained; the particular title or label applied by a
reporting corporation or related party does not control. Functional
equivalents of the specified documents are acceptable. Record
maintenance in accordance with this safe harbor, however, requires only
the maintenance of types of documents described in paragraph (c)(2) of
this section that are directly or indirectly related to transactions
between the reporting corporation and any foreign related party.
Additionally, to the extent the reporting corporation establishes that
records in a particular category are not applicable to the industry or
business of the reporting corporation and any foreign related party,
maintenance of such records is not required under this paragraph. Record
maintenance in accordance with this paragraph (c) generally does not
require the original creation of records that are ordinarily not created
by the reporting corporation or its related parties. (If, however, a
document that is actually created is described in this paragraph (c), it
is to be maintained even if the document is not of the type ordinarily
created by the reporting corporation or its related parties.) There are
two exceptions to the rule. First, basic accounting records that are
sufficient to document the U.S. tax effects of transactions between
related parties must be created and retained, if they do not otherwise
exist. Second, records sufficient to produce material profit and loss
statements as described in paragraphs (c)(2)(ii) and (3) of this section
that are relevant for determining the U.S. tax treatment of transactions
between the reporting corporation and foreign related parties must be
created if such records are not ordinarily maintained. All internal
records storage and retrieval systems used for each taxable year must be
retained.
(2) Descriptions of categories of documents to be maintained. The
following records must be maintained in order to satisfy this paragraph
(c) to the extent they may be relevant to determine the correct U.S. tax
treatment of transactions between the reporting corporation and any
foreign related party.
(i) Original entry books and transaction records. This category
includes books and records of original entry or their functional
equivalents, however designated or labelled, that are relevant to
transactions between any foreign related party and the reporting
corporation. Examples include, but are not limited to, general ledgers,
sales journals, purchase order books, cash receipts books, cash
disbursement books, canceled checks and bank statements, workpapers,
sales contracts, and purchase invoices. Descriptive material to
explicate entries in the foregoing types of records, such as a chart of
accounts or an accounting policy manual, is included in this category.
(ii) Profit and loss statements. This category includes records from
which the reporting corporation can compile and supply, within a
reasonable time, material profit and loss statements of the reporting
corporation and all related parties as defined in Sec. 1.6038A-1 (d)
(the ``related party group'') that reflect profit or loss of the related
party group attributable to U.S.-connected products or services as
defined in paragraph (c)(7)(i) of this section. The determination of
whether a profit and loss statement is material is made under the rules
provided in paragraph (c)(3) of this section. The material profit and
loss statements described in this paragraph (c)(2)(ii) must reflect the
consolidated revenue and expenses of all members of the related party
group. Thus, records in this category include the documentation of the
cost of raw materials used by a related party to manufacture finished
goods that are then sold by another related party to the reporting
corporation. The records should be kept under U.S. generally accepted
accounting principles if they are ordinarily maintained in such manner;
if not, an explanation of the material differences between the
accounting principles used and U.S. generally accepted accounting
principles must be made available. The statements need not reflect
tracing of the actual costs borne by the group with respect to its U.S.-
connected products or services; rather, any reasonable method may be
used to allocate the group's worldwide costs to the revenues generated
by the sales of those products or services. An explanation of the
methods used to allocate specific items to a particular
[[Page 154]]
profit and loss statement must be made available. The explanation of
material differences between accounting principles and the explanation
of allocation methods must be sufficient to permit a comparison of the
profitability of the group to that of the reporting corporation
attributable to the provision of U.S.-connected products or services.
(iii) Pricing documents. This category includes all documents
relevant to establishing the appropriate price or rate for transactions
between the reporting corporation and any foreign related party.
Examples include, but are not limited to, documents related to
transactions involving the same or similar products or services entered
into by the reporting corporation or a foreign related party with
related and unrelated parties; shipping and export documents; commission
agreements; documents relating to production or assembly facilities;
third-party and intercompany purchase invoices; manuals, specifications,
and similar documents relating to or describing the performance of
functions conducted at particular locations; intercompany correspondence
discussing any instructions or assistance relating to such transactions
provided to the reporting corporations by the related foreign person (or
vice versa); intercompany and intracompany correspondence concerning the
price or the negotiation of the price used in such transactions;
documents related to the value and ownership of intangibles used or
developed by the reporting corporation or the foreign related party;
documents related to cost of goods sold and other expenses; and
documents related to direct and indirect selling, and general and
administrative expenses (for example, relating to advertising, sales
promotions, or warranties).
(iv) Foreign country and third party filings. This category includes
financial and other documents relevant to transactions between a
reporting corporation and any foreign related party filed with or
prepared for any foreign government entity, any independent commission,
or any financial institution.
(v) Ownership and capital structure records. This category includes
records or charts showing the relationship between the reporting
corporation and the foreign related party; the location, ownership, and
status (for example, joint venture, partnership, branch, or division) of
all entities and offices directly or indirectly involved in the
transactions between the reporting corporation and any foreign related
party; a worldwide organization chart; records showing the management
structure of all foreign affiliates; and loan documents, agreements, and
other documents relating to any transfer of the stock of the reporting
corporation that results in the change of the status of a foreign person
as a foreign related party.
(vi) Records of loans, services, and other non-sales transactions.
This category includes relevant documents relating to loans (including
all deposits by one foreign related party or reporting corporation with
an unrelated party and a subsequent loan by that unrelated party to a
foreign related party or reporting corporation that is in substance a
direct loan between a reporting corporation and a foreign related
party); guarantees of a foreign related party of debts of the reporting
corporation, and vice versa; hedging arrangements or other risk shifting
or currency risk shifting arrangements involving the reporting
corporation and any foreign related party; security agreements between
the reporting corporation and any foreign related party; research and
development expense allocations between any foreign related party and
the reporting corporation; service transactions between any foreign
related party and the reporting corporation, including, for example, a
description of the allocation of charges for management services, time
or travel records, or allocation studies; import and export transactions
between a reporting corporation and any foreign related party; the
registration of patents and copyrights with respect to transactions
between the reporting corporation and any foreign related party: and
documents regarding lawsuits in foreign countries that relate to such
transactions between a reporting corporation and any foreign related
party (for example, product liability suits for U.S. products).
[[Page 155]]
(vii) Records relating to conduit financing arrangements. See Sec.
1.881-4 relating to conduit financing arrangements.
(3) Material profit and loss statements. For purposes of paragraph
(c)(2)(ii) of this section, the determination of whether a profit and
loss statement is material will be made according to the following
rules. An agreement between the reporting corporation and the District
Director as described in paragraph (e) of this section may identify
material profit and loss statements of the related party group and
describe the items to be included in any profit and loss statements for
which records are to be maintained to satisfy the requirements of
paragraph (c)(2)(ii) of this section. In the absence of such an
agreement, a profit and loss statement will be material if it meets any
of the following tests: the existing records test described in paragraph
(c)(4) of this section, the significant industry segment test described
in paragraph (c)(5) of this section, or the high profit test described
in paragraph (c)(6) of this section.
(4) Existing records test. A profit and loss statement is material
under the existing records test described in this paragraph (c)(4) if
any member of the related party group creates or compiles such statement
in the course of its business operations and the statement reflects the
profit or loss of the related party group attributable to the provision
of U.S.-connected products or services (regardless of whether the profit
and loss attributable to U.S.-connected products or services is shown
separately or included within the calculation of aggregate figures on
the statement). For example, a profit and loss statement is described in
this paragraph if it was produced for internal accounting or management
purposes, or for disclosure to shareholders, financial institutions,
government agencies, or any other persons. Such existing statements and
the records from which they were complied (to the extent such records
relate to profit and loss attributable to U.S.-connected products or
services) are subject to the record maintenance requirements described
in paragraph (c)(2)(ii) of this section.
(5) Significant industry segment test--(i) In general. A profit and
loss statement is material under the significant industry segment test
described in this paragraph (c)(5) if--
(A) The statement reflects the profit or loss of the related party
group attributable to the group's provision of U.S.-connected products
or services within a single industry segment (as defined in paragraph
(c)(7)(ii) of this section);
(B) The worldwide gross revenue attributable to such industry
segment is 10 percent or more of the worldwide gross revenue
attributable to the group's combined industry segments; and
(C) The amount of gross revenue earned by the group from the
provision of U.S.-connected products or services within such industry
segment is $25 million or more in the taxable year.
(ii) Form of the statements. Profit and loss statements compiled for
the group's provision of U.S.-connected products or services in each
significant industry segment must reflect revenues and expenses
attributable to the operations in such segment by all members of the
related party group. Statements may show each related party's revenues
and expenses separately, or may be prepared in a consolidated format.
Any reasonable method may be used to allocate the group's worldwide
costs within the industry segment to the U.S.-connected products or
services within that segment. An explanation of the methods used to
prepare consolidated statements and to allocate specific items to a
particular profit and loss statement must be made available, and the
records from which the consolidations and allocations were prepared must
be maintained.
(iii) Special rule for component sales. Where the U.S.-connected
products or services consist of components that are incorporated into
other products or services before sale to customers, the portion of the
total gross revenue derived from sales of the finished products or
services attributable to the components may be determined on the basis
of relative costs of production. Thus, where relevant for determining
whether the $25 million threshold in paragraph (c)(5)(i)(C) of this
section
[[Page 156]]
has been met, the amount of gross revenue derived by the related party
group from the provision of the finished products or services may be
reduced by multiplying it by a fraction, the numerator of which is the
costs of production of the related party group attributable to the
component products or services that constitute U.S.-connected products
or services and the denominator of which is the costs of production of
the related party group attributable to the finished products in which
such components are incorporated.
(iv) Level of specificity required. In applying the significant
industry segment test of this paragraph (c)(5), groups of related
products and services must be chosen to provide a reasonable level of
specificity that results in the greatest number of separate significant
industry segments in comparison to other possible classifications. This
determination must be made on the basis of the particular facts
presented by the operations of the related party group. The following
rules, however, provide general guidelines for making such
classifications. First, the related party group's operations that
involve the provision of U.S.-connected products should be grouped into
product lines. The rules of this paragraph (c)(5) should then be applied
to determine if any such product line would, standing alone, constitute
a significant industry segment when compared to the related party
group's operations as a whole. Any significant industry segments
determined at the level of product lines should be further segregated,
and tested for significant industry segments, at the level of separate
products. Finally, any significant industry segments determined at the
level of separate products should be segregated, and tested for
significant industry segments, at the level of separate models. Similar
principles should be applied in classifying and testing types of
services. A profit and loss statement reflecting the related party
group's provision of any product or service (or group of products or
services as classified under these rules) that constitutes a significant
industry segment will be considered material for purposes of this
paragraph (c)(5). For definitions of the terms ``product'', ``related
products or services'', ``model'', and ''product line'', see paragraph
(c)(7) of this section.
(v) Examples. The rules for determining reasonable levels of
specificity for significant industry segments may be illustrated by the
following examples.
Example 1. A related party group is engaged in the manufacture and
worldwide sales of automobiles and aftermarket parts. The group's
operations within the categories of ``automobiles'' and ``aftermarket
parts''. are each sufficient to constitute significant industry segments
for the group under the rules of this paragraph (c)(5). No narrower
classification of aftermarket parts results in any significant industry
segments. Automobiles produced by the group are generally classified for
marketing purposes by trade names; aggregating groups of automobiles by
these trade names results in three significant industry segments, those
for trade names A, B, and C. Finally, two car models sold under the
trade name A (``A1'' and ``A2'') and one car model sold under the trade
name B (``B3''), produce sufficient revenue to constitute significant
industry segments. Such classifications into trade names and car models
are generally used in the related party group's industry; moreover,
different types of classifications would produce fewer significant
industry segments. Accordingly, a reasonable level of specificity for
this related party group's industry segments would be eight categories
of products consisting of ``automobiles'', ``aftermarket parts'', ``A'',
``B'', ``C'', ``A1'', ``A2'', and ``B3''.
Example 2. A related party group is engaged in manufacturing
electronic goods that are distributed at retail in the United States by
the reporting corporation. The group sells three types of products in
the United States: televisions, radios, and video cassette recorders
(VCRs). Each of these three broad product areas constitutes a
significant industry segment for the group as a whole. VCRs can be
further segregated by price into high-end and low-end models, and the
provision of each constitutes a significant industry segment for the
group. Revenues from only one VCR model, model number VCRX-10, are
sufficiently large to make the provision of that model a significant
industry segment. With respect to televisions, the group normally
accounts for these products by size. Using this classification, portable
televisions, medium-sized televisions, and consoles each constitute
significant industry segments. Narrower classifications by television
model numbers result in no additional significant industry segments.
Finally, a single radio product line, those sold under the trade name R,
produces sufficient revenue to
[[Page 157]]
constitute a significant industry segment, but no other radio models or
product groups are large enough to constitute a significant industry
segment. In each case, these classifications conform to normal business
practices in the industry and result in the greatest possible number of
significant industry segments for this related party group. Accordingly,
a reasonable level of specificity for this related party group's
industry segments would include the ten categories consisting of
``VCRs'', ``high-end VCRs'', ``low-end VCRs'', ``model number VCRX-10'',
``televisions'', ``portable televisions'', ``medium-sized televisions'',
``console televisions'', ``radios'', and ``radio trade name R''.
(6) High profit test--(i) In general. A profit and loss statement is
material under the high profit test described in this paragraph (c)(6)
if--
(A) The statement reflects the profit or loss of the related party
group attributable to the group's provision of U.S.-connected products
or services within a single industry segment (as defined in paragraph
(c)(7)(ii) of this section);
(B) The amount of gross revenue earned by the group from the
provision of U.S.-connected products or services within such industry
segment is $100 million or more in the taxable year; and
(C) The return on assets test described in paragraph (c)(6)(ii) of
this section is satisfied with respect to the products and services
attributable to such segment.
Accordingly, a significant industry segment (as determined under
paragraph (c)(5) of this section) must be divided into any narrower
industry segments that meet the high profit test of this paragraph
(c)(6), even if such narrower segments would not, standing alone, meet
the significant industry segment test of paragraph (c)(5) of this
section.
(ii) Return on assets test. An industry segment meets the return on
assets test if the rate of return on assets earned by the related party
group on its worldwide operations within this industry segment exceeds
15 percent, and is at least 200 percent of the return on assets earned
by the group in all industry segments combined. For purposes of this
paragraph, the rate of return on assets earned by an industry segment is
determined by dividing that segment's operating profit (as defined in
paragraph (c)(7)(v) of this section) by its identifiable assets (as
defined in paragraph (c)(7)(iv) of this section).
(iii) Additional rules. The rules in paragraphs (c)(5)(ii) through
(iv) of this section describing the application of the significant
industry segment test shall apply in a similar manner for purposes of
the high profit test.
(7) Definitions. The following definitions apply for purposes of
paragraphs (c)(2)(ii), (c)(5), and (c)(6) of this section.
(i) U.S.-connected products or services. The term U.S.-connected
products or services means products or services that are imported to or
exported from the United States by transfers between the reporting
corporation and any of its foreign related parties.
(ii) Industry segment. An industry segment is a segment of the
related party group's combined operations that is engaged in providing a
product or service or a group of related products or services (as
defined in paragraph (c)(7)(vii) of this section) primarily to customers
that are not members of the related party group.
(iii) Gross revenue of an industry segment. Gross revenue of an
industry segment includes receipts (prior to reduction for cost of goods
sold) both from sales to customers outside of the related party group
and from sales or transfers to other industry segments within the
related party group (but does not include sales or transfers between
members of the related party group within the same industry segment).
Interest from sources outside the related party group and interest
earned on trade receivables between industry segments is included in
gross revenue if the asset on which the interest is earned is included
among the industry segment's identifiable assets, but interest earned on
advances or loans to other industry segments is not included.
(iv) Identifiable assets of an industry segment. The identifiable
assets of an industry segment are those tangible and intangible assets
of the related party group that are used by the industry segment,
including assets that are used exclusively by that industry segment and
an allocated portion of assets
[[Page 158]]
used jointly by two or more industry segments. The value of an
identifiable asset may be determined using any reasonable method (such
as book value or fair market value) applied consistently. Any allocation
of assets among industry segments must be made on a reasonable basis,
and a description of such basis must be provided. Assets of an industry
segment that transfers products or services to another industry segment
shall not be allocated to the receiving segment. Assets that represent
part of the related party group's investment in an industry segment,
such as goodwill, shall be included in the industry segment's
identifiable assets. Assets maintained for general corporate purposes
(that is, those not used in the operations of any industry segment)
shall not be allocated to industry segments.
(v) Operating profit of an industry segment. The operating profit of
an industry segment is its gross revenue (as defined in paragraph
(c)(7)(iii) of this section) minus all operating expenses. None of the
following shall be added or deducted in computing the operating profit
of an industry segment: revenue earned at the corporate level and not
derived from the operations of any industry segment; general corporate
expenses; interest expense; domestic and foreign income taxes; and other
extraordinary items not reflecting the ongoing business operations of
the industry segment.
(vi) Product. The term product means an item of property (or
combination of component parts) that is the result of a production
process, is primarily sold to unrelated parties (or incorporated by the
related party group into other products sold to unrelated parties), and
performs a specific function.
(vii) Related products or services. The term related products or
services means groupings of products and types of services that reflect
reasonable accounting, marketing, or other business practices within the
industries in which the related party group operates.
(viii) Model. The term model means a classification of products that
incorporate particular components, options, styles, and any other unique
features resulting in product differentiation. Examples of models are
electronic products that are sold or accounted for under a single model
number and automobiles sold under a single model name.
(ix) Product line. The term product line means a group of products
that are aggregated into a single classification for accounting,
marketing, or other business purposes. Examples of product lines are
groups of products that perform similar functions; products that are
marketed under the same trade names, brand names, or trademarks; and
products that are related economically (that is, having similar rates of
profitability, similar degrees of risk, and similar opportunities for
growth).
(8) Example. The application of the rules for determining material
profit and loss statements under paragraphs (c)(4) through (7) of this
section is illustrated by the following example.
Example. (i) Facts. A multinational enterprise manufactures 50
different agricultural and chemical products that are sold through Subl,
its wholly owned U.S. subsidiary, and other subsidiaries located in
foreign countries. The parent company of the enterprise, P, is a foreign
corporation. The corporations participating in the enterprise form a
related party group, and Subl is a reporting corporation for purposes of
section 6038A. Under the facts and circumstances of this case, an
analysis of the group's worldwide profit attributable to its products
sold in the U.S. is relevant for determining an arm's length
consideration under section 482 for the transfers of goods between Subl
and its foreign affiliates.
(ii) Existing records test. For management purposes, the group
prepares profit and loss statements that are segmented by sales in
different geographic markets. One of these statements shows the combined
worldwide profitability of the group. Another statement shows the
profitability of the group attributable to its North American sales.
Both of these profit and loss statements reflect aggregate figures that
include sales to unrelated parties of products that have been
transferred from P and other group members to Subl (that is, the group's
``U.S.-connected products''). The two statements meet the existing
records test described in paragraph (c)(4) of this section.
(iii) Significant industry segments. The group's worldwide gross
revenue in all industry segments is $2 billion. An analysis of the
group's 50 products demonstrates that they are reasonably grouped into
eight industry segments (each of which earns roughly $250 million in
worldwide gross revenue). Segments 1 through 6 relate to agricultural
[[Page 159]]
products and Segments 7 and 8 relate to other chemical products. More
specific categories would result in groupings that generate less than 10
percent of the group's worldwide gross revenue (that is, less than $200
million each); these narrower categories would thus fail the gross
revenue percentage test of paragraph (c)(5)(i)(B) of this section. The
gross revenue in each of the eight segments from the sale to unrelated
parties of U.S.-connected products is as follows: $180 million for
Segment 1; $30 million for Segment 2; and less than $25 million for each
of Segments 3 through 8. Under the $25 million threshold test of
paragraph (c)(5)(i)(C) of this section, the group's significant industry
segments are thus limited to Segments 1 and 2. In addition, the combined
operations of the group related to agricultural products (encompassing
Segments 1 through 6 on an aggregated basis), constitute a single
significant industry segment.
(iv) High profit test. One highly profitable product line within
Segment 1, HPPL, accounts for $120 million gross revenue from Sub1's
domestic sales of U.S.-connected products (and thus exceeds the $100
million gross revenue threshold in paragraph (c)(6)(i)(B) of this
section). The return on the identifiable assets attributable to the HPPL
product line is 85 percent, which is more than 15 percent and more than
twice the return on assets earned by the group from its worldwide
operations in its combined industry segments. The group's industry
segment for HPPL thus meets the high profit test described in paragraph
(c)(6) of this section.
(v) Material Profit and Loss Statements. The group's material profit
and loss statements consist of statements for combined worldwide sales
and North American sales (under the existing records test); Segment 1,
Segment 2, and aggregated Segments 1-6 (under the significant industry
segment test); and HPPL (under the high profit test). Under paragraph
(c) of this section, Subl is required to retain the combined worldwide
sales and North American sales profit and loss statements and to
maintain sufficient records so that it can compile and supply upon
request statements of the group's profitability from sales of its U.S.-
connected products within Segment l, Segment 2, aggregated Segments 1-6,
and HPPL. These records need not be in the possession of Subl and may be
kept under the control of and produced by P or any third party. The
statements for Segment l, Segment 2, aggregated Segments 1-6, and HPPL
do not require tracing of actual costs to the U.S.-connected products;
rather, these statements may be prepared by using any reasonable method
to allocate a portion of the industry segment's overall operating costs
to the sales of U.S.-connected products within that segment.
(d) Liability for certain partnership record maintenance. A
reporting corporation to which transactions engaged in by a partnership
are attributed under Sec. 1.6038A-1 (e)(2) is subject to the record
maintenance requirements of this section to the extent of the
transactions so attributed.
(e) Agreements with the District Director--(1) In general. The
District Director who has audit jurisdiction over the reporting
corporation may negotiate and enter into an agreement with a reporting
corporation that establishes the records the reporting corporation must
maintain or cause another to maintain, how the records must be
maintained, the period of retention for the records, and by whom the
records must be maintained in order to satisfy the reporting
corporation's obligations under this section.
(2) Content of agreement--(i) In general. The agreement may include
provisions relating to the authorization of agent requirement, the
record maintenance requirement, and the production and translation time
periods that vary the rules contained in these regulations under section
6038A. The District Director will generally require a reporting
corporation to maintain only those records specified under the safe
harbor provisions of paragraph (c) of this section that permit an
adequate audit of the income tax return of the reporting corporation and
to provide such authorizations of agent that permit adequate access to
such records. In most instances, required record maintenance for a
particular reporting corporation under a negotiated agreement will be
less than the broad range of records described under the safe harbor
provisions. Additionally, a provision specifying the effective date and
the expiration date of the agreement that may vary the effective date of
the regulations may be included.
(ii) Significant industry segment test. A District Director may
determine which industry segment profit and loss statements are material
for purposes of requiring the maintenance of records (under either
paragraph (a)(1) of this section or the safe harbor described in
paragraph (a)(2) of this section). The industry segments that the
District Director determines are material need
[[Page 160]]
not be the industry segments that meet the significant industry segment
test under paragraph (c)(5) of this section or the high profit test
under paragraph (c)(6) of this section. For this purpose, a reporting
corporation will be required to maintain only those records from which
profit and loss statements for the related party group may be
constructed with respect to industry segments identified by the District
Director. To the extent that existing profit and loss statements are
similar in scope and level of detail to statements for industry segments
that would otherwise be described under the tests of paragraphs (c)(5)
and (6) of this section, the District Director shall accept the existing
statements instead of the statements that would otherwise be required
under paragraphs (c)(5) and (6) of this section.
(iii) Example. The following example illustrates the rules of
paragraph (e)(2)(ii) of this section.
Example. The District Director determines that RC, a reporting
corporation that is a manufacturer of related chemical products, has two
industry segments, Segment 1 and Segment 2. While both industry segments
meet the significant industry segment test of paragraph (c)(5) of this
section, Segment 1 has a relatively low volume of sales to foreign
related parties. Additionally, Segment 1 consists of products that
produce only a small profit margin because the product is generic and
other companies also sell the product. The District Director enters into
an agreement with RC that requires only records from which a profit and
loss statement for the related party group can be constructed for
Segment 2. Therefore, RC is not required to maintain records for Segment
1 from which a profit and loss statement for the related party group can
be constructed. The other record maintenance requirements under this
section apply, however.
(3) Circumstances of agreement. The District Director generally will
enter into an agreement under this paragraph (e) upon request by the
reporting corporation when the District Director believes that the
District has or can obtain sufficient knowledge of the business or
industry of the reporting corporation to limit the record maintenance
requirement to particular documents.
(4) Agreement as part of APA process. An agreement with a reporting
corporation under this paragraph (e) may be entered into as a part of
the Advance Pricing Agreement (APA) process at any time during the APA
process, insofar as the agreement relates to the subject matter of the
APA.
(f) U.S. maintenance--(1) General rule. Records that must be
maintained under this section must be maintained within the United
States, unless the conditions described in paragraph (f)(2) of this
section are met.
(2) Non-U.S. maintenance requirements. A reporting corporation may
maintain outside the United States records not ordinarily maintained in
the United States but required to be maintained in the United States
under this section. However, the reporting corporation must either:
(i) Deliver to the Service the original documents (or duplicates)
requested within 60 days of the request by the Service for such records
and provide translations of such documents within 30 days of a request
for translations of specific documents; or
(ii) Move the original documents (or duplicates) requested to the
United States within 60 days of the request of the Service for such
records; provide the Service with an index to the requested records, the
name and address of a custodian located within the United States having
control over the records, and the address where the records are located
within 60 days of the Service's request for the records; and continue to
maintain the records within the United States throughout the period of
retention described in paragraph (g) of this section. For summons
procedures with respect to records that have been moved to the United
States, see sections 6038A(e), 7602, 7603, and 7604.
With respect to any material profit and loss statements required to be
created (either under paragraph (c) of this section or under an
agreement with the District Director), unless otherwise specified, ``120
days'' shall be substituted for ``60 days'' in this paragraph (f)(2),
and labels and text with respect to such statements must be in the
English language.
(3) Prior taxable years. The non-U.S. maintenance requirements
described in paragraph (f)(2) of this section apply to records located
outside the United
[[Page 161]]
States that were in existence on or after March 20, 1990, without regard
to the taxable year to which such records relate.
(4) Scheduled production for high volume or other reasons. Upon a
written request, for good cause shown, the District Director may grant
an extension of the time for the production or translation of the
requested documents. Such requests should be made within 30 days of the
request for records by the Service. If an extension is needed because of
the volume of records requested or the amount of translation requested,
the District Director may allow production or translation to be
scheduled over a period of time so that not all records need be produced
or translated at the same time.
(5) Required U.S. maintenance. The District Director (with the
concurrence of the Assistant Commissioner (International)), may require,
for cause, the maintenance within the United States of any records
specified in paragraph (f)(1) of this section. Such a requirement will
be imposed only if there exists a clear pattern of failure to maintain
or timely produce the required records. The assessment of a monetary
penalty under section 6038A(d) and Sec. 1.6038A-4 for failure to
maintain records is not necessarily sufficient to require the
maintenance of records within the United States.
(g) Period of retention. Records required to be maintained by
section 6038A(a) and this section shall be kept as long as they may be
relevant or material to determining the correct tax treatment of any
transaction between the reporting corporation and a related party, but
in no case less than the applicable statute of limitations on assessment
and collection with respect to the taxable year in which the transaction
or item to which the records relate affects the U.S. tax liability of
the reporting corporation. See section 6001 and the regulations
thereunder.
(h) Application of record maintenance rules to banks and other
financial institutions. [Reserved]
(i) Effective dates. For effective dates for this section, see Sec.
1.6038A-1(n).
[T.D. 8353, 56 FR 28065, June 19, 1991; T.D. 8353, 56 FR 41792, Aug. 23,
1991, as amended by T.D. 8611, 60 FR 41015, Aug. 11, 1995; T.D. 9278, 71
FR 44518, Aug. 4, 2006]
Sec. 1.6038A-3T Record maintenance (temporary).
(a)(1) through (3) Examples 1 through 3 [Reserved] For further
guidance, see Sec. 1.6038A-3(a)(1) through (3) Examples 1 through 3.
Example 4. S, a U.S. reporting corporation, provides computer
consulting services for its foreign parent, X. Based on the application
of section 482 and the regulations, it is determined that the cost of
services plus method, as described in Sec. 1.482-9T(e), will provide
the most reliable measure of an arm's length result, based on the facts
and circumstances of the controlled transaction between S and X. S is
required to maintain records to permit verification upon audit of the
comparable transactional costs (as described in Sec. 1.482-
9T(e)(2)(iii)) used to calculate the arm's length price. Based on the
facts and circumstances, if it is determined that X's records are
relevant to determine the correct U.S. tax treatment of the controlled
transaction between S and X, the record maintenance requirements under
section 6038A(a) and this section will be applicable to the records of
X.
(b)(1) through (h) [Reserved] For further guidance, see Sec.
1.6038A-3T(b)(1) through (h).
(i) Effective date--(1) In general. This provision is generally
applicable for taxable years beginning after December 31, 2006.
(2) Election to apply regulation to earlier taxable years. A person
may elect to apply the provisions of this section to earlier taxable
years in accordance with the rules set forth in Sec. 1.482-9T(n)(2).
(3) Expiration date. The applicability of this section expires on or
before July 31, 2009.
[T.D. 9278, 71 FR 44518, Aug. 4, 2006]
Sec. 1.6038A-4 Monetary penalty.
(a) Imposition of monetary penalty--(1) In general. If a reporting
corporation fails to furnish the information described in Sec. 1.6038A-
2 within the time and manner prescribed in Sec. 1.6038A-2 (d) and (e),
fails to maintain or cause another to maintain records as required
[[Page 162]]
by Sec. 1.6038A-3, or (in the case of records maintained outside the
United States) fails to meet the non-U.S. record maintenance
requirements within the applicable time prescribed in Sec. 1.6038A-
3(f), a penalty of $10,000 shall be assessed for each taxable year with
respect to which such failure occurs. Such a penalty may be imposed by
the District Director or the Director of the Internal Revenue Service
Center where the Form 5472 is filed. The filing of a substantially
incomplete Form 5472 constitutes a failure to file Form 5472. Where,
however, the information described in Sec. 1.6038A-2 (b)(3) through (5)
is not required to be reported, a Form 5472 filed without such
information is not a substantially incomplete Form 5472.
(2) Liability for certain partnership transactions. A reporting
corporation to which transactions engaged in by a partnership are
attributed under Sec. 1.6038A-1(e)(2) is subject to the rules of this
section to the extent failures occur with respect to the partnership
transactions so attributed.
(3) Calculation of monetary penalty. If a reporting corporation
fails to maintain records as required by Sec. 1.6038A-3 of transactions
with multiple related parties, the monetary penalty may be assessed for
each failure to maintain records with respect to each related party. The
monetary penalty, however, shall be imposed on a reporting corporation
only once for a taxable year with respect to each related party for a
failure to furnish the information required on Form 5472, for a failure
to maintain or cause another to maintain records, or for a failure to
comply with the non-U.S. maintenance requirements described in Sec.
1.6038A-3(f). An additional penalty for another failure may be imposed,
however, under the rules of paragraph (d)(2) of this section. Thus,
unless such failures continue after notification as described in
paragraph (d) of this section, the maximum penalty under this paragraph
with respect to each related party for all such failures in a taxable
year is $10,000. The members of a group of corporations filing a
consolidated return are jointly and severally liable for any monetary
penalty that may be imposed under this section.
(b) Reasonable cause--(1) In general. Certain failures may be
excused for reasonable cause, including not timely filing Form 5472, not
maintaining or causing another to maintain records as required by Sec.
1.6038A-3, and not complying with the non-U.S. maintenance requirements
described in Sec. 1.6038A-3(f). If an affirmative showing is made that
the taxpayer acted in good faith and there is reasonable cause for a
failure that results in the assessment of the monetary penalty, the
period during which reasonable cause exists shall be treated as
beginning on the day reasonable cause is established and ending not
earlier than the last day on which reasonable cause existed for any such
failure. Additionally, the beginning of the 90-day period after mailing
of a notice by the District Director or the Director of an Internal
Revenue Service Center of a failure described in paragraph (d) of this
section shall be treated as not earlier than the last day on which
reasonable cause existed.
(2) Affirmative showing required--(i) In general. To show that
reasonable cause exists for purposes of paragraph (b)(1) of this
section, the reporting corporation must make an affirmative showing of
all the facts alleged as reasonable cause for the failure in a written
statement containing a declaration that it is made under penalties of
perjury. The statement must be filed with the District Director (in the
case of failure to maintain or furnish requested information permitted
to be maintained outside the United States within the time required
under Sec. 1.6038A-3(f) or a failure to file Form 5472) or the Director
of the Internal Revenue Service Center where the Form 5472 is required
to be filed (in the case of failure to file Form 5472). The District
Director or the Director of the Internal Revenue Service Center where
the Form 5472 is required to be filed, as appropriate, shall determine
whether the failure was due to reasonable cause, and if so, the period
of time for which reasonable cause existed. If a return has been filed
as required by Sec. 1.6038A-2 or records have been maintained as
required by Sec. 1.6038A-3, except for an omission of, or error with
respect to, some of the information required or a record to be
maintained,
[[Page 163]]
the omission or error shall not constitute a failure for purposes of
section 6038A(d) if the reporting corporation that filed the return
establishes to the satisfaction of the District Director or the Director
of the Internal Revenue Service Center that it has substantially
complied with the filing of Form 5472 or the requirement to maintain
records.
(ii) Small corporations. The District Director shall apply the
reasonable cause exception liberally in the case of a small corporation
that had no knowledge of the requirements imposed by section 6038A; has
limited presence in and contact with the United States; and promptly and
fully complies with all requests by the District Director to file Form
5472, and to furnish books, records, or other materials relevant to the
reportable transaction. A small corporation is a corporation whose gross
receipts for a taxable year are $20,000,000 or less.
(iii) Facts and circumstances taken into account. The determination
of whether a taxpayer acted with reasonable cause and in good faith is
made on a case-by-case basis, taking into account all pertinent facts
and circumstances. Circumstances that may indicate reasonable cause and
good faith include an honest misunderstanding of fact or law that is
reasonable in light of the experience and knowledge of the taxpayer.
Isolated computational or transcriptional errors generally are not
inconsistent with reasonable cause and good faith. Reliance upon an
information return or on the advice of a professional (such as an
attorney or accountant) does not necessarily demonstrate reasonable
cause and good faith. Similarly, reasonable cause and good faith is not
necessarily indicated by reliance on facts that, unknown to the
taxpayer, are incorrect. Reliance on an information return, professional
advice or other facts, however, constitutes reasonable cause and good
faith if, under all the circumstances, the reliance was reasonable. A
taxpayer, for example, may have reasonable cause for not filing a Form
5472 or for not maintaining records under section 6038A if the taxpayer
has a reasonable belief that it is not owned by a 25-percent foreign
shareholder. A reasonable belief means that the taxpayer does not know
or has no reason to know that it is owned by a 25-percent foreign
shareholder. For example, a reporting corporation would not know or have
reason to know that it is owned by a 25-percent foreign shareholder if
its belief that it is not so owned is consistent with other information
reported or otherwise furnished to or known by the reporting
corporation. A taxpayer may have reasonable cause for not treating a
foreign corporation as a related party for purposes of section 6038A
where the foreign corporation is a related party solely by reason of
Sec. 1.6038A-1(d)(3) (under the principles of section 482), and the
taxpayer had a reasonable belief that its relationship with the foreign
corporation did not meet the standards for related parties under section
482.
(c) Failure to maintain records or to cause another to maintain
records. A failure to maintain records or to cause another to maintain
records is determined by the District Director upon the basis of the
reporting corporation's overall compliance (including compliance with
the non-U.S. maintenance requirements under Sec. 1.6038A-3(f)(2)) with
the record maintenance requirements. It is not an item-by-item
determination. Thus, for example, a failure to maintain a single or
small number of items may not constitute a failure for purposes of
section 6038A(d), unless the item or items are essential to the correct
determination of transactions between the reporting corporation and any
foreign related parties. The District Director shall notify the
reporting corporation in writing of any determination that it has failed
to comply with the record maintenance requirement.
(d) Increase in penalty where failure continues after notification--
(1) In general. If any failure described in this section continues for
more than 90 days after the day on which the District Director or the
Director of the Internal Revenue Service Center where the Form 5472 is
required to be filed mails notice of the failure to the reporting
corporation, the reporting corporation shall pay a penalty (in addition
to the penalty described in paragraph (a) of this section) of $10,000
with respect to
[[Page 164]]
each related party for which a failure occurs for each 30-day period
during which the failure continues after the expiration of the 90-day
period. Any uncompleted fraction of a 30-day period shall count as a 30-
day period for purposes of this paragraph (d).
(2) Additional penalty for another failure. An additional penalty
for a taxable year may be imposed, however, if at a time subsequent to
the time of the imposition of the monetary penalty described in
paragraph (a) of this section, a second failure is determined and the
second failure continues after notification under paragraph (d)(1) of
this section. Thus, if a taxpayer fails to file Form 5472 and is
assessed a monetary penalty and later, upon audit, is determined to have
failed to maintain records, an additional penalty for the failure to
maintain records may be assessed under the rules of this paragraph if
the failure to maintain records continues after notification under this
paragraph.
(3) Cessation of accrual. The monetary penalty will cease to accrue
if the reporting corporation either files Form 5472 (in the case of a
failure to file Form 5472), furnishes information to substantially
complete Form 5472, or demonstrates compliance with respect to the
maintenance of records (in the case of a failure to maintain records)
for the taxable year in which the examination occurs and subsequent
years to the satisfaction of the District Director. The monetary penalty
also will cease to accrue if requested information, documents, or
records, kept outside the United States under the requirements of Sec.
1.6038A-3(f) and not produced within the time specified are produced or
moved to the United States under the rules of paragraph (f)(2)(ii) of
this section.
(4) Continued failures. If a failure under this section relating to
a taxable year beginning before July 11, 1989 occurs, and if the failure
continues following 90 days after the notice of failure under this
paragraph is sent, the amount of the additional penalty to be assessed
under this paragraph is $10,000 for each 30-day period beginning after
November 5, 1990, during which the failure continues. There is no
limitation on the amount of the monetary penalty that may be assessed
after November 5, 1990.
(e) Other penalties. For criminal penalties for failure to file a
return and filing a false or fraudulent return, see sections 7203 and
7206 of the Code. For the penalty relating to an underpayment of tax,
see section 6662.
(f) Examples. The following examples illustrate the rules of this
section.
Example 1 Failure to file Form 5472. Corp X, a U.S. reporting
corporation, engages in related party transactions with FC. Corp X does
not timely file a Form 5472 or maintain records relating to the
transactions with FC for Year 1 or subsequent years. The Service Center
with which Corp X files its income tax return imposes a $10,000 penalty
for each of Years 1, 2, and 3 under section 6038A (d) and this section
for failure to provide information as required on Form 5472 and mails a
notice of failure to provide inrormation. Corp X does not file Form
5472. Ninety days following the mailing of the notice of failure to Corp
X an additional penaly of $10,000 is imposed. On the 135th day following
the mailing of the notice of failure, Corp X files Form 5472 for Years
1, 2, and 3. The total penalty owed by Corp X for Year 1 is $30,000.
($10,000 for not timely filing Form 5472, $10,000 for the first 30-day
period following the expiration of the 90-day period, and $10,000 for
the fraction of the second 30-day period). The penalty for Years 2 and 3
for the failure to file Form 5472 is also $30,000 for each year,
calculated in the same manner as for Year 1. The total penalty for
failure to file Form 5472 for Years 1, 2, and 3 is $90,000.
Example 2 Failure to maintain records. Assume the same facts as in
Example 1. In Year 5, Corp X is audited for Years 1 through 3. Corp X
has not been maintaining records relating to the transactions with FC.
The District Director issues a notice of failure to maintain records.
Corp X has already been subject to the monetary penalty of $10,000 for
each of Years 1, 2, and 3 for failure to file Form 5472 and, therefore,
a monetary penalty under paragraph (a) of this section for failure to
maintain records is not assessed. However, an additional penalty is
assessed after the 90th day following the mailing of the notice of
failure to maintain records. Corp X develops a record maintenance system
as required by section 6038A and Sec. 1.6038A-3. On the 180th day
following the mailing of the notice of failure to maintain records, Corp
X demonstrates to the satisfaction of the District Director that the
newly developed record maintenance system will comply with the
requirements of Sec. 1.6038A-3 and the increase in the monetary penalty
after notification ceases to accrue. The additional penalty for failure
to maintain records is $30,000. An additional penalty of
[[Page 165]]
$30,000 per year is assessed for each of years 2 and 3 for the failure
to maintain records for a total of $90,000.
(g) Effective dates. For effective dates for this section, see Sec.
1.6038A-1(n).
[T.D. 8353, 56 FR 28072, June 19, 1991]
Sec. 1.6038A-5 Authorization of agent.
(a) Failure to authorize. The rules of Sec. 1.6038A-7 shall apply
to any transaction between a foreign related party and a reporting
corporation (including any transaction engaged in by a partnership that
is attributed to the reporting corporation under Sec. 1.6038A-1(e)(2)),
unless the foreign related party authorizes (in the manner described in
paragraph (b) of this section) the reporting corporation to act as its
limited agent solely for purposes of sections 7602, 7603, and 7604 with
respect to any request by the Service to examine records or produce
testimony that may be relevant to the tax treatment of such a
transaction or with respect to any summons by the Service for such
records or testimony. The fact that a reporting corporation is
authorized to act as an agent for a foreign related party is to be
disregarded for purposes of determining whether the foreign related
party either has a trade or business in the United States for purposes
of the Code or a permanent establishment or fixed base in the United
States for purposes of an income tax treaty.
(b) Authorization by related party--(1) In general. Upon request by
the Service, a foreign related party shall authorize as its agent
(solely for purposes of sections 7602, 7603, and 7604) the reporting
corporation with which it engages in transactions. The authorization
must be signed by the foreign related party or an officer of the foreign
related party possessing the authority to authorize an agent for
purposes of Rule 4 of the Federal Rules of Civil Procedure. The
reporting corporation will accept this appointment by providing a
statement to that effect, signed by an officer of the reporting
corporation possessing the authority to accept such an appointment. The
agency shall be effective at all times. For taxable years beginning
after July 10, 1989, the authorization and acceptance must be provided
to the Service within 30 days of a request by the Service to the
reporting corporation for such an authorization. The authorization must
contain a heading and statement as set forth below. A foreign government
is not subject to the authorization of agent requirement.
AUTHORIZATION OF AGENT
``[Name of foreign related party] hereby expressly authorizes [name
of reporting corporation] to act as its agent solely for purposes of
sections 7602, 7603, and 7604 of the Internal Revenue Code with respect
to any request to examine records or produce testimony that may be
relevant to the U.S. income tax treatment of any transaction between
[name of the above-named foreign related party] and [name of reporting
corporation] or with respect to any summons for such records or
testimony.
________________________________________________________________________
Signature of or for [name of foreign related party]
________________________________________________________________________
(Title)
________________________________________________________________________
(Date)
(If signed by a corporate officer, partner, or fiduciary on behalf
of a foreign related party: I certify that I have the authority to
execute this authorization of agent to act on behalf of [name of foreign
related party]).
________________________________________________________________________
Type or print your name below if signing for a foreign related party
that is not an individual.
________________________________________________________________________
[Name of reporting corporation] accepts this appointment to act as
agent for [name of foreign related party] for the above purpose.
________________________________________________________________________
Signature for (Name of Reporting Corporation]
________________________________________________________________________
(Title)
________________________________________________________________________
(Date)
I certify that I have the authority to accept this appointment to
act as agent on behalf of (name of foreign related party] and agree to
accept service of process for the above purposes.
Type or print your name below.
________________________________________________________________________
(2) Authorization for prior years. A foreign related party shall
authorize a reporting corporation to act as its agent with respect to
taxable years for which a Form 5472 is required to be filed prior to the
date on which the final regulations under section 6038A are published by
providing the above executed authorization of agent within 30 days of a
[[Page 166]]
request by the Service for such an authorization.
(c) Foreign affiliated groups--(1) In general. A foreign corporation
that has effective legal authority to make the authorization of agent
under paragraph (b) of this section on behalf of any group of foreign
related parties may execute such an authorization for any members of the
group. A single authorization may be made on a consolidated basis. In
such a case, the common parent must attach a schedule to the
authorization of agent stating which members of the group would
otherwise be required to separately authorize the reporting corporation
as agent. The schedule must provide the name, address, relationship to
the reporting corporation, and U.S. taxpayer identification number, if
applicable, of each member.
(2) Application of noncompliance penalty adjustment. In
circumstances where a consolidated authorization of agent has been
executed, if the agency authorization for any member of the group is not
legally effective for purposes of sections 7602, 7603, and 7604, the
noncompliance penalty adjustment under section 6038A(e) and Sec.
1.6038A-7 shall apply.
(d) Legal effect of authorization of agent. The legal consequences
of a foreign related party authorizing a reporting corporation to act as
its agent for purposes of sections 7602, 7603, and 7604 of the Code are
as follows.
(1) Agent for purposes of commencing judicial proceedings. A
reporting corporation that is authorized by a foreign related party to
act as its agent for purposes of sections 7602, 7603, and 7604
(including service of process) is also the agent of the foreign related
party for purposes of--
(i) The filing of a petition to quash under section 6038A(e)(4)(A)
or a petition to review an Internal Revenue Service determination of
noncompliance under section 6038A(e)(4)(B), and
(ii) The commencement of a judicial proceeding to enforce a summons
under section 7604, whether commenced in conjunction with a petition to
quash under section 6038A(e)(4)(A) or commenced as a separate proceeding
in the federal district court for the district in which the person to
whom the summons is issued resides or is found.
(2) Foreign related party found where reporting corporation found.
For any purposes relating to sections 7602, 7603, or 7604 (including
service of process), a foreign related party that authorizes a reporting
corporation to act on its behalf under section 6038A(e)(1) and this
section may be found anywhere where the reporting corporation has
residence or is found.
(e) Successors in interest. A successor in interest to a related
party must execute the authorization of agent as described in paragraph
(b) of this section.
(f) Deemed compliance--(1) In general. In exceptional circumstances,
the District Director may treat a reporting corporation as authorized to
act as agent for a related party for purposes of sections 7602, 7603,
and 7604 in the absence of an actual agency appointment by the foreign
related party, in circumstances where the actual absence of an
appointment is reasonable. Factors to be considered include--
(i) If neither the reporting corporation nor the other party to the
transaction knew or had reason to know that the two parties were related
at the time of the transaction, and
(ii) The extent to which the taxpayer establishes to the
satisfaction of the District Director that all transactions between the
reporting corporation and the related party were on arm's length terms
and did not involve the participation of any known related party.
(2) Reason to know. Whether the reporting corporation or other party
had reason to know that the two parties were related at the time of the
transaction will be determined by all the facts and circumstances.
(3) Effect of deemed compliance. If a reporting corporation is
deemed under this paragraph (f) to have been authorized to act as an
agent for a foreign related party for purposes of sections 7602, 7603,
and 7604, such deemed compliance is applicable only for that particular
transaction and other reportable transactions entered into prior to the
time when the reporting corporation knew or had reason to know that the
related party, in fact, was related. The noncompliance rule of Sec.
1.6038A-7
[[Page 167]]
shall apply to any transaction subsequent to that time with the same
related party, unless the related party actually authorizes the
reporting corporation to act as its agent under paragraph (a) of this
section. In addition, the record maintenance requirements of Sec.
1.6038A-3 will apply to all subsequent transactions and, with respect to
prior transactions, will apply to relevant records in existence at the
time the relationship was discovered.
(g) Effective dates. For effective dates for this section, see Sec.
1.6038A-1(n).
[T.D. 8353, 56 FR 28073, June 19, 1991; T.D. 8353, 56 FR 41792, Aug. 23,
1991]
Sec. 1.6038A-6 Failure to furnish information.
(a) In general. The rules of Sec. 1.6038A-7 may be applied with
respect to a transaction between a foreign related party and the
reporting corporation (including any transaction engaged in by a
partnership that is attributed to the reporting corporation under Sec.
1.6038A-1(e)(2)) if a summons is issued to the reporting corporation to
produce any records or testimony, either directly or as agent for such
related party, to determine the correct treatment under title 1 of the
Code of such a transaction between the reporting corporation and the
related party; and if--
(1)(i) The summons is not quashed in a proceeding, if any, begun
under section 6038A(e)(4) and is not determined to be invalid in a
proceeding, if any, begun under section 7604 to enforce such summons;
and
(ii) The reporting corporation does not substantially and timely
comply with the summons, and the District Director has sent by certified
or registered mail a notice under section 6038A(e)(2)(C) to the
reporting corporation that it has not so complied; or
(2) The reporting corporation fails to maintain or to cause another
to maintain records as required by Sec. 1.6038A-3, and by reason of
that failure, the summons is quashed in a proceeding under section
6038A(e)(4) or in a proceeding begun under section 7604 to enforce the
summons, or the reporting corporation is not able to provide the records
requested in the summons.
(b) Coordination with treaties. Where records of a related party are
obtainable on a timely and efficient basis under information exchange
procedures provided under a tax treaty or tax information exchange
agreement (TIEA), the Service generally will make use of such procedures
before issuing a summons. The absence or pendency of a treaty or TIEA
request may not be asserted as grounds for refusing to comply with a
summons or as a defense against the assertion of the noncompliance
penalty adjustment under Sec. 1.6038A-7. For purposes of this
paragraph, information is available on a timely and efficient basis if
it can be obtained within 180 days of the request.
(c) Enforcement proceeding not required. The District Director is
not required to begin an enforcement proceeding to enforce the summons
in order to apply the rules of Sec. 1.6038A-7.
(d) De minimis failure. Where a reporting corporation's failure to
comply with the requirement to furnish information under this section is
de minimis, the District Director, in the exercise of discretion, may
choose not to apply the noncompliance penalty. Thus, for example, in
cases where a particular document or group of documents is not furnished
upon request or summons, the District Director (in the District
Director's sole discretion), may choose not to apply the noncompliance
penalty if the District Director deems the document or documents not to
have significant or sufficient value in the determination of the
correctness of the tax treatment of the related party transaction.
(e) Suspension of statute of limitations. If the reporting
corporation brings an action under section 6038A(e)(4)(A) (proceeding to
quash) or (e)(4)(B) (review of secretarial determination of
noncompliance), the running of any period of limitation under section
6501 (relating to assessment and collection of tax) or under section
6531 (relating to criminal prosecutions) for the taxable year or years
to which the summons that is the subject of such proceeding relates
shall be suspended for the period during which such proceeding, and
appeals therein, are pending. In no event shall any such period expire
before the 90th day after the day on which there is a final
determination in such proceeding.
[[Page 168]]
(f) Effective dates. For effective dates for this section, see Sec.
1.6038A-1(n).
[T.D. 8353, 56 FR 28075, June 19, 1991]
Sec. 1.6038A-7 Noncompliance.
(a) In general. In the case of any failure described in Sec.
1.6038A-5 or Sec. 1.6038A-6, the rules of this Sec. 1.6038A-7 apply to
the reporting corporation. In such a case--
(1) The amount of the deduction allowed under subtitle A for any
amount paid or incurred by the reporting corporation to the related
party in connection with such transaction, and
(2) The cost to the reporting corporation of any property acquired
in such transaction from the related party or transferred by such
corporation in such transaction to the related party, may be determined
by the District Director.
(b) Determination of the amount. The amount of the deduction or the
cost to the reporting corporation shall be the amount determined by the
District Director (in the District Director's sole discretion) from the
District Director's own knowledge or from such information as the
District Director may choose to obtain through testimony or otherwise.
The District Director shall consider any information or materials that
have been submitted by the reporting corporation or a foreign related
party. The District Director, however, may disregard any information,
documents, or records submitted by the reporting corporation or the
related party if (in the District Director's sole discretion) the
District Director deems that they are insufficiently probative of the
relevant facts.
(c) Separate application. If the noncompliance penalty of this
section applies with respect to transactions with a related party of the
reporting corporation, it will not be applied with respect to any other
related parties of the reporting corporation solely upon the basis of
that failure. Thus, for example, if a reporting corporation engages in
transactions with related party A and related party B, and the reporting
corporation does not respond to a summons for records related to the
transactions between the reporting corporation and related party A, the
noncompliance penalty imposed as a result of such failure will not apply
to the transactions between the reporting corporation and related party
B. If a separate summons is issued for records relating to the
transactions between the reporting corporation and related party B and
the reporting corporation does not produce such records, the
noncompliance penalty may be applied to those transactions.
(d) Effective dates. For effective dates for this section, see Sec.
1.6038A-1(n).
[T.D. 8353, 56 FR 28075, June 19, 1991]
Sec. 1.6038B-1 Reporting of certain transfers to foreign corporations.
(a) Purpose and scope. This section sets forth information reporting
requirements under section 6038B concerning certain transfers of
property to foreign corporations. Paragraph (b) of this section provides
general rules explaining when and how to carry out the reporting
required under section 6038B with respect to the transfers to foreign
corporations. Paragraph (c) of this section and Sec. 1.6038B-1T(d)
specify the information that is required to be reported with respect to
certain transfers of property that are described in section
6038B(a)(1)(A) and 367(d), respectively. Section 1.6038B-1(e) describes
the filing requirements for property transfers described in section
367(e). Paragraph (f) of this section sets forth the consequences of a
failure to comply with the requirements of section 6038B and this
section. For effective dates, see paragraph (g) of this section. For
rules regarding transfers to foreign partnerships, see section
6038B(a)(1)(B) and any regulations thereunder.
(b) Time and manner of reporting--(1) In general--(i) Reporting
procedure. Except for stock or securities qualifying under the special
reporting rule of Sec. 1.6038B-1(b)(2), and certain exchanges described
in section 354 or 356 (listed below), any U.S. person that makes a
transfer described in section 6038B(a)(1)(A), 367(d) or (e), is required
to report pursuant to section 6038B and the rules of Sec. 1.6038B-1 and
must attach the required information to Form 926, ``Return by a U.S.
Transferor of Property to a Foreign Corporation.'' For special rules
regarding cash transfers made in tax years beginning after February 5,
1999, see paragraphs (b)(3) and
[[Page 169]]
(g) of this section. For purposes of determining a U.S. transferor that
is subject to section 6038B, the rules of Sec. Sec. 1.367(a)-1T(c) and
1.367(a)-3(d) shall apply with respect to a transfer described in
section 367(a), and the rules of Sec. 1.367(a)-1T(c) shall apply with
respect to a transfer described in section 367(d). Additionally, if in
an exchange described in section 354 or 356, a U.S. person exchanges
stock or securities of a foreign corporation in a reorganization
described in section 368(a)(1)(E), or a U.S. person exchanges stock or
securities of a domestic or foreign corporation pursuant to an asset
reorganization described in section 368(a)(1) (involving a transfer of
assets under section 361) that is not treated as an indirect stock
transfer under Sec. 1.367(a)-3(d), then the U.S. person exchanging
stock or securities is not required to report under section 6038B.
Notwithstanding any statement to the contrary on Form 926, the form and
attachments must be attached to, and filed by the due date (including
extensions) of the transferor's income tax return for the taxable year
that includes the date of the transfer (as defined in Sec. 1.6038B-
1T(b)(4)). For taxable years beginning before January 1, 2003, any
attachment to Form 926 required under the rules of this section is filed
subject to the transferor's declaration under penalties of perjury on
Form 926 that the information submitted is true, correct and complete to
the best of the transferor's knowledge and belief. For taxable years
beginning after December 31, 2002, Form 926 and any attachments shall be
verified by signing the income tax return with which the form and
attachments are filed.
(ii) Reporting by corporate transferor. For transfers by
corporations in taxable years beginning before January 1, 2003, Form 926
must be signed by an authorized officer of the corporation if the
transferor is not a member of an affiliated group under section
1504(a)(1) that files a consolidated Federal income tax return and by an
authorized officer of the common parent corporation if the transferor is
a member of such an affiliated group. For transfers by corporations in
taxable years beginning after December 31, 2002, Form 926 shall be
verified by signing the income tax return to which the form is attached.
(iii) Transfers of jointly-owned property. If two or more persons
transfer jointly-owned property to a foreign corporation in a transfer
with respect to which a notice is required under this section, then each
person must report with respect to the particular interest transferred,
specifying the nature and extent of the interest. However, a husband and
wife who jointly file a single Federal income tax return may file a
single Form 926 with their tax return.
(2) Exceptions and special rules for transfers of stock or
securities under section 367(a)--(i) Transfers on or after July 20,
1998. A U.S. person that transfers stock or securities on or after July
20, 1998 in a transaction described in section 6038B(a)(1)(A) will be
considered to have satisfied the reporting requirement under section
6038B and paragraph (b)(1) of this section if either--
(A) The U.S. transferor owned less than 5 percent of both the total
voting power and the total value of the transferee foreign corporation
immediately after the transfer (taking into account the attribution
rules of section 318 as modified by section 958(b)), and either:
(1) The U.S. transferor qualified for nonrecognition treatment with
respect to the transfer (i.e., the transfer was not taxable under
Sec. Sec. 1.367(a)-3(b) or (c)); or
(2) The U.S. transferor is a tax-exempt entity and the income was
not unrelated business income; or
(3) The transfer was taxable to the U.S. transferor under Sec.
1.367(a)-3(c), and such person properly reported the income from the
transfer on its timely-filed (including extensions) Federal income tax
return for the taxable year that includes the date of the transfer; or
(4) The transfer is considered to be to a foreign corporation solely
by reason of Sec. 1.83-6(d)(1) and the fair market value of the
property transferred did not exceed $100,000; or
(B) The U.S. transferor owned 5 percent or more of the total voting
power or the total value of the transferee foreign corporation
immediately after the transfer (taking into account the attribution
rules of section 318 as modified by section 958(b)) and either:
[[Page 170]]
(1) The transferor (or one or more successors) properly entered into
a gain recognition agreement under Sec. 1.367(a)-8; or
(2) The transferor is a tax-exempt entity and the income was not
unrelated business income; or
(3) The transferor properly reported the income from the transfer on
its timely-filed (including extensions) Federal income tax return for
the taxable year that includes the date of the transfer; or
(4) The transfer is considered to be to a foreign corporation solely
by reason of Sec. 1.83-6(d)(1) and the fair market value of the
property transferred did not exceed $100,000.
(ii) Transfers before July 20, 1998. With respect to transfers
occurring after December 16, 1987, and prior to July 20, 1998, a U.S.
transferor that transferred U.S. or foreign stock or securities in a
transfer described in section 367(a) is not subject to section 6038B if
such person is described in paragraph (b)(2)(i)(A) of this section.
(3) Special rule for transfers of cash. A U.S. person that transfers
cash to a foreign corporation in a transfer described in section
6038B(a)(1)(A) must report the transfer if--
(i) Immediately after the transfer such person holds directly,
indirectly, or by attribution (determined under the rules of section
318(a), as modified by section 6038(e)(2)) at least 10 percent of the
total voting power or the total value of the foreign corporation; or
(ii) The amount of cash transferred by such person or any related
person (determined under section 267(b)(1) through (3) and (10) through
(12)) to such foreign corporation during the 12-month period ending on
the date of the transfer exceeds $100,000.
(4) [Reserved]. For further guidance, see Sec. 1.6038B-1T(b)(4).
(c) Information required with respect to transfers described in
section 6038B(a)(1)(A). A United States person that transfers property
to a foreign corporation in an exchange described in section
6038B(a)(1)(A) (including cash transferred in taxable years beginning
after February 5, 1999, and other unappreciated property) must provide
the following information, in paragraphs labeled to correspond with the
number or letter set forth in this paragraph (c) and Sec. 1.6038B-
1T(c)(1) through (5). If a particular item is not applicable to the
subject transfer, the taxpayer must list its heading and state that it
is not applicable. For special rules applicable to transfers of stock or
securities, see paragraph (b)(2)(ii) of this section.
(1) through (5) [Reserved]. For further guidance, see Sec. 1.6038B-
1T(c)(1) through (5).
(6) Application of section 367(a)(5). If the asset is transferred in
an exchange described in section 361(a) or (b), a statement that the
conditions set forth in the second sentence of section 367(a)(5) and any
regulations under that section have been satisfied, and an explanation
of any basis or other adjustments made pursuant to section 367(a)(5) and
any regulations thereunder.
(d) [Reserved]. For further guidance, see Sec. 1.6038B-1T(d).
(e) Transfers subject to section 367(e)--(1) In general. If a
domestic corporation (distributing corporation) makes a distribution
described in section 367(e)(1) or section 367(e)(2), the distributing
corporation must comply with the reporting requirements of this
paragraph (e). Unless otherwise provided in this section, a distributing
corporation making a distribution described in sections 367(e)(1) or
367(e)(2) must file a Form 926, ``Return by a U.S. Transferor of
Property to a Foreign Corporation (under section 367),'' as amended and
modified by this section.
(2) Reporting requirements for section 367(e)(1) distributions of
domestic controlled corporations. A domestic distributing corporation
making a distribution of the stock or securities of a domestic
corporation under section 355 is not required to file a Form 926, as
described in paragraph (e)(1) of this section, and shall have no other
reporting requirements under section 6038B.
(3) Reporting requirements for section 367(e)(1) distributions of
foreign controlled corporations. If the distributing corporation makes a
section 355 distribution of the stock or securities of a foreign
controlled corporation to distributee shareholders who are not qualified
U.S. persons, as defined in Sec. 1.367(e)-1(b)(1), then the
distributing
[[Page 171]]
corporation shall complete Part 1 of the Form 926 and attach a signed
copy of such form to its U.S. income tax return for the year of the
distribution. The distributing corporation shall also attach to its U.S.
income tax return for the year of distribution a statement signed under
the penalties of perjury entitled, ``Addendum to Form 926.'' The
addendum shall contain a brief description of the transaction, state the
number of shares distributed to distributees who are not qualified U.S.
persons (applying the rules contained in Sec. 1.367(e)-1(d)), and state
the basis and fair market value of the distributed stock or securities
(including a list stating the amounts that were distributed to
distributees who were not qualified U.S. persons and distributees who
were qualified U.S. persons).
(4) Reporting rules for section 367(e)(2) distributions by domestic
liquidating corporations. If the distributing corporation makes a
distribution of property in complete liquidation under section 332 to a
foreign distributee corporation that meets the stock ownership
requirements of section 332(b) with respect to the stock of the
distributing corporation, then the distributing corporation shall
complete a Form 926 and attach a signed copy of such form to its U.S.
income tax return for the year of the distribution. The property
description contained in Part III of the Form 926 shall contain a
description of all property distributed by the liquidating corporation
(regardless of whether the property qualifies for nonrecognition). The
description shall also identify the property excepted from gain
recognition under Sec. 1.367(e)-2(b)(2)(ii) and (iii). If the
distributing corporation distributes property that will be used by the
foreign distributee corporation in a U.S. trade or business and the
distributing corporation does not recognize gain on such distribution
under Sec. 1.367(e)-2(b)(2)(i), then the distributing corporation may
satisfy the requirements of this section by completing Part 1 of the
Form 926, noting thereon that the information required by the Form 926
is contained in the statement required by Sec. 1.367(e)-
2(b)(2)(i)(C)(2), and attaching a signed copy of the Form 926 to its
U.S. income tax return for the year of the distribution.
(f) Failure to comply with reporting requirements--(1) Consequences
of failure. If a U.S. person is required to file a notice (or otherwise
comply) under paragraph (b) of this section and fails to comply with the
applicable requirements of section 6038B and this section, then with
respect to the particular property as to which there was a failure to
comply--
(i) That property shall not be considered to have been transferred
for use in the active conduct of a trade or business outside of the
United States for purposes of section 367(a) and the regulations
thereunder;
(ii) The U.S. person shall pay a penalty under section 6038B(b)(1)
equal to 10 percent of the fair market value of the transferred property
at the time of the exchange, but in no event shall the penalty exceed
$100,000 unless the failure with respect to such exchange was due to
intentional disregard (described under paragraph (g)(4) of this
section); and
(iii) The period of limitations on assessment of tax upon the
transfer of that property does not expire before the date which is 3
years after the date on which the Secretary is furnished the information
required to be reported under this section. See section 6501(c)(8) and
any regulations thereunder.
(2) Failure to comply. A failure to comply with the requirements of
section 6038B is--
(i) The failure to report at the proper time and in the proper
manner any material information required to be reported under the rules
of this section; or
(ii) The provision of false or inaccurate information in purported
compliance with the requirements of this section. Thus, a transferor
that timely files Form 926 with the attachments required under the rules
of this section shall, nevertheless, have failed to comply if, for
example, the transferor reports therein that property will be used in
the active conduct of a trade or business outside of the United States,
but in fact the property continues to be used in a trade or business
within the United States.
(3) Reasonable cause exception. The provisions of paragraph (f)(1)
of this
[[Page 172]]
section shall not apply if the transferor shows that a failure to comply
was due to reasonable cause and not willful neglect. The transferor may
do so by providing a written statement to the district director having
jurisdiction of the taxpayer's return for the year of the transfer,
setting forth the reasons for the failure to comply. Whether a failure
to comply was due to reasonable cause shall be determined by the
district director under all the facts and circumstances.
(4) Definition of intentional disregard. If the transferor fails to
qualify for the exception under paragraph (f)(3) of this section and if
the taxpayer knew of the rule or regulation that was disregarded, the
failure will be considered an intentional disregard of section 6038B,
and the monetary penalty under paragraph (f)(1)(ii) of this section will
not be limited to $100,000. See Sec. 1.6662-3(b)(2).
(g) Effective dates. (1) This section applies to transfers occurring
on or after July 20, 1998, except for transfers of cash made in tax
years beginning on or before February 5, 1999 (which are not required to
be reported under section 6038B), except for transfers described in
paragraphs (g)(2) through (4) of this section, and except for transfers
described in paragraph (e) of this section, which applies to transfers
that are subject to Sec. Sec. 1.367(e)-1(f) and 1.367(e)-2(e). See
Sec. 1.6038B-1T for transfers occurring prior to July 20, 1998. See
also Sec. 1.6038B-1T(e) in effect prior to August 9, 1999 (as contained
in 26 CFR part 1 revised April 1, 1999), for transfers described in
section 367(e) that are not subject to Sec. Sec. 1.367(e)-1(f) and
1.367(e)-2(e).
(2) The rules of paragraph (b)(1)(i) of this section as they apply
to section 368(a)(1)(A) reorganizations (including reorganizations
described in section 368(a)(2)(D) or (E)) apply to transfers occurring
on or after January 23, 2006.
(3) The rules of paragraph (b)(1)(i) of this section that provide an
exception from reporting under section 6038B for transfers of stock or
securities in a section 354 or 356 exchange, pursuant to a section
368(a)(1)(G) reorganization that is not treated as an indirect stock
transfer under Sec. 1.367(a)-3(d), apply to transfers occurring on or
after January 23, 2006.
(4) The rules of paragraph (b)(1)(i) of this section that provide an
exception from reporting under section 6038B for transfers of stock in a
section 354 or 356 exchange, pursuant to a section 368(a)(1)(E)
reorganization or an asset reorganization under section 368(a)(1) that
is not treated as an indirect stock transfer under Sec. 1.367(a)-3(d),
apply to transfers occurring on or after January 23, 2006. The rules of
paragraph (b)(1)(i) of this section that provide an exception from
reporting under section 6038B for transfers of securities in a section
354 or 356 exchange, pursuant to a section 368(a)(1)(E) reorganization
or an asset reorganization under section 368(a)(1) that is not treated
as an indirect stock transfer under Sec. 1.367(a)-3(d), apply only to
transfers occurring after January 5, 2005 (although taxpayers may apply
such provision to transfers of securities occurring on or after July 20,
1998 and on or before January 5, 2005 if done consistently to all
transactions). See Sec. 1.6038-1T(b)(i), as contained in 26 CFR part 1
revised as of April 1, 2005, for transfers occurring prior to the
effective dates described in paragraphs (g)(2) through (4) of this
section.
[T.D. 8770, 63 FR 33568, June 19, 1998, as amended by T.D. 8817, 64 FR
5715, Feb. 5, 1999; 64 FR 15686, 15687, Apr. 1, 1999; T.D. 8834, 64 FR
43082, Aug. 9, 1999; T.D. 8850, 64 FR 72553, Dec. 28, 1999; T.D. 9100,
68 FR 70708, Dec. 19, 2003; T.D. 9243, 71 FR 4293, Jan. 26, 2006; T.D.
9300, 71 FR 71045, Dec. 8, 2006]
Sec. 1.6038B-1T Reporting of certain transactions to foreign
corporations (temporary).
(a) through (b)(3) [Reserved]. For further guidance, see Sec.
1.6038B-1(a) through (b)(3).
(4) Date of transfer--(i) In general. For purposes of this section,
the date of a transfer described in section 367 is the first date on
which title to, possession of, or rights to the use of stock,
securities, or other property passes pursuant to the plan for purposes
of subtitle A of the Internal Revenue Code. A transfer will not be
considered to begin with a decision of a board of directors or similar
action unless the transaction otherwise takes effect for purposes of
subtitle A of the Internal Revenue Code on that date.
[[Page 173]]
(ii) Termination of section 1504(d) election. A transfer deemed to
occur as a result of the termination of an election under section
1504(d) will be considered to occur on the date the contiguous country
corporation first fails to continue to qualify for the election under
section 1504(d). The rule of this paragraph (b)(3)(ii) is illustrated by
the following example.
Example. Domestic corporation W previously made a valid election
under section 1504(d) to have its Mexican subsidiary S treated as a
domestic corporation. On August 1, 1986, W disposes of its right, title,
and interest in 10 percent of the stock of S by selling such stock to an
unrelated United States person who is not a director of S. S first fails
to continue to qualify for the election under section 1504(d) on August
1, 1986, since on such date it ceases to be directly or indirectly
wholly owned or controlled by W. The constructive transfer of assets
from ``domestic'' corporation S to Mexican corporation S is considered
to occur on that date.
(iii) Change in classification. A transfer deemed to occur as a
result of a change in classification of an entity caused by a change in
the governing documents, articles, or agreements of the entity (as
described in Sec. 1.367(a)-1T(c)(6)) will be considered to occur on the
date that such changes take effect for purposes of subtitle A of the
Internal Revenue Code.
(iv) U.S. resident under section 6013 (g) or (h). A transfer made by
an alien individual who is considered to be a U.S. resident by reason of
a timely election under section 6013 (g) or (h) will be considered to
occur, for purposes of this section (but not for purposes of section
367), on the later of--
(A) The date on which the election under section 6013 (g) or (h) is
made; or
(B) The date on which the transfer would otherwise be considered to
occur under the rules of this paragraph (b)(3).
The rule of this paragraph (b)(3)(iv) is illustrated by the following
example.
Example. D is a nonresident alien individual who is married to a
United States citizen. On March 1, 1986, D transfers property to a
foreign corporation in an exchange described in section 351. On April
15, 1987, D and the spouse timely file with their tax return for the
taxable year ended December 31, 1986, an election under section 6013(g)
for D to be treated as a United States resident. The election is
effective on January 1, 1986. For purposes of section 6038 B, the
transfer described in section 367(a) made by D in connection with the
section 351 exchange is considered to occur on April 15, 1987, the date
on which the timely election was made under section 6013(g).
(c) Introductory text [Reserved]. For further guidance, see Sec.
1.6038B-1(c).
(1) Transferor. Provide the name, U.S. taxpayer identification
number, and address of the U.S. person making the transfer.
(2) Transfer. Provide the following information concerning the
transfer:
(i) Name, U.S. taxpayer identification number (if any), address, and
country of incorporation of transferee foreign corporation;
(ii) A general description of the transfer, and any wider
transaction of which it forms a part, including a chronology of the
transfers involved and an identification of the other parties to the
transaction to the extent known.
(3) Consideration received. Provide a description of the
consideration received by the U.S. person making the transfer, including
its estimated fair market value and, in the case of stock or securities,
the class or type, amount, and characteristics of the interest received.
(4) Property transferred. Provide a description of the property
transferred. The description must be divided into the following
categories, and must include the estimated fair market value and
adjusted basis of the property, as well as any additional information
specified below.
(i) Active business property. Describe any transferred property
(other than stock or securities) to be used in the active conduct of a
trade or business outside of the United States. Provide here a general
description of the business conducted (or to be conducted) by the
transferee, including the location of the business, the number of its
employees, the nature of the business, and copies of the most recently
prepared balance sheet and profit and loss statement. Property listed
within this category may be identified by general type. For example,
upon the transfer of the assets of a manufacturing operation, a
reasonable description of the property to be used in the business might
include the categories of office
[[Page 174]]
equipment and supplies, computers and related equipment, motor vehicles,
and several major categories of manufacturing equipment. However, any
property that is includible both in this subdivision (i) and in
subdivision (iii) of this paragraph (c)(4) (property subject to
depreciation recapture under Sec. 1.367(a)-4T (b)) must be identified
in the manner required in subdivision (iii). If property is considered
to be transferred for use in the active conduct of a trade or business
under a special rule in Sec. 1.367(a)-4T, specify the applicable rule
and provide information supporting the application of the rule. If
property is subject to section 367(a)(1) regardless of its use in a
trade or business under the rules of Sec. 1.367(a)-4T or Sec.
1.367(a)-5T, list the property only in response to subdivision (vii) of
this paragraph (c)(4).
(ii) Stock or securities. Describe any transferred stock or
securities, including the class or type, amount, and characteristics of
the transferred stock or securities, as well as the name, address, place
of incorporation, and general description of the corporation issuing the
stock. In addition, provide the following information if applicable:
(A) Active trade or business stock. If the stock or securities are
considered to be transferred for use in the active conduct of a trade or
business outside of the United States under the rules of Sec. 1.367(a)-
3T(d)(2), provide information supporting the application of the rule.
(B) Application of special rules. If any provision of Sec.
1.367(a)-3T applies to except the transfer of stock or securities from
the rule of section 367(a)(1), provide information supporting the
claimed application of such provision (including information supporting
the nonapplicability of either anti-abuse rule under Sec. 1.367(a)-
3T(h)). If the transferor is entering into an agreement to recognize
gain upon a later disposition of the transferred stock by the transferee
foreign corporation under Sec. 1.367(a)-3T(g), attach the agreement and
waiver as required by the rules of that paragraph.
(iii) Depreciated property. Describe any property that is subject to
depreciation recapture under the rules of Sec. 1.367(a)-4T(b). Property
within this category must be separately identified to the same extent as
was required for purposes of the previously claimed depreciation
deduction. Specify with respect to each such asset the relevant
recapture provision, the number of months in which such property was in
use within the United States, the total number of months the property
was in use, the fair market value of the property, a schedule of the
depreciation deduction taken with respect to the property, and a
calculation of the amount of depreciation required to be recaptured.
(iv) Property to be leased. Describe any property to be leased to
other persons by the transferee foreign corporation (unless such
property is considered to be transferred for use in the active conduct
of a trade or business and was thus listed under subdivision (i) of this
paragraph (c)(4)). If the rules of Sec. 1.367(a)-4T(c)(2) apply to
except the transfer from the rule of section 367(a)(1), provide
information supporting the claimed application of such provision.
(v) Property to be sold. Describe any transferred property that is
to be sold or otherwise disposed of by the transferee foreign
corporation, as described in Sec. 1.367(a)-4T(d).
(vi) Transfers to FSCs. Describe any property that is subject to the
special rule of Sec. 1.367(a)-4T(g) for transfers to FSCs. Provide
information supporting the claimed application of that rule.
(vii) Tainted property. Describe any property that is subject to
Sec. 1.367(a)-5T (concerning property that is subject to the rule of
section 367(a)(1) regardless of whether it is transferred for use in the
active conduct of a trade or business outside of the United States).
Such description must be divided into the relevant categories, as
follows:
(A) Inventory, etc. Property described in Sec. 1.367(a)-5T(b);
(B) Installment obligations, etc. Property described in Sec.
1.367(a)-5T(c);
(C) Foreign currency, etc. Property described in Sec. 1.367(a)-
5T(d);
(D) Intangible property. Property described in Sec. 1.367(a)-5T(e);
and
(E) Leased property. Property described in Sec. 1.367(a)-4T(f).
If any exception provided in Sec. 1.367(a)-5T applies to the
transferred property (making section 367(a)(1) not applicable
[[Page 175]]
to the transfer), provide information supporting the claimed application
of such exception.
(viii) Foreign loss branch. Provide the information specified in
paragraph (c)(5) of this section.
(ix) Other intangibles. Describe an intangible property sold or
licensed by the transferor to the transferee foreign corporation, and
set forth the general terms of each sale or license.
(5) Transfer of foreign branch with previously deducted losses. If
the property transferred is property of a foreign branch with previously
deducted losses subject to the rules of Sec. 1.367(a)-6T, provide the
following information:
(i) Branch operation. Describe the foreign branch the property of
which is transferred, in accordance with the definition of Sec.
1.367(a)-6T(g).
(ii) Branch property. Describe the property of the foreign branch,
including its adjusted basis and fair market value. For this purpose
property must be identified with reasonable particularity, but may be
identified by category rather than listing every asset separately.
Substantially similar property may be listed together for this purpose,
and property of minor value may be grouped into functional categories.
For example, a reasonable description of the property of a business
office might include the following categories: Word processing or data
processing equipment, other office equipment and furniture, and office
supplies.
(iii) Previously deducted losses. Set forth a detailed calculation
of the sum of the losses incurred by the foreign branch before the
transfer, and a detailed calculation of any reduction of such losses, in
accordance with Sec. 1.367(a)-6T (d) and (e).
(iv) Character of gain. Set forth a statement of the character of
the gain required to be recognized, in accordance with Sec. 1.367(a)-
6T(c)(1).
(6) [Reserved]. For further guidance, see Sec. 1.6038B-1(c)(6).
(d) Transfers subject to section 367(d)--(1) Initial transfer. A
U.S. person that transfers inntangible property to a foreign corporation
in an exchange described in section 351 or 361 must provide the
following information in paragraphs labelled to correspond with the
number or letter set forth below. If a particular item is not applicable
to the subject transfer, list its heading and state that it is not
applicable. The information required by subdivisions (i) through (iii)
need only be provided if such information was not otherwise provided
under paragraph (c) of this section. (Note that the U.S. transferor may
subsequently be required to file another return under paragraph (d)(2)
of this section.)
(i) Transferor. Provide the name, U.S. taxpayer identification
number, and address of the U.S. person making the transfer.
(ii) Transfer. Provide information concerning the transfer,
including:
(A) Name, U.S. taxpayer identification number (if any), address, and
country of incorporation of the transferee foreign corporation;
(B) A general description of the transfer, and any wider transaction
of which it forms a part, including a chronology of the transfers
involved and an identification of the other parties to the transaction
to the extent known.
(iii) Consideration received. Provide a description of the
consideration received by the U.S. person making the transfer, including
its estimated fair market value and, in the case of stock or securities,
the class or type, amount, and characteristics of the interest received.
(iv) Intangible property transferred. Provide a description of the
intangible property transferred, including its adjusted basis.
Generally, each intangible asset must be separately identified.
Operating intangibles and foreign goodwill or going concern value, as
defined in Sec. 1.367(a)-1T(d)(5) (ii) and (iii), should be so
identified and classified.
(v) Annual payment. Provide and explain the calculation of the
annual deemed payment for the use of the intangible property required to
be recognized by the transferor under the rules of section 367(d).
(vi) Election to treat as sale. List any intangible with respect to
which an election is being made under Sec. 1.367(d)-1T(g)(2) to treat
the transfer as a sale. Include the fair market value of the intangible
on the date of the transfer and a calculation of the gain required to be
recognized in the year of the transfer by reason of the election.
[[Page 176]]
(vii) Coordination with loss rules. List any intangible property
subject to section 367(d) the transfer of which also gives rise to the
recognition of gain under section 904(f)(3) or Sec. 1.367(a)-6T.
Provide a calculation of the gain required to be recognized with respect
to such property, in accordance with the provisions of Sec. 1.367(d)-
1T(g)(4).
(viii) Other intangibles. Describe any intangible property sold or
licensed by the transferor to the transferee foreign corporation, and
set forth the general terms of each sale or license.
(2) Subsequent transfers. If a U.S. person transfers intangible
property to a foreign corporation in an exchange described in section
351 or 361, and at any time thereafter (within the useful life of the
intangible property) either that U.S. person disposes of the stock of
the transferee foreign corporation or the transferee foreign corporation
disposes of the transferred intangible, then the U.S. person must
provide the following information in paragraphs labelled to correspond
with the number or letter set forth below. The information required by
subdivisions (i) and (ii) need only be provided if such information was
not otherwise provided in the same return, pursuant to paragraph (c) or
(d)(1) of this section. For purposes of determining the date on which a
return under this subparagraph (2) is required to be filed, the date of
transfer is the date of the subsequent transfer of stock or intangible
property.
(i) Transferor. Provide the name, U.S. taxpayer identification
number, and address of the U.S. person making the transfer.
(ii) Initial transfer. Provide the following information concerning
the initial transfer:
(A) The date of the transfer;
(B) The name, U.S. taxpayer identification number (if any), address,
and country of incorporation of the transferee foreign corporation; and
(C) A general description of the transfer and any wider transaction
of which it formed a part.
(iii) Subsequent transfer. Provide the following information
concerning the subsequent transfer:
(A) A general description of the subsequent transfer and any wider
transaction of which it forms a part;
(B) A calculation of any gain required to be recognized by the U.S.
person under the rules of Sec. 1.367(d)-1T (d) through (f); and
(C) The name, address, and identifying number of each person that
under the rules of Sec. 1.367(d)-1T (e) or (f) will be considered to
receive contingent annual payments for the use of the intangible
property.
(e) [Reserved]. For further guidance, see Sec. 1.6038B-1(e).
(f) [Reserved]. For further guidance, see Sec. 1.6038B-1(f).
(g) Effective date. This section applies to transfers occurring
after December 31, 1984. See Sec. 1.6038B-1T(a) through (b)(2), (c)
introductory text, and (f) (26 CFR part 1, revised April 1, 1998) for
transfers occurring prior to July 20, 1998. See Sec. 1.6038B-1 for
transfers occurring on or after July 20, 1998.
[T.D. 8087, 51 FR 17957, May 16, 1986, as amended by T.D. 8682, 61 FR
42177, Aug. 14, 1996; T.D. 8770, 63 FR 33570, June 19, 1998; T.D. 8834,
64 FR 43083, Aug. 9, 1999; T.D. 9100, 68 FR 70708, Dec. 19, 2003; 69 FR
5017, Feb. 3, 2004; T.D. 9243, 71 FR 4294, Jan. 26, 2006; T.D. 9300, 71
FR 71045, Dec. 8, 2006]
Sec. 1.6038B-2 Reporting of certain transfers to foreign partnerships.
(a) Reporting requirements--(1) Requirement to report transfers. A
United States person that transfers property to a foreign partnership in
a contribution described in section 721 (including section 721(b)) must
report that transfer on Form 8865 ``Information Return of U.S. Persons
With Respect to Certain Foreign Partnerships'' pursuant to section 6038B
and the rules of this section, if--
(i) Immediately after the transfer, the United States person owns,
directly, indirectly, or by attribution, at least a 10-percent interest
in the partnership, as defined in section 6038(e)(3)(C) and the
regulations thereunder; or
(ii) The value of the property transferred, when added to the value
of any other property transferred in a section 721 contribution by such
person (or any related person) to such partnership during the 12-month
period ending on the date of the transfer, exceeds $100,000.
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(2) Indirect transfer through a domestic partnership--For purposes
of this section, if a domestic partnership transfers property to a
foreign partnership in a section 721 transaction, the domestic
partnership's partners shall be considered to have transferred a
proportionate share of the property to the foreign partnership. However,
if the domestic partnership properly reports all of the information
required under this section with respect to the contribution, no partner
of the transferor partnership, whether direct or indirect (through tiers
of partnerships), is also required to report under this section. For
illustrations of this rule, see Examples 4 and 5 of paragraph (a)(7) of
this section.
(3) Indirect transfer through a foreign partnership. [Reserved]
(4) Requirement to report dispositions--(i) In general. If a United
States person was required to report a transfer to a foreign partnership
of appreciated property under paragraph (a)(1) or (2) of this section,
and the foreign partnership disposes of the property while such United
States person remains a direct or indirect partner, that United States
person must report the disposition by filing Form 8865. The form must be
attached to, and filed by the due date (including extensions) of, the
United States person's income tax return for the year in which the
disposition occurred.
(ii) Disposition of contributed property in nonrecognition
transaction. If a foreign partnership disposes of contributed
appreciated property in a nonrecognition transaction and substituted
basis property is received in exchange, and the substituted basis
property has built-in gain under Sec. 1.704-3(a)(8), the original
transferor is not required to report the disposition. However, the
transferor must report the disposition of the substituted basis property
in the same manner as provided for the contributed property.
(5) Time for filing Form 8865. The Form 8865 on which a transfer is
reported must be attached to the transferor's timely filed (including
extensions) income tax return for the tax year that includes the date of
the transfer. If the person required to report under this section is not
required to file an income tax return for its tax year during which the
transfer occurred, but is required to file an information return for
that year (for example, Form 1065, ``U.S. Partnership Return of
Income,'' or Form 990, ``Return of Organization Exempt from Income
Tax''), the person should attach the Form 8865 to its information
return.
(6) Returns to be made--(i) Separate returns for each partnership.
If a United States person transfers property reportable under this
section to more than one foreign partnership in a taxable year, the
United States person must submit a separate Form 8865 for each
partnership.
(ii) Duplicate form to be filed. If required by the instructions
accompanying Form 8865, a duplicate Form 8865 (including attachments and
schedules) must also be filed by the due date for submitting the
original Form 8865 under paragraph (a)(5)(i) or (ii) of this section, as
applicable.
(7) Examples. The application of this paragraph (a) may be
illustrated by the following examples:
Example 1. On November 1, 2001, US, a United States person that uses
the calendar year as its taxable year, contributes $200,000 to FP, a
foreign partnership, in a transaction subject to section 721. After the
contribution, US owns a 5% interest in FP. US must report the
contribution by filing Form 8865 for its taxable year ending December
31, 2001. On March 1, 2002, US makes a $40,000 section 721 contribution
to FP, after which US owns a 6% interest in FP. US must report the
$40,000 contribution by filing Form 8865 for its taxable year ending
December 31, 2002, because the contribution, when added to the value of
the other property contributed by US to FP during the 12-month period
ending on the date of the transfer, exceeds $100,000.
Example 2. F, a nonresident alien, is the brother of US, a United
States person. F owns a 15% interest in FP, a foreign partnership. US
contributes $99,000 to FP, in exchange for a 1-percent partnership
interest. Under sections 6038(e)(3)(C) and 267(c)(2), US is considered
to own at least a 10-percent interest in FP and, therefore, US must
report the $99,000 contribution under this section.
Example 3. US, a United States person, owns 40 percent of FC, a
foreign corporation. FC owns a 20-percent interest in FP, a foreign
partnership. Under section 267(c)(1), US is considered to own 8 percent
of FP due to its ownership of FC. US contributes $50,000 to FP in
exchange for a 5-percent partnership interest. Immediately after the
contribution, US is considered to own at least a 10-percent
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interest in FP and, therefore, must report the $50,000 contribution
under this section.
Example 4. US, a United States person, owns a 60-percent interest in
USP, a domestic partnership. On March 1, 2001, USP contributes $200,000
to FP, a foreign partnership, in exchange for a 5-percent partnership
interest. Under paragraph (a)(2) of this section, US is considered as
having contributed $120,000 to FP ($200,000 x 60%). However, under
paragraph (a)(2), if USP properly reports the contribution to FP, US is
not required to report its $120,000 contribution. If US directly
contributes $5,000 to FP on June 10, 2001, US must report the $5,000
contribution because US is considered to have contributed more than
$100,000 to FP in the 12-month period ending on the date of the $5,000
contribution.
Example 5. US, a United States person, owns an 80-percent interest
in USP, a domestic partnership. USP owns an 80-percent interest in USP1,
a domestic partnership. On March 1, 2001, USP1 contributes $200,000 to
FP, a foreign partnership, in exchange for a 3-percent partnership
interest. Under paragraph (a)(2) of this section, USP is considered to
have contributed $160,000 ($200,000 x 80%) to FP. US is considered to
have contributed $128,000 to FP ($200,000 x 80% x 80%). However, if USP1
reports the transfer of the $200,000 to FP, neither US nor USP are
required to report under this section the amounts they are considered to
have contributed. Additionally, regardless of whether USP1 reports the
$200,000 contribution, if USP reports the $160,000 contribution it is
considered to have made, US does not have to report under this section
the $128,000 contribution US is considered to have made.
(b) Transfers by trusts relating to state and local government
employee retirement plans. Trusts relating to state and local government
employee retirement plans are not required to report transfers under
this section, unless otherwise specified in the instructions to Form
8865.
(c) Information required with respect to transfers of property. With
respect to transfers required to be reported under paragraph (a)(1) or
(2) of this section, the return must contain information in such form or
manner as Form 8865 (and its accompanying instructions) prescribes with
respect to reportable events, including--
(1) The name, address, and U.S. taxpayer identification number of
the United States person making the transfer;
(2) The name, U.S. taxpayer identification number (if any), and
address of the transferee foreign partnership, and the type of entity
and country under whose laws the partnership was created or organized;
(3) A general description of the transfer, and of any wider
transaction of which it forms a part, including the date of transfer;
(4) The names and addresses of the other partners in the foreign
partnership, unless the transfer is solely of cash and the transferor
holds less than a ten-percent interest in the transferee foreign
partnership immediately after the transfer. However, for tax years of
U.S. persons beginning on or after January 1, 2000, the person reporting
pursuant to section 6038B (the transferor) must provide the names and
addresses of each United States person that owned a ten-percent or
greater direct interest in the foreign partnership during the
transferor's tax year in which the transfer occurred, and the names and
addresses of any other United States or foreign persons that were direct
partners in the foreign partnership during that tax year and that were
related to the transferor during that tax year. See paragraph (i)(4) of
this section for the definition of a related person;
(5) A description of the partnership interest received by the United
States person, including a change in partnership interest;
(6) A separate description of each item of contributed property that
is appreciated property subject to the allocation rules of section
704(c)(except to the extent that the property is permitted to be
aggregated in making allocations under section 704(c)), or is intangible
property, including its estimated fair market value and adjusted basis;
and
(7) A description of other contributed property, not specified in
paragraph (c)(6) of this section, aggregated by the following categories
(with, in each case, a brief description of the property)--
(i) Stock in trade of the transferor (inventory);
(ii) Tangible property (other than stock in trade) used in a trade
or business of the transferor;
(iii) Cash;
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(iv) Stock, notes receivable and payable, and other securities; and
(v) Other property.
(d) Information required with respect to dispositions of property.
In respect of dispositions required to be reported under paragraph
(a)(4) of this section, the return must contain information in such form
or manner as Form 8865 (and its accompanying instructions) prescribes
with respect to reportable events, including--
(1) The date and manner of disposition;
(2) The gain and depreciation recapture amounts, if any, realized by
the partnership; and
(3) Any such amounts allocated to the United States person.
(e) Method of reporting. Except as otherwise provided on Form 8865,
or the accompanying instructions, all amounts reported as required under
this section must be expressed in United States currency, with a
statement of the exchange rates used. All statements required on or with
Form 8865 pursuant to this section must be in the English language.
(f) Reporting under this section not required of partnerships
excluded from the application of subchapter K--(1) Election to be wholly
excluded. The reporting requirements of this section will not apply to
any United States person in respect of an eligible partnership as
described in Sec. 1.761-2(a), if such partnership has validly elected
to be excluded from all of the provisions of subchapter K of chapter 1
of the Internal Revenue Code in the manner specified in Sec. 1.761-
2(b)(2)(i).
(2) Deemed excluded. The reporting requirements of this section will
not apply to any United States person in respect of an eligible
partnership as described in Sec. 1.761-2(a), if such partnership is
validly deemed to have elected to be excluded from all of the provisions
of subchapter K of chapter 1 of the Internal Revenue Code in accordance
with the provisions of Sec. 1.761-2(b)(2)(ii).
(g) Deemed contributions. Deemed contributions resulting from IRS-
initiated section 482 adjustments are not required to be reported under
section 6038B. However, taxpayers must report deemed contributions
resulting from taxpayer-initiated adjustments. Such information will be
furnished timely if filed by the due date, including extensions, for
filing the taxpayer's income tax return for the year in which the
adjustment is made.
(h) Failure to comply with reporting requirements--(1) Consequences
of failure. If a United States person is required to file a return under
paragraph (a) of this section and fails to comply with the reporting
requirements of section 6038B and this section, then such person is
subject to the following penalties:
(i) The United States person is subject to a penalty equal to 10
percent of the fair market value of the property at the time of the
contribution. Such penalty with respect to a particular transfer is
limited to $100,000, unless the failure to comply with respect to such
transfer was due to intentional disregard.
(ii) The United States person must recognize gain (reduced by the
amount of any gain recognized, with respect to that property, by the
transferor after the transfer) as if the contributed property had been
sold for fair market value at the time of the contribution. Adjustments
to the basis of the partnership's assets and any relevant partner's
interest as a result of gain being recognized under this provision will
be made as though the gain was recognized in the year in which the
failure to report was finally determined.
(2) Failure to comply. A failure to comply with the requirements of
section 6038B includes--
(i) The failure to report at the proper time and in the proper
manner any information required to be reported under the rules of this
section; and
(ii) The provision of false or inaccurate information in purported
compliance with the requirements of this section.
(3) Reasonable cause exception. Under section 6038B(c)(2) and this
section, the provisions of paragraph (h)(1) of this section will not
apply if the transferor shows that a failure to comply was due to
reasonable cause and not willful neglect. The transferor may attempt to
do so by providing a written statement to the district director having
jurisdiction of the taxpayer's return for the year of the transfer,
setting forth the
[[Page 180]]
reasons for the failure to comply. Whether a failure to comply was due
to reasonable cause will be determined by the district director under
all the facts and circumstances.
(4) Statute of limitations. For exceptions to the limitations on
assessment in the event of a failure to provide information under
section 6038B, see section 6501(c)(8).
(i) Definitions--(1) Appreciated property. Appreciated property is
property that has a fair market value in excess of basis.
(2) Domestic partnership. A domestic partnership is a partnership
described in section 7701(a)(4).
(3) Foreign partnership. A foreign partnership is a partnership
described in section 7701(a)(5).
(4) Related person. Persons are related persons if they bear a
relationship described in section 267(b)(1) through (3) or (10) through
(12), after application of section 267(c) (except for (c)(3)), or in
section 707(b)(1)(B).
(5) Substituted basis property. Substituted basis property is
property described in section 7701(a)(42).
(6) Taxpayer-initiated adjustment. A taxpayer-initiated adjustment
is a section 482 adjustment that is made by the taxpayer pursuant to
Sec. 1.482-1(a)(3).
(7) United States person. A United States person is a person
described in section 7701(a)(30).
(j) Effective dates--(1) In general. Except as otherwise provided in
this section, this section applies to transfers made on or after January
1, 1998. However, for a transfer made on or after January 1, 1998, but
before January 1, 1999, the filing requirements of this section may be
satisfied by--
(i) Filing a Form 8865 with the taxpayer's income tax return
(including a partnership return of income) for the first taxable year
beginning on or after January 1, 1999; or
(ii) Filing a Form 926 (modified to reflect that the transferee is a
partnership, not a corporation) with the taxpayer's income tax return
(including a partnership return of income) for the taxable year in which
the transfer occurred.
(2) Transfers made between August 5, 1997 and January 1, 1998. A
United States person that made a transfer of property between August 5,
1997, and January 1, 1998, that is required to be reported under section
6038B may satisfy its reporting requirement by reporting in accordance
with the provisions of this section or in accordance with the provisions
of Notice 98-17 (1998-11 IRB 6)(see Sec. 601.601(d)(2) of this
chapter).
(3) Special rule for transfers made before January 1, 2000. Even if
not reported in accordance with the rules provided in paragraph (a)(5)
of this section, or paragraph (j) (1) or (2) of this section, a transfer
that occurred before January 1, 2000 will nevertheless be considered
timely reported if the transferor reports it on a Form 8865 attached to
an amended tax return for the transferor's tax year in which the
transfer occurred, provided such amended return is filed no later than
September 15, 2000.
[T.D. 8817, 64 FR 5715, Feb. 5, 1999; 64 FR 15686, Apr. 1, 1999; T.D.
8850, 64 FR 72554, Dec. 28, 1999]
Sec. 1.6039-1 Statements to persons with respect to whom
information is furnished.
(a) Requirement of statement with respect to incentive stock options
under section 6039(a)(1). Every corporation which transfers stock to any
person pursuant to such person's exercise of an incentive stock option
described in section 422(b) must furnish to such transferee, for each
calendar year in which such a transfer occurs, a written statement with
respect to the transfer or transfers made during such year. This
statement must include the following information--
(1) The name, address, and employer identification number of the
corporation transferring the stock;
(2) The name, address, and identifying number of the person to whom
the share or shares of stock were transferred;
(3) The name and address of the corporation the stock of which is
the subject of the option (if other than the corporation transferring
the stock);
(4) The date the option was granted;
(5) The date the shares were transferred to the person exercising
the option;
[[Page 181]]
(6) The fair market value of the stock at the time the option was
exercised;
(7) The number of shares of stock transferred pursuant to the
option;
(8) The type of option under which the transferred shares were
acquired; and
(9) The total cost of all the shares.
(b) Requirement of statement with respect to stock purchased under
an employee stock purchase plan under section 6039(a)(2). (1) Every
corporation which records, or has by its agent recorded, a transfer of
the title to stock acquired by the transferor pursuant to the
transferor's exercise on or after January 1, 1964, of an option granted
under an employee stock purchase plan which meets the requirements of
section 423(b), and with respect to which the special rule of section
423(c) applied, must furnish to such transferor, for each calendar year
in which such a recorded transfer of title to such stock occurs, a
written statement with respect to the transfer or transfers containing
the information required by paragraph (b)(2) of this section.
(2) The statement required by paragraph (b)(1) of this section must
contain the following information--
(i) The name and address of the corporation whose stock is being
transferred;
(ii) The name, address, and identifying number of the transferor;
(iii) The date such stock was transferred to the transferor;
(iv) The number of shares to which title is being transferred; and
(v) The type of option under which the transferred shares were
acquired.
(3) If the statement required by this paragraph is made by the
authorized transfer agent of the corporation, it is deemed to have been
made by the corporation. The term transfer agent, as used in this
section, means any designee authorized to keep the stock ownership
records of a corporation and to record a transfer of title of the stock
of such corporation on behalf of such corporation.
(4) A statement is required by reason of a transfer described in
section 6039(a)(2) of a share only with respect to the first transfer of
such share by the person who exercised the option. Thus, for example, if
the owner has record title to a share or shares of stock transferred to
a recognized broker or financial institution and the stock is
subsequently sold by such broker or institution (on behalf of the
owner), the corporation is only required to furnish a written statement
to the owner relating to the transfer of record title to the broker or
financial institution. Similarly, a written statement is required when a
share of stock is transferred by the optionee to himself and another
person (or persons) as joint tenants, tenants by the entirety or tenants
in common. However, when stock is originally issued to the optionee and
another person (or persons) as joint tenants, or as tenants by the
entirety, the written statement required by this paragraph shall be
furnished (at such time and in such manner as is provided by this
section) with respect to the first transfer of the title to such stock
by the optionee.
(5) Every corporation which transfers any share of stock pursuant to
the exercise of an option described in this paragraph shall identify
such stock in a manner sufficient to enable the accurate reporting of
the transfer of record title to such shares. Such identification may be
accomplished by assigning to the certificates of stock issued pursuant
to the exercise of such options a special serial number or color.
(c) Time for furnishing statements--(1) In general. Each statement
required by this section to be furnished to any person for a calendar
year must be furnished to such person on or before January 31 of the
year following the year for which the statement is required.
(2) Extension of time. For good cause shown upon written application
of the corporation required to furnish statements under this section,
the Director, Martinsburg Computing Center, may grant an extension of
time not exceeding 30 days in which to furnish such statements. The
application must contain a full recital of the reasons for requesting an
extension to aid the Director in determining the period of the
extension, if any, which will be granted and must be sent to the
Martinsburg Computing Center (Attn: Extension of Time Coordinator). Such
a request in the form of a letter to the Martinsburg Computing Center,
250 Murall Drive,
[[Page 182]]
Kearneysville, West Virginia 25430, signed by the applicant (or its
agent) will suffice as an application. The application must be filed on
or before the date prescribed in paragraph (c)(1) of this section for
furnishing the statements required by this section, and must contain the
employer identification number of the corporation required to furnish
statements under this section.
(3) Last day for furnishing statement. For provisions relating to
the time for performance of an act when the last day prescribed for
performance falls on Saturday, Sunday, or a legal holiday, see Sec.
301.7503-1 of this chapter (Regulations on Procedure and
Administration).
(d) Statements furnished by mail. For purposes of this section, a
statement is considered to be furnished to a person if it is mailed to
such person's last known address.
(e) Penalty. For provisions relating to the penalty provided for
failure to furnish a statement under this section, see section 6722.
(f) Electronic furnishing of statements. The statements required to
be furnished pursuant to this section may be provided in an electronic
format in lieu of a paper format, with the consent of the recipient. See
Sec. 31.6051-1(j) of the Regulations on Employment Taxes and Collection
of Income Tax at the Source for further guidance regarding the manner in
which such electronic statements must be furnished.
(g) Effective date--(1) In general. These regulations are effective
on August 3, 2004.
(2) Reliance and transition period. For statutory options
transferred on or before June 9, 2003, taxpayers may rely on the 1984
proposed regulations LR-279-81 (49 FR 4504), the 2003 proposed
regulations REG-122917-02 (68 FR 34344), or this section until the
earlier of January 1, 2006, or the first regularly scheduled
stockholders meeting of the granting corporation occurring 6 months
after August 3, 2004. For statutory options transferred after June 9,
2003, and before the earlier of January 1, 2006, or the first regularly
scheduled stockholders meeting of the granting corporation occurring at
least 6 months after August 3, 2004, taxpayers may rely on either REG-
122917-02 or this section. Taxpayers may not rely on LR-279-81 or REG-
122917-02 after December 31, 2005. Reliance on LR-279-81, REG-122917-02,
or this section must be in its entirety, and all statutory options
granted during the reliance period must be treated consistently.
[T.D. 9144, 69 FR 46425, Aug. 3, 2004; 69 FR 61311, Oct. 18, 2004]
Sec. 1.6041-1 Return of information as to payments of $600 or more.
(a) General rule--(1) Information returns required--(i) Payments
required to be reported. Except as otherwise provided in Sec. Sec.
1.6041-3 and 1.6041-4, every person engaged in a trade or business shall
make an information return for each calendar year with respect to
payments it makes during the calendar year in the course of its trade or
business to another person of fixed or determinable income described in
paragraph (a)(1)(i) (A) or (B) of this section. For purposes of the
regulations under this section, the person described in this paragraph
(a)(1)(i) is a payor.
(A) Salaries, wages, commissions, fees, and other forms of
compensation for services rendered aggregating $600 or more.
(B) Interest (including original issue discount), rents, royalties,
annuities, pensions, and other gains, profits, and income aggregating
$600 or more.
(ii) Information returns required under other provisions of the
Internal Revenue Code. The payments described in paragraphs (a)(1)(i)(A)
and (B) of this section shall not include any payments of amounts with
respect to which an information return is required by, or may be
required under authority of, section 6042(a) (relating to dividends),
section 6043(a)(2) (relating to distributions in liquidation), section
6044(a) (relating to patronage dividends), section 6045 (relating to
brokers' transactions with customers and certain other transactions),
sections 6049(a)(1) and (2) (relating to interest), section 6050N(a)
(relating to royalties), or section 6050P(a) or (b) (relating to
cancellation of indebtedness). For information returns required under
section 6045(f) (relating to payments to attorneys), see special rules
in Sec. Sec. 1.6041-1(a)(1)(iii) and 1.6045-5(c)(4).
[[Page 183]]
(iii) Information returns required under section 6045(f) on or after
January 1, 2007. For payments made on or after January 1, 2007 to which
section 6045(f) (relating to payments to attorneys) applies, the
following rules apply. Not withstanding the provisions of paragraph
(a)(1)(ii) of this section, payments to an attorney that are described
in paragraph (a)(1)(i) of this section but which otherwise would be
reportable under section 6045(f) are reported under section 6041 and
this section and not section 6045(f). This exception applies only if the
payments are reportable with respect to the same payee under both
sections. Thus, a person who, in the course of a trade or business, pays
$600 of taxable damages to a claimant by paying that amount to the
claimant's attorney is required to file an information return under
section 6041 with respect to the claimant, as well as another
information return under section 6045(f) with respect to the claimant's
attorney. For provisions relating to information reporting for payments
to attorneys, see Sec. 1.6045-5.
(2) Prescribed form. The return required by subparagraph (1) of this
paragraph shall be made on Forms 1096 and 1099 except that (i) the
return with respect to distributions to beneficiaries of a trust or of
an estate shall be made on Form 1041, and (ii) the return with respect
to certain payments of compensation to an employee by his employer shall
be made on Forms W-3 and W-2 under the provisions of Sec. 1.6041-2
(relating to return of information as to payments to employees). Where
Form 1099 is required to be filed under this section, a separate Form
1099 shall be furnished for each person to whom payments described in
subdivision (i), (ii), or (iii) of subparagraph (1) of this paragraph
are made. For time and place for filing Forms 1096 and 1099, see Sec.
1.6041-6. For the requirement to submit the information required by Form
1099 on magnetic media for payments after December 31, 1983, see section
6011(e) and Sec. 301.6011-2 of this chapter (Procedure and
Administration Regulations).
(b) Persons engaged in trade or business--(1) In general. The term
``all persons engaged in a trade or business'', as used in section
6041(a), includes not only those so engaged for gain or profit, but also
organizations the activities of which are not for the purpose of gain or
profit. Thus, the term includes the organizations referred to in section
401(a), 501(c), 501(d) and 521 and in paragraph (i) of this section. On
the other hand, section 6041(a) applies only to payments in the course
of trade or business; hence it does not apply to an amount paid by the
proprietor of a business to a physician for medical services rendered by
the physician to the proprietor's child.
(2) Special rule for REMICs. For purposes of chapter 1 subtitle F,
chapter 61A, part IIIB, the terms ``all persons engaged in a trade or
business'' and ``any service-recipient engaged in a trade or business''
includes a real estate mortgage investment conduit or REMIC (as defined
in section 860D).
(c) Fixed or determinable income. Income is fixed when it is to be
paid in amounts definitely predetermined. Income is determinable
whenever there is a basis of calculation by which the amount to be paid
may be ascertained. The income need not be paid annually or at regular
intervals. The fact that the payments may be increased or decreased in
accordance with the happening of an event does not for purposes of this
section make the payments any the less determinable. A payment made
jointly to two or more payees may be fixed and determinable income to
one payee even though the payment is not fixed and determinable income
to another payee. For example, property insurance proceeds paid jointly
to the owner of damaged property and to a contractor that repairs the
property may be fixed and determinable income to the contractor but not
fixed and determinable income to the owner, and should be reported to
the contractor. A salesman working by the month for a commission on
sales which is paid or credited monthly receives determinable income.
(d) Payments specifically included--(1) In general. Amounts paid in
respect of life insurance, endowment, or annuity contracts are required
to be reported in returns of information under this section--
(i) Unless the payment is made in respect of a life insurance or
endowment contract by reason of the death of the
[[Page 184]]
insured and is not required to be reported by paragraph (b) of Sec.
1.6041-2,
(ii) Unless the payment is made by reason of the surrender prior to
maturity or lapse of a policy, other than a policy which was purchased
(a) by a trust described in section 401(a) which is exempt from tax
under section 501(a), (b) as part of a plan described in section 403(a),
or (c) by an employer described in section 403(b)(1)(A),
(iii) Unless the payment is interest as defined in Sec. 1.6049-2
and is made after December 31, 1962,
(iv) Unless the payment is a payment with respect to which a return
is required by Sec. 1.6047-1, relating to employee retirement plans
covering owner-employees,
(v) Unless the payment is payment with respect to which a return is
required by Sec. 1.6052-1, relating to payment of wages in the form of
group-term life insurance.
(2) Professional fees. Fees for professional services paid to
attorneys, physicians, and members of other professions are required to
be reported in returns of information if paid by persons engaged in a
trade or business and paid in the course of such trade or business.
(3) Prizes and awards. Amounts paid as prizes and awards that are
required to be included in gross income under section 74 and Sec. 1.74-
1 when paid in the course of a trade or business are required to be
reported in returns of information under this section.
(4) Disability payments. Amounts paid as disability payments under
section 105(d) are required to be reported in returns of information
under this section.
(5) Notional principal contracts. Except as provided in paragraphs
(b)(5)(i) and (ii) of this section, amounts paid after December 31,
2000, with respect to notional principal contracts referred to in Sec.
1.863-7 or 1.988-2(e) to persons who are not described in Sec. 1.6049-
4(c)(1)(ii) are required to be reported in returns of information under
this section. The amount required to be reported under this paragraph
(d)(5) is limited to the amount of cash paid from the notional principal
contract as described in Sec. 1.446-3(d). A non-periodic payment is
reportable for the year in which an actual payment is made. Any amount
of interest determined under the provisions of Sec. 1.446-3(g)(4)
(dealing with interest in the case of a significant non-periodic
payment) is reportable under this paragraph (d)(5) and not under section
6049 (see Sec. 1.6049-5(b)(15)). See Sec. 1.6041-4(a)(4) for reporting
exceptions regarding payments to foreign persons. See, however, Sec.
1.1461-1(c)(1) for reporting amounts described under this paragraph
(d)(5) that are paid to foreign persons. The provisions of Sec. 1.6049-
5(d) shall apply for determining whether a payment with respect to a
notional principal contract is made to a foreign person. See Sec.
1.6049-4(a) for a definition of payor. For purposes of this paragraph
(d)(5), a payor includes a middleman defined in Sec. 1.6049-4(f)(4).
(i) An amount paid with respect to a notional principal contract is
not required to be reported if the payment is made outside the United
States (as defined in Sec. 1.6049-5(e)) by a non-U.S. payor or a non-
U.S. middleman.
(ii) An amount paid with respect to a notional principal contract is
not required to be reported if the payment is made outside the United
States (as defined in Sec. 1.6049-5(e)) by a payor that has no actual
knowledge that the payee is a U.S. person, and the payor is--
(A) A U.S. payor or U.S. middleman that is not a U.S. person (such
as a controlled foreign corporation defined in section 957(a) or certain
foreign corporations or foreign partnerships engaged in a U.S. trade or
business); or
(B) A foreign branch of a U.S. bank. See Sec. 1.6049-5(c)(5) for a
definition of a U.S. payor, a U.S. middleman, a non-U.S. payor, and a
non-U.S. middleman.
(e) Payment made on behalf of another person--(1) In general. A
person that makes a payment in the course of its trade or business on
behalf of another person is the payor that must make a return of
information under this section with respect to that payment if the
payment is described in paragraph (a) of this section and, under all the
facts and circumstances, that person--
(i) Performs management or oversight functions in connection with
the payment (this would exclude, for example, a person who performs mere
administrative or ministerial functions
[[Page 185]]
such as writing checks at another's direction); or
(ii) Has a significant economic interest in the payment (i.e., an
economic interest that would be compromised if the payment were not
made, such as by creation of a mechanic's lien on property to which the
payment relates, or a loss of collateral).
(2) Determination of payor obligated to report. If two or more
persons meet the requirements for making a return of information with
respect to a payment, as set forth in paragraph (e)(1) of this section,
the person obligated to report the payment is the person closest in the
chain to the payee, unless the parties agree in writing that one of the
other parties meeting the requirements set forth in paragraph (e)(1) of
this section will report the payment.
(3) Special rule for payment by employee to employer.
Notwithstanding the provisions of paragraph (e)(1) of this section, an
employee acting in the course of his employment who makes a payment to
his employer on behalf of another person is not required to make a
return of information with respect to that payment.
(4) Optional method to report. A person that makes a payment on
behalf of another person but is not required to make an information
return under paragraph (e)(1) of this section may elect to do so
pursuant to the procedures established by the Commissioner. See, e.g.,
Rev. Proc. 84-33 (1984-1 C.B. 502) (optional method for a paying agent
to report and deposit amounts withheld for payors under the statutory
provisions of backup withholding) (see Sec. 601.601(d)(2) of this
chapter).
(5) Examples. The provisions of this paragraph (e) are illustrated
by the following examples:
Example 1. Bank B provides financing to C, a real estate developer,
for a construction project. B makes disbursements from the account for
labor, materials, services, and other expenses related to the
construction project. In connection with the payments, B performs the
following functions: approves payments to the general contractor or
subcontractors; ensures that loan proceeds are properly applied and that
all approved bills are properly paid to avoid mechanics' or
materialmen's liens; conducts site inspections to determine whether work
has been completed (but does not check the quality of the work). B is
performing management or oversight functions in connection with the
payments and is subject to the information reporting requirements of
section 6041 with respect to payments.
Example 2. Mortgage company D holds a mortgage on business property
owned by E. When the property is damaged by a storm, E's insurance
company issues a check payable to both D and E in settlement of E's
claim. Pursuant to the contract between D and E, D holds the insurance
proceeds in an escrow account and makes disbursements, according to E's
instructions, to contractors and subcontractors performing repairs on
the property. D is not performing management or oversight functions, but
D has a significant economic interest in the payments because the
purpose of the arrangement is to ensure that property on which D holds a
mortgage is repaired or replaced. D is subject to the information
reporting requirements of section 6041 with respect to the payments to
contractors.
Example 3. Settlement agent F provides real estate closing services
to real estate brokers and agents. F deposits money received from the
buyer or lender in an escrow account and makes payments from the account
to real estate agents or brokers, appraisers, land surveyors, building
inspectors, or similar service providers according to the provisions of
the real estate contract and written instructions from the lender. F may
also make disbursements pursuant to oral instructions of the seller or
purchaser at closing. F is not performing management or oversight
functions and does not have a significant economic interest in the
payments, and is not subject to the information reporting requirements
of section 6041. For the rules relating to F's obligation to report the
gross proceeds of the sale, see section 6045(e) and Sec. 1.6045-4.
Example 4. Assume the same facts as in Example 3. In addition, the
seller instructs F to hire a contractor to perform repairs on the
property. F selects the contractor, negotiates the cost, monitors the
progress of the project, and inspects the work to ensure it complies
with the contract. With respect to the payments to the contractor, F is
performing management or oversight functions and is subject to the
information reporting requirements of section 6041.
Example 5. G is a rental agent who manages certain rental property
on behalf of property owner H. G finds tenants, arranges leases,
collects rent, responds to tenant inquiries regarding maintenance, and
hires and makes payments to repairmen. G subtracts her commission and
any maintenance payments from rental payments and remits the remainder
to H. With respect to payments to repairmen, G is performing management
or oversight functions and is subject to the information reporting
requirements of section
[[Page 186]]
6041. With respect to the payment of rent to H, G is subject to the
information reporting requirements of section 6041 regardless of whether
she performs management or oversight functions or has a significant
economic interest in the payment. See Sec. 1.6041-3(d) for rules
relating to rental agents. See Sec. 1.6041-1(f) to determine the amount
that G should report to H as rent.
Example 6. Literary agent J receives a payment from publisher L of
fees earned by J's client, author K. J deposits the payment into a bank
account in J's name. From time to time and as directed by K, J makes
payments from these funds to attorneys, managers, and other third
parties for services rendered to K. After subtracting J's commission, J
pays K the net amount. J does not order or direct the provision of
services by the third parties to K, and J exercises no discretion in
making the payments to the third parties or to K. J is not performing
management or oversight functions and does not have a significant
economic interest in the payments and is not subject to the information
reporting requirements of section 6041 in connection with the payments
to K or to the third parties. For the rules relating to L's obligation
to report the payment of the fees to K, see paragraphs (a)(1)(i) and (f)
of this section. For the rules relating to K's obligation to report the
payment of the commission to J and the payments to the third parties for
services, see paragraphs (a)(1)(i) and (d)(2) of this section.
Example 7. Attorney P deposits into a client trust fund a settlement
payment from R, the defendant in a breach of contract action for lost
profits in which P represented plaintiff Q. P makes payments from the
client trust fund to service providers such as expert witnesses and
private investigators for expenses incurred in the litigation. P decides
whom to hire, negotiates the amount of payment, and determines that the
services have been satisfactorily performed. In the event of a dispute
with a service provider, P withholds payment until the dispute is
settled. With respect to payments to the service providers, P is
performing management or oversight functions and is subject to the
information reporting requirements of section 6041.
Example 8. Assume the same facts as in Example 7. In addition,
assume that after paying the service providers and deducting his legal
fee, P pays Q the remaining funds that P had received from the
settlement with R. With respect to the payment to Q, P is not performing
management or oversight functions, does not have a significant economic
interest in the payment, and is not subject to the information reporting
requirements of section 6041. For the rules relating to R's obligation
to report the payment of the settlement proceeds to P, see section
6045(f) and the regulations thereunder. For the rules relating to R's
obligation to report the payment of the settlement proceeds to Q, see
paragraphs (a)(1)(i) and (f) of this section. For the rules relating to
Q's obligation to report the payment of attorney fees to P, see
paragraphs (a)(1)(i) and (d)(2) of this section.
Example 9. Medical insurer S operates as the administrator of a
health care program under a contract with a state. S makes payments of
government funds to health care providers who provide care to eligible
patients. S receives and reviews claims submitted by patients or health
care providers, determines if the claims meet all the requirements of
the program (e.g., that the care is authorized and that the patients are
eligible beneficiaries), and determines the amount of payment. S is
performing management or oversight functions and is subject to the
information reporting requirements of section 6041 with respect to the
payments.
Example 10. Race track employee T holds deposits made by horse owner
U in a special escrow account in U's name. U enters into a contract with
jockey V to ride U's horse in a race at the track. As directed by U, T
pays V the fee for riding U's horse from U's escrow account. T is not
performing management or oversight functions, does not have a
significant economic interest in the payment, and is not subject to the
information reporting requirements of section 6041. For the rules
relating to U's obligation to report the payment of the fee to V, see
paragraph (a)(1)(i) of this section.
Example 11. X is a certified public accountant employed by Firm Y,
and is not a partner. Client Z pays X directly for accounting services.
X remits the amount received to Y, as required by the terms of his
employment. X does not have any reporting obligation with respect to the
payment to Y. For the rules relating to Z's obligation to report the
payment to Y for services, see paragraphs (a)(1)(i) and (d)(2) of this
section.
Example 12. Bank contracts with Title Company with respect to the
disbursement of funds on a construction loan. Pursuant to their
arrangement, the contractor sends draw requests to Title Company, which
inspects the work, verifies the amount requested, and then sends the
draw request to Bank with supporting documents. Bank pays Title Company
the amount of the draw request, and Title Company insures Bank against
any loss if it cannot obtain the necessary lien waivers. Bank has a
significant economic interest in the payment as a mortgagee, and Title
Company exercises management or oversight over the payment. Since Title
Company is closest in the chain to the contractor, Title Company should
report the payment, unless the parties agree in writing that Bank will
report the payment.
(f) Amount to be reported when fees, expenses or commissions are
deducted--(1) In general. The amount to be reported
[[Page 187]]
as paid to a payee is the amount includible in the gross income of the
payee (which in many cases will be the gross amount of the payment or
payments before fees, commissions, expenses, or other amounts owed by
the payee to another person have been deducted), whether the payment is
made jointly or separately to the payee and another person. The
Commissioner may, by guidance published in the Internal Revenue
Bulletin, illustrate the circumstances under which the gross amount or
less than the gross amount may be reported.
(2) Examples. The provisions of this paragraph (f) are illustrated
by the following examples:
Example 1. Attorney P represents client Q in a breach of contract
action for lost profits against defendant R. R settles the case for
$100,000 damages and $40,000 for attorney fees. Under applicable law,
the full $140,000 is includible in Q's gross taxable income. R issues a
check payable to P and Q in the amount of $140,000. R is required to
make an information return reporting a payment to Q in the amount of
$140,000. For the rules with respect to R's obligation to report the
payment to P, see section 6045(f) and the regulations thereunder.
Example 2. Assume the same facts as in Example 1, except that R
issues a check to Q for $100,000 and a separate check to P for $40,000.
R is required to make an information return reporting a payment to Q in
the amount of $140,000. For the rules with respect to R's obligation to
report the payment to P, see section 6045(f) and the regulations
thereunder.
(g) Payment made in medium other than cash. If any payment required
to be reported on Form 1099 is made in property other than money, the
fair market value of the property at the time of payment is the amount
to be included on such form.
(h) When payment deemed made. For purposes of a return of
information, an amount is deemed to have been paid when it is credited
or set apart to a person without any substantial limitation or
restriction as to the time or manner of payment or condition upon which
payment is to be made, and is made available to him so that it may be
drawn at any time, and its receipt brought within his own control and
disposition.
(i) Payments made by the United States or a State. Information
returns on:
(1) Forms 1096 and 1099 and
(2) Forms W-3 and W-2 (when made under the provisions of Sec.
1.6041-2)
of payments made by the United States or a State, or political
subdivision thereof, or the District of Columbia, or any agency or
instrumentality of any one or more of the foregoing, shall be made by
the officer or employee of the United States, or of such State, or
political subdivision, or of the District of Columbia, or of such agency
or instrumentality, as the case may be, having control of such payments
or by the officer or employee appropriately designated to make such
returns.
(j) Effective date. The provisions of paragraphs (b), (c), (e), and
(f) apply to payments made after December 31, 2002.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6628, 27 FR
12794, Dec. 28, 1962, T.D. 6888, 31 FR 9205, July 6, 1966; T.D. 7284, 38
FR 20827, Aug. 3, 1973; T.D. 7580, 43 FR 60159, Dec. 26, 1978; T.D.
7888, 48 FR 17587, Apr. 25, 1983; T.D. 8458, 57 FR 61313, Dec. 24, 1992;
T.D. 8734, 62 FR 53471, Oct. 14, 1997; T.D. 8804, 64 FR 11378, Mar. 9,
1999; T.D. 8881, 65 FR 32205, May 22, 2000; T.D. 9010, 67 FR 48756, July
26, 2002; T.D. T.D. 9270, 71 FR 47080, Aug. 16, 2006]
Sec. 1.6041-2 Return of information as to payments to employees.
(a)(1) In general. Wages, as defined in section 3401, paid to an
employee are required to be reported on Form W-2. See section 6011 and
the Employment Tax Regulations thereunder. All other payments of
compensation, including the cash value of payments made in any medium
other than cash, to an employee by his employer in the course of the
trade or business of the employer must also be reported on Form W-2 if
the total of such payments and the amount of the employee's wages (as
defined in section 3401), if any, required to be reported on Form W-2
aggregates $600 or more in a calendar year. For example, if a payment of
$700 was made to an employee and $400 thereof represents wages subject
to withholding under section 3402 and the remaining $300 represents
compensation not subject to withholding, such wages and compensation
must both be reported on Form W-2. A separate Form W-2 shall be
furnished for each employee for whom a return must be made. At the
[[Page 188]]
election of the employer, components of amounts required to be reported
on Form W-2 pursuant to the provisions of this subparagraph may be
reported on more than one Form W-2.
(2) Transmittal form. The transmittal form for a return on Form W-2
made pursuant to the provisions of subparagraph (1) of this paragraph
shall be Form W-3. In a case where an employer must file a Form W-3
under this paragraph and also under Sec. 31.6011(a)-4 or Sec.
31.6011(a)-5 of this chapter (Employment Tax Regulations), the Form W-3
filed under such Sec. 31.6011(a)-4 or Sec. 31.6011(a)-5 shall also be
used as the transmittal form for a return on Form W-2 made pursuant to
the provisions of this paragraph.
(3) Time for filing--(i) General rule. In a case where an employer
must file Forms W-3 and W-2 under this paragraph and also under Sec.
31.6011(a)-4 or Sec. 31.6011(a)-5 of this chapter (Employment Tax
Regulations), the time for filing such forms under this paragraph shall
be the same as the time (including extensions thereof) for filing such
forms under Sec. 31.6011(a)-4 or Sec. 31.6011(a)-5.
(ii) Exception. In a case where an employer is not required to file
Forms W-3 and W-2 under Sec. 31.6011(a)-4 or Sec. 31.6011(a)-5 of this
chapter, returns on Forms W-3 and W-2 required under this paragraph (a)
for any calendar year shall be filed on or before February 28 (March 31
if filed electronically) of the following year.
(iii) Cross reference. For extensions of time for filing returns,
see section 6081 and the regulations thereunder.
(4) Place for filing. The returns on Forms W-3 and W-2 required
under this paragraph shall be filed pursuant to the rules contained in
Sec. 31.6091-1 of this chapter (Employment Tax Regulations), relating
to the place for filing certain returns.
(5) Statement for employees. An employer required under this
paragraph (a) to file Form W-2 with respect to an employee is also
required under sections 6041(d) and 6051 to furnish a written statement
to the employee. This written statement must be furnished on Form W-2 in
accordance with section 6051 and the regulations.
(b) Distributions under employees' trust or plan. (1) Amounts which
are:
(i) Distributed or made available to a beneficiary, and to which
section 402 (relating to employees' trusts) or section 403 (relating to
employee annuity plans) applies, or
(ii) Described in section 72(m)(3)(B), shall be reported on Forms
1096 and 1099 to the extent such amounts are includible in the gross
income of such beneficiary if the amounts so includible aggregate $600
or more in any calendar year. In addition, every trust described in
section 501(c)(17) which makes one or more payments (including
separation and sick and accident benefits) totaling $600 or more in 1
year to an individual must file an annual information return on Form
1096, accompanied by a statement on Form 1099, for each such individual.
Payments made by an employer or a person other than the trustee of the
trust should not be considered in determining whether the $600 minimum
has been paid by the trustee. The provisions of this subparagraph shall
not be applicable to payments of supplemental unemployment compensation
benefits made after December 31, 1970, which are treated as if they were
wages for purposes of section 3401(a). Such amounts are required to be
reported on Forms W-3 and W-2. See paragraph (b)(14) of Sec.
31.3401(a)-1 of this chapter (Employment Tax Regulations).
(2) Any amount with respect to which a statement is required by
Sec. 1.6047-1, relating to employee retirement plans covering owner-
employees, shall not be included in amounts required to be reported
under section 6041.
(c) Payments to foreign persons. See Sec. 1.6041-4 for reporting
exemptions regarding payments to foreign persons. See Sec. 1.6049-5(d)
for determining whether a payment is made to a foreign person.
[T.D. 7284, 38 FR 20827, Aug. 3, 1973, as amended by T.D. 7580, 43 FR
60159, Dec. 26, 1978; T.D. 8734, 62 FR 53472, Oct. 14, 1997; T.D. 8895,
65 FR 50406, Aug. 18, 2000; T.D. 9114, 69 FR 7570, Feb. 18, 2004]
[[Page 189]]
Sec. 1.6041-3 Payments for which no return of information is required
under section 6041.
Returns of information are not required under section 6041 and
Sec. Sec. 1.6041-1 and 1.6041-2 for payments described in paragraphs
(a) through (q) of this section. See Sec. 1.6041-4 for reporting
exemptions regarding payments to foreign persons.
(a) Payments of income required to be reported on Forms 1120-S, 941,
W-2, and W-3 (however, see Sec. 1.6041-2(a) with respect to Forms W-2
and W-3).
(b) Payments by a broker to his customer (but for reporting
requirements as to certain of such payments, see sections 6042, 6045,
and 6049 and the regulations thereunder in this part).
(c) Payments of bills for merchandise, telegrams, telephone,
freight, storage, and similar charges.
(d) Payments of rent made to rental agents (but the agent is
required to report payments of rent to the landlord in accordance with
Sec. 1.6041-1(a)(1)(i)(B) and (2)).
(e) Payments representing earned income for services rendered
without the United States made to a citizen of the United States, if it
is reasonable to believe that such amounts will be excluded from gross
income under the provisions of section 911 and the regulations
thereunder.
(f) Compensation and profits paid or distributed by a partnership to
the individual partners (but for reporting requirements, see Sec.
1.6031-1).
(g) Payments of commissions to general agents by fire insurance
companies or other companies insuring property, except when specifically
directed by the Commissioner to be filed.
(h)(1) In general. Payments made under reimbursement or other
expense allowance arrangements that meet the requirements of section
62(c) of the Code and Sec. 1.62-2, that do not exceed the amount of the
expenses substantiated (i.e., amounts which are treated as paid under an
accountable plan), and that are received by an employee on or after
January 1, 1989, with respect to expenses paid or incurred on or after
January 1, 1989.
(2) Transition rule. Payments made under reimbursement or other
expense allowance arrangements that are received by an employee on or
after January 1, 1989, but prior to July 1, 1990, to the extent that the
employee is required to account (within the meaning of the term
``account'' as set forth in Sec. 1.162-17(b)(4) or 1.274-5T(f)(4),
whichever is applicable) and does so account to the payor for such
expenses, provided the payor has made a reasonable, good faith effort to
comply with the requirements of section 62(c). In general, compliance
with the provisions of this section, as in effect for payments made
under reimbursement or other expense allowance arrangements that were
received by an employee before January 1, 1989, with respect to expenses
paid or incurred before January 1, 1989, will constitute such reasonable
good faith compliance. In no event, however, will reasonable good faith
compliance exist if a payor fails to report payments made under an
arrangement (other than a per diem or mileage allowance type
arrangement) under which an employee is not required to substantiate
expenses paid or incurred or is not required to return amounts in excess
of the substantiated expenses.
(i) Payments of interest on obligations of the United States, or a
State, Territory, or political subdivision thereof, or the District of
Columbia, or any agency or instrumentality of any one or more of the
foregoing (but for requirements for reporting certain such payments by
the United States or any agency or instrumentality thereof, see
Sec. Sec. 1.1461-1 to 1.1461-3, inclusive).
(j) Payments of interest on corporate bonds (but for reporting
requirements as to payments on certain corporate bonds, see Sec.
1.6049-5.
(k) Amounts paid as an allowance or reimbursement for traveling or
other bona fide ordinary and necessary expenses, including an allowance
for meals and lodging or a per diem allowance in lieu of subsistence, to
persons in the service of an international organization (without regard
to whether there is a requirement to account for such amounts) if-
(1) The organization is designated as an international organization
by the President of the United States in Executive Orders issued
pursuant to 22 U.S.C. 288, and
[[Page 190]]
(2) The organization has immunity with respect to the invoilability
of its archives pursuant to an international agreement having full force
and effect in the United States.
(l) A payment to an informer as an award, fee, or reward for
information relating to criminal activity, but only if such payment is
made by the United States, a State, Territory, or political subdivision
thereof, or the District of Columbia, or any agency or instrumentality
of any one or more of the foregoing, or, with respect to payments made
after December 31, 1987, by an organization that is described in section
501(c)(3) and that makes such payments in furtherance of a charitable
purpose to lessen the burdens of government within the meaning of Sec.
1.501(c)(3)-1(d)(2).
(m) On and after September 9, 1968, payments by a person carrying on
the banking business of interest on a deposit evidenced by a negotiable
time certificate of deposit (but for reporting requirements as to
payments made after December 31, 1962, of interest on certain deposits,
see sec. 6049 and the regulations thereunder in this part).
(n) Payments to individuals as scholarships or fellowship grants
within the meaning of section 117(b)(1), whether or not ``qualified
scholarships'' as described in section 117(b). This exception does not
apply to any amount of a scholarship or fellowship grant that represents
payment for services within the meaning of section 117(c). Instead,
these amounts are required to be reported as wages on Form W-2. See
Sec. 1.1461-1(c) for applicable reporting requirements for amounts paid
to foreign persons.
(o) Per diem of certain alien trainees described under section
1441(c)(6).
(p) Payments made to the following persons:
(1) A corporation described in Sec. 1.6049-4(c)(1)(ii)(A), except
with respect to payments made to a corporation after December 31, 1997
for attorneys' fees, and except a corporation engaged in providing
medical and health care services or engaged in the billing and
collecting of payments in respect to the providing of medical and health
care services. However, no reporting is required where payment is made
to a hospital or extended care facility described in section 501(c)(3)
which is exempt from taxation under section 501(a) or to a hospital or
extended care facility owned and operated by the United States, a State,
the District of Columbia, a possession of the United States, or a
political subdivision, agency or instrumentality of any of the
foregoing. For reporting requirements as to payments by cooperatives,
and to certain other payments, see sections 6042, 6044, and 6049 and the
regulations thereunder in this part.
(2) An organization exempt from taxation under section 501(a), as
described in Sec. 1.6049-4(c)(1)(ii)(B)(1), or an individual retirement
plan, as described in Sec. 1.6049-4(c)(1)(ii)(C).
(3) The United States, as described in Sec. 1.6049-4(c)(1)(ii)(D).
(4) A State, the District of Columbia, a possession of the United
States, or any political subdivision of any of the foregoing, as
described in Sec. 1.6049-4(c)(1)(ii)(E).
(5) A foreign government or political subdivision of a foreign
government, as described in Sec. 1.6049-4(c)(1)(ii)(F).
(6) An international organization, as described in Sec. 1.6049-
4(c)(1)(ii)(G).
(7) A foreign central bank of issue, as described in Sec. 1.6049-
4(c)(1)(ii)(H) and the Bank for International Settlements.
(8) Any wholly owned agency or instrumentality of any person
described in paragraph (p) (2), (3), (4), (5), (6), or (7) of this
section.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960]
Editorial Note: For Federal Register citations affecting Sec.
1.6041-3, see the List of CFR Sections Affected, which appears in the
Finding Aids section of the printed volume and on GPO Access.
Sec. 1.6041-4 Foreign-related items and other exceptions.
(a) Exempted foreign-related items--(1) Returns of information are
not required for payments that a payor can, prior to payment, associate
with documentation upon which it may rely to treat as made to a foreign
beneficial owner in accordance with Sec. 1.1441-1(e)(1)(ii) or as made
to a foreign payee in accordance with Sec. 1.6049-5(d)(1) or presumed
to be made to a foreign payee under Sec. 1.6049-5(d)(2), (3), (4), or
(5).
[[Page 191]]
However, such payments may be reportable under Sec. 1.1461-1(b) and
(c). For purposes of this paragraph (a)(1), the provisions in Sec.
1.6049-5(c) (regarding rules applicable to documentation of foreign
status and definition of U.S. payor and non-U.S. payor) shall apply. See
Sec. 1.1441-1(b)(3)(iii)(B) and (C) for special payee rules regarding
scholarships, grants, pensions, annuities, etc. The provisions of Sec.
1.1441-1 shall apply by substituting the term payor for the term
withholding agent and without regard to the fact that the provisions
apply only to amounts subject to withholding under chapter 3 of the
Internal Revenue Code and the regulations under that chapter.
(2) Returns of information are not required for payments of amounts
from sources outside the United States (determined under the provisions
of part I, subchapter N, chapter 1 of the Internal Revenue Code and the
regulations under those provisions) made by a non-U.S. payor or non-U.S.
middleman outside the United States. For a definition of non-U.S. payor
and non-U.S. middleman, see Sec. 1.6049-5(c)(5). For circumstances in
which a payment is considered to be made outside the United States, see
Sec. 1.6049-5(e).
(3) Returns of information are not required for amounts paid by a
foreign intermediary described in Sec. 1.1441-1(c)(13) that it has
received in its capacity as an intermediary and that are associated with
a valid withholding certificate described in Sec. 1.1441-1(e)(3)(ii) or
(iii) and payments made by a U.S. branch of a foreign bank or of a
foreign insurance company described in Sec. 1.1441-1(b)(2)(iv) (other
than a U.S. branch that is treated as a U.S. person) that are associated
with a valid withholding certificate described in Sec. 1.1441-
1(e)(3)(v), which certificate the intermediary or branch has furnished
to the payor or middleman from whom it has received the payment, unless,
and to the extent, the intermediary or branch knows that the payments
are required to be reported under Sec. 1.6041-1 and were not so
reported. For example, if a foreign intermediary or U.S. branch
described in Sec. 1.1441-1(b)(2)(iv) fails to provide information
regarding U.S. persons that are not exempt from reporting under Sec.
1.6041-3(q) to the person from whom the intermediary or U.S. branch
receives the payment, the foreign intermediary or U.S. branch must
report the payment on an information return. The exception of this
paragraph (a)(3) shall not apply to a qualified intermediary that
assumes reporting responsibility under chapter 61 of the Internal
Revenue Code.
(4) Returns of information are not required for amounts paid with
respect to notional principal contracts referred to in Sec. 1.863-7 or
1.988-2(e) which the payor may treat as effectively connected income of
a foreign payee under the provisions of Sec. 1.1441-4(a)(3) or if the
payee provides a representation in a master agreement that governs the
transactions in notional principal contracts between the parties (for
example, an International Swap and Derivatives Association (ISDA)
Agreement, including the Schedule thereto) or in the confirmation on the
particular notional principal contract transaction that the counterparty
is a foreign person. See, however, Sec. 1.1461-1(c)(2)(i) for
applicable reporting requirements.
(5) Returns of information are not required for the period that the
amounts paid represent assets blocked as described in Sec. 1.1441-
2(e)(3). The exemption in this paragraph (a)(5) shall terminate when
payment is deemed to occur in accordance with the provisions of Sec.
1.1441-2(e)(3).
(6) For rules concerning direct sellers, see Sec. 1.6041A-
1(d)(3)(i)(C).
(b) Joint owners. Amounts paid to joint owners for which a
certificate or documentation is required as a condition for being exempt
from reporting under paragraph (a) of this section are presumed made to
U.S. payees who are not exempt recipients if, prior to payment, the
payor or middleman cannot reliably associate the payment either with a
Form W-9 furnished by one of the joint owners in the manner required in
Sec. Sec. 31.3406(d)-1 through 31.3406(d)-5 of this chapter, or with
documentation described in paragraph (a)(1) of this section furnished by
each joint owner upon which the payor or middleman can rely to treat
each joint owner as a foreign payee or foreign beneficial owner.
(c) Conversion into United States dollars of amounts paid in foreign
currency.
[[Page 192]]
For rules concerning foreign currency conversion, see Sec. 1.6049-
4(d)(3)(i).
(d) Effective date. The provisions of this section apply to payments
made after December 31, 2000.
[T.D. 8734, 62 FR 53473, Oct. 14, 1997, as amended by T.D. 8804, 63 FR
72188, Dec. 31, 1998; T.D. 8856, 64 FR 73412, Dec. 30, 1999; T.D. 8881,
65 FR 32205, May 22, 2000]
Sec. 1.6041-5 Information as to actual owner.
When a person receiving a payment described in section 6041 is not
the actual owner of the income received, the name and address of the
actual owner shall be furnished upon demand of the person paying the
income, and in default of compliance with such demand the payee becomes
liable for the penalties provided. See section 7203.
Sec. 1.6041-6 Returns made on Forms 1096 and 1099 under section
6041; contents and time and place for filing.
Returns made under section 6041 on Forms 1096 and 1099 for any
calendar year shall be filed on or before February 28 (March 31 if filed
electronically) of the following year with any of the Internal Revenue
Service Centers, the addresses of which are listed in the instructions
for such forms. The name and address of the person making the payment
and the name and address of the recipient of the payment shall be stated
on Form 1099. If the present address of the recipient is not available,
the last known post office address must be given. See section 6109 and
the regulations thereunder for rules requiring the inclusion of
identifying numbers in Form 1099.
[T.D. 7284, 38 FR 20828, Aug. 3, 1973, as amended by T.D. 8895, 65 FR
50406, Aug. 18, 2000]
Sec. 1.6041-7 Magnetic media requirement.
(a) General. For rules relating to permission to submit the
information required by Form 1099 or W-2 on magnetic tape or other
media, see Sec. 1.9101-1. See also paragraph (b)(2) of Sec.
31.6011(a)-7 of this chapter (Employment Tax Regulations) for additional
rules relating to Form W-2. High-volume filers of information returns
must file their returns on magnetic media. See section 6011(e) and Sec.
301.6011-2 of this chapter (Procedure and Administration Regulations)
for the requirements for filing on magnetic media.
(b) Returns on magnetic tape by departments of health care carriers.
(1) For calendar years beginning on or after January 1, 1971, a health
care carrier, or an agent thereof, making payment of fees or other
compensation to providers of medical and health care services, may make
a separate return on magnetic tape for each separate department within a
specific line of such carrier's business, so long as all of such returns
taken together contain all of the information required by section 6041
with respect to each provider of medical and health care services to
whom such health care carrier makes payments aggregating $600 or more
during the calendar year. Examples of separate departments within a
specific line of such carrier's business (such as health and accident
insurance) include, but are not limited to, separate departments to
process claims of individual and group policyholders; and separate
departments established along geographic lines.
(2) For purposes of this paragraph, the term ``health care carrier''
means any person making health care payments: (i) In exchange for the
payment of a premium, (ii) in accordance with an employee benefit
program, or (iii) in connection with a government-sponsored health care
program.
[T.D. 7106, 36 FR 6422, Apr. 3, 1971, as amended by T.D. 8734, 62 FR
53473, Oct. 14, 1997]
Sec. 1.6041-8 Cross-reference to penalties.
For provisions relating to the penalty provided for failure to file
timely a correct information return required under section 6041(a) or
(b), see Sec. 301.6721-1 of this chapter (Procedure and Administration
Regulations). For provisions relating to the penalty provided for
failure to furnish timely a correct payee statement required under
section 6041(d), see Sec. 301.6722-1 of this chapter. See Sec.
301.6724-1 of this chapter for the waiver of a penalty if the failure is
due to reasonable cause and is not due to willful neglect.
[T.D. 8734, 62 FR 53474, Oct. 14, 1997]
[[Page 193]]
Sec. 1.6041-9 Coordination with reporting rules for widely held fixed
investment trusts under Sec. 1.671-5.
See Sec. 1.671-5 for the reporting rules for widely held fixed
investment trusts (WHFIT) (as defined under that section). For purposes
of section 6041, middlemen and trustees of WHFITs are deemed to have
management and oversight functions in connection with payments made by
the WHFIT.
[T.D. 9241, 71 FR 4024, Jan. 24, 2006]
Sec. 1.6041A-1 Returns regarding payments of remuneration for
services and certain direct sales.
(a) through (c) [Reserved]
(d) Exceptions to return requirement. [Reserved]
(1) and (2) [Reserved]
(3) Foreign transactions--(i) In general. No return shall be
required under section 6041A with respect to payments described in this
paragraph (d)(3).
(A) Returns of information are not required for payments that a
payor can, prior to payment, associate with documentation upon which it
may rely to treat as made to a foreign beneficial owner in accordance
with Sec. 1.1441-1(e)(1)(ii) or as made to a foreign payee in
accordance with Sec. 1.6049-5(d)(1) or presumed to be made to a foreign
payee under Sec. 1.6049-5(d)(2), (3), (4), or (5). However, such
payments may be reportable under Sec. 1.1461-1(b) and (c). For purposes
of this paragraph (d)(3)(i)(A), the provisions in Sec. 1.6049-5(c)
(regarding rules applicable to documentation of foreign status and
definition of U.S. payor and non-U.S. payor) shall apply. The provisions
of Sec. 1.1441-1 shall apply by substituting the term payor for the
term withholding agent.
(B) Returns of information are not required for payments of
remuneration for services from sources outside the United States
(determined under the provisions of part I, subchapter N, chapter 1 of
the Internal Revenue Code and the regulations under those provisions) if
payments are made outside the United States by a non-U.S. payor or non
U.S. middleman. For a definition of non U.S. payor or non-U.S.
middleman, see Sec. 1.6049-5(c)(5). For circumstances in which a
payment is considered to be made outside the United States, see Sec.
1.6049-5(e).
(C) Returns of information are not required under sections 6041 or
6041A for amounts paid outside of the United States (within the meaning
of Sec. 1.6049-5(e)) as remuneration for services as a direct seller
(within the meaning of section 3508) performed outside of the United
States or for sales described in section 6041A(b) made outside of the
United States of consumer products for resale outside of the United
States.
(ii) Payor. The term payor has the same meaning as described in
Sec. 1.6049-4(a)(2).
(iii) Joint owners. Amounts paid to joint owners for which a
certificate or documentation is required as a condition for being exempt
from reporting under paragraph (d)(3)(i) of this section are presumed
made to U.S. payees who are not exempt recipients if, prior to payment,
the payor or middleman cannot reliably associate the payment either with
a Form W-9 furnished by one of the joint owners in the manner required
in Sec. Sec. 31.3406(d)-1 through 31.3406(d)-5 of this chapter, or with
documentation described in paragraph (d)(3)(i)(A) of this section
furnished by each joint owner upon which it can rely to treat each joint
owner as a foreign payee or foreign beneficial owner.
(iv) Conversion into United States dollars of amounts paid in
foreign currency. For rules concerning foreign currency conversion, see
Sec. 1.6049-4(d)(3)(i).
(v) Effective date. The provisions of this paragraph (d)(3) apply to
payments made after December 31, 2000.
(e) [Reserved]
(f) Statements to be furnished to persons with respect to whom
information is required to be furnished--(1) [Reserved]
(2) Time for furnishing statement. [Reserved]
(3) Contents of statement. [Reserved]
(g) [Reserved]
(h) Cross-reference to penalties. For provisions relating to the
penalty provided for failure to file timely a correct information return
required under section 6041A(a) or (b), see Sec. 301.6721-1 of this
chapter (Procedure and Administration Regulations). For provisions
relating to the penalty provided for failure to furnish timely a correct
payee statement required under section 6041A(e), see Sec. 301.6722-1 of
this chapter. See Sec. 301.6724-1 of this chapter for the
[[Page 194]]
waiver of a penalty if the failure is due to reasonable cause and is not
due to willful neglect.
[T.D. 8734, 62 FR 53474, Oct. 14, 1997, as amended by T.D. 8804, 63 FR
72188, Dec. 31, 1998; T.D. 8856, 64 FR 73412, Dec. 30, 1999; T.D. 8881,
65 FR 32205, May 22, 2000]
Sec. 1.6042-1 Return of information as to dividends paid in calendar
years before 1963.
(a) Requirement of return--(1) In general. Except as provided in
subparagraphs (2) and (3) of this paragraph, every domestic corporation,
or foreign corporation engaged in business within the United States or
having an office or place of business or a fiscal or paying agent in the
United States, making payments during any calendar year before 1963 of
$10 or more of dividends and distributions (other than distributions in
liquidation) to any shareholder who is an individual (citizen or
resident of the United States), a resident fiduciary, or a resident
partnership any member of which is a citizen or resident shall file for
the calendar year a return setting forth the amount of such payments for
such calendar year. A separate return on Form 1099, showing the name and
address of the payer and the shareholder, and the amount paid, shall be
prepared with respect to each shareholder. These returns shall be
accompanied by transmittal Form 1096.
(2) Federal land bank associations and certain other corporations. A
corporation described in section 501(c) (12), (15), or (16), or section
521(b)(1), or a Federal land bank association or a production credit
association, making a payment of a dividend, or a distribution, to any
shareholder in any calendar year before 1963 shall file an information
return with respect to such payments when they total $100 or more during
the calendar year.
(3) Savings and loan associations, etc. A savings and loan
association, a cooperative bank, a homestead association, a credit
union, or a building and loan association is required to file an
information return with respect to distributions made to a shareholder
during any calendar year before 1963 only if the amount thereof paid to
the shareholder during the calendar year, or such amount when aggregated
with other payments made to the shareholder during such year of
interest, rents, royalties, annuities, pensions, and other gains,
profits, and income, as described in paragraph (a)(2)(ii) of Sec.
1.6041-1, totals $600 or more. For this purpose, the term
``distributions to a shareholder'' includes periodical distributions of
earnings on running installment shares of stock paid or credited by a
building and loan association to its holders of that class of stock, and
the sum received upon withdrawal from a building and loan association in
excess of the amounts paid in on account of membership fees and stock
subscriptions, consisting of accumulated profits.
(b) Nontaxable or partly nontaxable distributions. In the case of a
distribution which is made from a depletion or depreciation reserve, or
which for any other reason is deemed by the corporation to be nontaxable
or partly nontaxable to its shareholders, the corporation shall fill in
the information on both sides of Form 1096.
(c) Information as to actual owner--(1) In general. When the person
receiving a payment with respect to which an information return is
required under authority of the Code is not the actual owner of the
income received, the name and address of the actual owner or payee shall
be furnished upon demand of the person paying the income, and in default
of a compliance with such demand the payee becomes liable for the
penalties provided. See section 7203. Dividends on stock are prima facie
the income of the record owner of the stock. If a record owner of stock
who is not the actual owner thereof receives dividends on such stock in
any calendar year before 1963, he shall file a Form 1087 disclosing the
name and address of the actual owner or payee, the name of the issuing
corporation, the number of shares of such stock, and the amount of
dividends received with respect to such stock during the calendar year.
(For the reporting by a nominee of dividends received by him on behalf
of another person in any calendar year after 1962, see Sec. 1.6042-2.)
Unless such a disclosure is made the record owner will be held liable
for any tax based upon such dividends. A separate Form 1087 shall be
filed by the record owner for each of the stockholdings of each
[[Page 195]]
actual owner for whom he acts as nominee. However, where the record
owner is a banking institution, trust company, or brokerage firm, it
may, provided it maintains such records as will permit a prompt
substantiation of each payment of dividends made to the actual owner,
file one Form 1087 for each actual owner for whom it acts as nominee and
report thereon the total amount of the dividends paid to such actual
owner (without itemization as to the issuing company, class of stock,
etc.).
(2) Exceptions. The filing of Form 1087 is not required if:
(i) The record owner is required to file a fiduciary return on Form
1041, or a withholding return on Form 1042, disclosing the name and
address of the actual owner or payee;
(ii) The actual owner or payee is a nonresident alien individual,
foreign partnership, or foreign corporation and the tax has been
withheld at the source before receipt of the dividends by the record
owner;
(iii) The record owner is a banking institution, a trust company, or
a brokerage firm which prepares the individual income tax return of the
actual owner, provided the verification on the return with respect to
the preparation thereof is executed by such record owner;
(iv) The record owner is a nominee of a banking institution or trust
company exercising trust powers, and such banking institution or trust
company is required to file a fiduciary return on Form 1041 which
reflects the name and address of the actual owner or payee;
(v) The actual owner is an organization exempt from taxation under
section 501(a) and is exempt from the requirement of filing a return
under section 6033 and paragraph (g) of Sec. 1.6033-1; or
(vi) The record owner is a banking institution or trust company
exercising trust powers, or a nominee thereof, and the actual owner is
an organization exempt from taxation under section 501(a) for which such
banking institution or trust company files an annual return.
See Sec. 1.1441-1, relating to withholding of tax on nonresident alien
individuals, and Sec. 1.1442-1, relating to withholding of tax on
nonresident foreign corporations.
(d) Time and place for filing. Returns made under this section on
Forms 1096 and 1099 and Form 1087 for any calendar year shall be filed
on or before February 28 of the following year with any of the Internal
Revenue Service Centers, the addresses of which are listed in the
instructions for such forms.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6628, 27 FR
12795, Dec. 28, 1962]
Sec. 1.6042-2 Returns of information as to dividends paid.
(a) Requirement of reporting--(1) In general. An information return
on Form 1099 shall be made under section 6042(a) by--
(i) Every person who makes a payment of dividends (as defined in
Sec. 1.6042-3) to any other person during a calendar year. The
information return shall show the aggregate amount of the dividends, the
name, address, and taxpayer identifying number of the person to whom
paid, the amount of tax deducted and withheld under section 3406 from
the dividends, if any, and such other information as required by the
forms. An information return is generally not required if the amount of
dividends paid to the other person during the calendar year aggregates
less than $10 or if the payment is made to a person who is an exempt
recipient described in Sec. 1.6049-4(c)(1)(ii) unless the payor backup
withholds under section 3406 on such payment (because, for example, the
payee has failed to furnish a Form W-9 on request), in which case the
payor must make a return under this section, unless the payor refunds
the amount withheld pursuant to Sec. 31.6413(a)-3 of this chapter.
(ii) Every person, except to the extent that he acts as a nominee
described in paragraph (a)(1)(iii) of this section, who receives
payments of dividends as a nominee on behalf of another person shall
make a return of information under this section for the calendar year of
the payment . The information return shall show the aggregate amount of
the dividends, the name, address, and taxpayer identification number of
the person on whose behalf the dividends are received, the
[[Page 196]]
amount of tax deducted and withheld under section 3406 from the
dividends, if any, and such other information as required by the forms.
An information return is generally not required if the amount of the
dividends received on behalf of the other person during the calendar
year aggregates less than $10. However, a return of information is not
required under this section if--
(A) The record owner is, pursuant to section 6012(a) (3) or (4) and
Sec. 1.6012-3, required to file a fiduciary return on Form 1041 that is
filed for the estate or trust disclosing the name, address, and
identifying number of both the record owner and actual owner and
furnishes Form K-1 to each actual owner containing the information
required to be shown on the form, including amounts withheld under
section 3406;
(B) The record owner is a nominee of a banking institution or trust
company exercising trust powers, and such banking institution or trust
company is, pursuant to section 6012(a) (3) or (4) and Sec. 1.6012-3,
required to file a fiduciary return on Form 1041 that is filed for the
estate or trust disclosing the name, address, and identifying number of
both the record owner and the actual owner and furnishes Form K-1 to
each actual owner containing the information required to be shown on the
form, including amounts withheld under section 3406; or
(C) The record owner is a banking institution or trust company
exercising trust powers, or a nominee thereof, and the actual owner is
an organization exempt from taxation under section 501(a) for which such
banking institution or trust company files an annual return but only if
the name, address, and identifying number of the record owner are
included on or with the annual return filed for the tax exempt
organization).
(iii) Every person who is a nominee acting as a custodian of a unit
investment trust described in section 851(f)(1) and paragraph (d) of
Sec. 1.851-7 who, during a calendar year after 1968, receives payments
of dividends in such capacity, shall make an information return on Forms
1096 and 1099, for such calendar year showing the information required
by such forms and instructions thereto and the name, address, and
identifying number of the nominee identified as such. This subdivision
shall not apply if the regulated investment company agrees with the
nominee to satisfy the requirements of section 6042 and the regulations
thereunder with respect to each holder of an interest in the unit
investment trust whose shares are being held by the nominee as custodian
and within the time limit for furnishing statements prescribed by Sec.
1.6042-4, files with the Internal Revenue Service office where such
company's return is to be filed for the taxable year, a statement that
the holders of the unit investment trust with whom the agreement was
made have been directly notified by the regulated investment company.
Such statement shall include the name, sponsor, and custodian of each
unit investment trust whose holders have been directly notified. The
nominee's requirements under this subdivision shall be deemed met if the
regulated investment company transmits a copy of such statement to the
nominee within such period; provided, however, if the regulated
investment company fails or is unable to satisfy the requirements of
section 6042 with respect to the holders of interest in the unit
investment trust, it shall so notify the Internal Revenue Service within
45 days following the close of its taxable year. The custodian shall,
upon notice by the Internal Revenue Service that the regulated
investment company has failed to comply with the agreement, satisfy the
requirements of this subdivision within 30 days of such notice.
(2) Definitions. The term ``person'' when used in this section does
not include the United States, a State, the District of Columbia, a
foreign government, a political subdivision of a State or of a foreign
government, or an international organization. Therefore, dividends paid
by or to one of these entities need not be reported. For purposes of
this section, a person who receives a dividend shall be considered to
have received it as a nominee if he is not the actual owner of such
dividend and if he was required under Sec. 1.6109-1 to furnish his
identifying number to the payer of the dividend (or would have been so
required if the total of such dividends for the year had been $10 or
more), and
[[Page 197]]
such number was (or would have been) required to be included on an
information return filed by the payer with respect to the dividend.
However, a person shall not be considered to be a nominee as to any
portion of a dividend which is actually owned by another person whose
name is also shown on the information return filed by the payer or
nominee with respect to such dividend. Thus, in the case of stock
jointly owned by a husband and wife, the husband will not be considered
as receiving any portion of a dividend on that stock as a nominee for
his wife if his wife's name is included on the information return filed
by the payer with respect to the dividend.
(3) Determination of person to whom a dividend is paid or for whom
it is received. For purposes of applying the provisions of this section,
the person whose identifying number is required to be included by the
payer of a dividend on an information return with respect to such
dividend shall be considered the person to whom the dividend is paid. In
the case of a dividend received by a nominee on behalf of another
person, the person whose identifying number is required to be included
on an information return made by the nominee with respect to such
dividend shall be considered the person on whose behalf such dividend is
received by the nominee. Thus, in the case of a dividend made payable to
a person other than the record owner of the stock with respect to which
the dividend is paid, the record owner of the stock shall be considered
the person to whom the dividend is paid for purposes of applying the
reporting requirements in this section, since his identifying number is
required to be included on the information return filed under this
section by the payer of the dividend. Similarly, if a stockbroker
receives a dividend on stock held in street name for the joint account
of a husband and wife, the dividend is considered as received on behalf
of the husband since his identifying number should be shown on the
information return filed by the nominee under this section. Thus, if the
wife has a separate account with the same stockbroker, any dividends
received by the stockbroker for her separate account should not be
aggregated with the dividends received for the joint account for
purposes of information reporting. For regulations relating to the use
of identifying numbers, see Sec. 1.6109-1.
(4) Inclusion of other payments. The Form 1099 filed by any person
with respect to payments of dividends to another person during a
calendar year may, at the election of the maker, include other payments
made by him to such other person during such year which are required to
be reported on Form 1099. Similarly, the Form 1099 filed by a nominee
with respect to payments of dividends received by him on behalf of any
other person during a calendar year may include payments of interest
received by him on behalf of such person during such year which are
required to be reported on Form 1099.
(b) When payment deemed made. For purposes of a return of
information, an amount is deemed to have been paid when it is credited
or set apart to a person without any substantial limitation or
restriction as to the time or manner of payment or condition upon which
payment is to be made, and is made available to him so that it may be
drawn at any time, and its receipt brought within his own control and
disposition.
(c) Time and place for filing. The returns required under this
section for any calendar year shall be filed after September 30 of such
year, but not before the payer's final payment for the year, and on or
before February 28 (March 31 if filed electronically) of the following
year with any of the Internal Revenue Service Centers, the addresses of
which are listed in the instructions for Form 1096. For extensions of
time for filing returns under this section, see Sec. 1.6081-1.
(d) Cross-reference to penalty. For provisions relating to the
penalty provided for failure to file timely a correct information return
required under section 6042(a), see Sec. 301.6721-1 of this chapter
(Procedure and Administration Regulations). See Sec. 301.6724-1 of this
chapter for the waiver of a penalty if the failure is due to reasonable
cause and is not due to willful neglect.
(e) Magnetic media requirement. For rules relating to permission to
submit the information required by Form 1087
[[Page 198]]
or 1099 on magnetic tape or other media, see Sec. 1.9101-1. For the
requirement to submit the information required by Form 1099 on magnetic
media for payments after December 31, 1983, see section 6011(e) and
Sec. 301.6011-2 of this chapter (Procedure and Administration
Regulations).
[T.D. 6628, 27 FR 12796, Dec. 29, 1962, as amended by T.D. 6677, 28 FR
10147, Sept. 17, 1963; T.D. 6879, 31 FR 3493, Mar. 8, 1966; T.D. 6883,
31 FR 6589, May 3, 1966; T.D. 7000, 34 FR 996, Jan. 23, 1969; T.D. 7187,
37 FR 13258, July 6, 1972; T.D. 8734, 62 FR 53474, Oct. 14, 1997; T.D.
8804, 64 FR 11378, Mar. 9, 1999; T.D. 8895, 65 FR 50406, Aug. 18, 2000]
Sec. 1.6042-3 Dividends subject to reporting.
(a) In general. Except as provided in paragraph (b) of this section,
the term dividend for purposes of this section and Sec. Sec. 1.6042-2
and 1.6042-4 means the amounts described in the following paragraphs (a)
(1) through (3) of this section--
(1) Any distribution made by a corporation to its shareholders which
is a dividend as defined in section 316; and
(2) Any payment made by a stockbroker to any person as a substitute
for a dividend. Such a payment includes any payment made in lieu of a
dividend to a person whose stock has been borrowed. See Sec. 1.6045-
2(h) for coordination of the reporting requirements under sections 6042
and 6045(d) with respect to such payments; and
(3) A distribution from a regulated investment company (irrespective
of the fact that any part of the distribution may not represent ordinary
income (i.e., may, for example, represent a capital gain dividend as
defined in section 852(b)(3)(C)).
(b) Exceptions--(1) In general. For purposes of Sec. Sec. 1.6042-2
and 1.6042-4, the amounts described in paragraphs (b)(1)(i) through
(vii) of this section are not dividends.
(i) Amounts paid by an insurance company to a policyholder, other
than a dividend upon its capital stock.
(ii) Payments (however denominated) by a mutual savings bank,
savings and loan association, or similar organization, in respect of
deposits, investment certificates, or withdrawable or repurchasable
shares. See, however, section 6049 and the regulations under that
section for provisions requiring reporting of these payments.
(iii) Distributions or payments that a payor can, prior to payment,
reliably associate with documentation upon which it may rely to treat as
made to a foreign beneficial owner in accordance with Sec. 1.1441-
1(e)(1)(ii) or as made to a foreign payee in accordance with Sec.
1.6049-5(d)(1) or presumed to be made to a foreign payee under Sec.
1.6049-5(d) (2), (3), (4), or (5). However, such payments may be
reportable under Sec. 1.1461-1(b) and (c). For purposes of this
paragraph (b)(1)(iii), the provisions in Sec. 1.6049-5(c) (regarding
rules applicable to documentation of foreign status and definition of
U.S. payor and non-U.S. payor) shall apply. The provisions of Sec.
1.1441-1 shall apply by substituting the term payor for the term
withholding agent and without regard to the fact that the provisions
apply only to amounts subject to withholding under chapter 3 of the
Internal Revenue Code (Code).
(iv) Distributions or payments from sources outside the United
States (as determined under the provisions of part I, subchapter N,
chapter 1 of the Code and the regulations under those provisions) paid
outside the United States by a non-U.S. payor or a non-U.S. middleman.
For a definition of non-U.S. payor and non-U.S. middleman, see Sec.
1.6049-5(c)(5). For circumstances in which a payment is considered to be
made outside the United States, see Sec. 1.6049-5(e).
(v) Distributions or payments for the period that the amounts
represent assets blocked as described in Sec. 1.1441-2(e)(3). The
exemption in this paragraph (b)(1)(v) shall terminate when payment is
deemed to occur in accordance with the rules of Sec. 1.1441-2(e)(3).
(vi) Payments made by a foreign intermediary described in Sec.
1.1441-1(c)(13) of amounts that it has received in its capacity as an
intermediary and that are associated with a valid withholding
certificate described in Sec. 1.1441-1(e)(3)(ii) or (iii) and payments
made by a U.S. branch of a foreign bank or of a foreign insurance
company described in Sec. 1.1441-1(b)(2)(iv) (other than a U.S. branch
that is treated as a U.S. person) that are associated with a valid
withholding certificate described in Sec. 1.1441-
[[Page 199]]
1(e)(3)(v), which certificate the intermediary or branch has furnished
to the payor or middleman from whom it has received the payment, unless,
and to the extent, the intermediary or branch knows that the payments
are required to be reported under Sec. 1.6042-2 and were not so
reported. For example, if a foreign intermediary or U.S. branch
described in Sec. 1.1441-1(b)(2)(iv) fails to provide information
regarding U.S. persons that are not exempt from reporting under Sec.
1.6049-4(c)(1)(ii) to the person from whom the intermediary or U.S.
branch receives the payment, the amount paid by the foreign intermediary
or U.S. branch to such person is a dividend. The exception of this
paragraph (b)(1)(vi) shall not apply to a qualified intermediary that
assumes reporting responsibility under chapter 61 of the Internal
Revenue Code.
(vii) With respect to amounts paid or credited after December 31,
1982, any amount paid or credited to any person described in Sec.
1.6049-4(c)(1)(ii), unless a tax is withheld under section 3406 and is
not refunded by the payor in accordance with Sec. 31.6413(a)-3 of this
chapter (Employment Tax Regulations).
(2) Payor. The term payor has the same meaning as described in Sec.
1.6049-4(a)(2).
(3) Joint owners. Amounts paid to joint owners for which a
certificate or documentation is required as a condition for being exempt
from reporting under this paragraph (b) are presumed made to U.S. payees
who are not exempt recipients if, prior to payment, the payor or
middleman cannot reliably associate the payment either with a Form W-9
furnished by one of the joint owners in the manner required in
Sec. Sec. 31.3406(d)-1 through 31.3406(d)-5 of this chapter, or with
documentation described in paragraph (b)(1)(iii) of this section
furnished by each joint owner upon which it can rely to treat each joint
owner as a foreign payee or foreign beneficial owner. For purposes of
applying this paragraph (b)(3), the grace period described in Sec.
1.6049-5(d)(2)(ii) shall apply only if each payee qualifies for such
grace period.
(4) Conversion into United States dollars of amounts paid in foreign
currency. For rules concerning foreign currency conversion, see Sec.
1.6049-4(d)(3)(i).
(5) Effective date--(i) General rule. The provisions of this
paragraph (b) apply to payments made after December 31, 2000.
(ii) Transition rules. The validity of a withholding certificate
(namely, Form W-8 or other form upon which the payor is permitted to
rely to hold the payee as a foreign person) that was valid on January 1,
1998, under the regulations in effect prior to January 1, 2001 (see 26
CFR parts 1 and 35a, revised April 1, 1999) and expired, or will expire,
at any time during 1998, is extended until December 31, 1998. The
validity of a withholding certificate that is valid on or after January
1, 1999, remains valid until its validity expires under the regulations
in effect prior to January 1, 2001 (see 26 CFR parts 1 and 35a, revised
April 1, 1999) but in no event shall such withholding certificate remain
valid after December 31, 2000. The rule in this paragraph (b)(5)(ii),
however, does not apply to extend the validity period of a withholding
certificate that expires solely by reason of changes in the
circumstances of the person whose name is on the certificate.
Notwithstanding the first three sentences of this paragraph (b)(5)(ii),
a payor may choose not to take advantage of the transition rule in this
paragraph (b)(5)(ii) with respect to one or more withholding
certificates valid under the regulations in effect prior to January 1,
2001 (see 26 CFR parts 1 and 35a, revised April 1, 1999) and, therefore,
to require withholding certificates conforming to the requirements
described in this section (new withholding certificates). For purposes
of this section, a new withholding certificate is deemed to satisfy the
documentation requirement under the regulations in effect prior to
January 1, 2001 (see 26 CFR parts 1 and 35a, revised April 1, 1999).
Further, a new withholding certificate remains valid for the period
specified in Sec. 1.1441-1(e)(4)(ii), regardless of when the
certificate is obtained.
(c) Special rule. If a person makes a payment which may be a
dividend, or if a nominee receives a payment which may be a dividend,
but such person or nominee is unable to determine the portion of the
payment which is a dividend (as defined in paragraphs (a) and
[[Page 200]]
(b) of this section) at the time he files his return under Sec. 1.6042-
2, he shall, for purposes of such section, treat the entire amount of
such payment as a dividend.
[T.D. 6628, 27 FR 12797, Dec. 28, 1962, as amended by T.D. 6908, 31 FR
16774, Dec. 31, 1966; T.D. 7987, 49 FR 42719, Oct. 24, 1984; T.D. 8029,
50 FR 23680, June 5, 1985; T.D. 8734, 62 FR 53475, Oct. 14, 1997; T.D.
8804, 63 FR 72186, Dec. 31, 1998; 64 FR 73411, Dec. 30, 1999; T.D. 8881,
65 FR 32205, May 22, 2000]
Sec. 1.6042-4 Statements to recipients of dividend payments.
(a) Requirement. A person required to make an information return
under section 6042(a)(1) and Sec. 1.6042-2 must furnish a statement to
each recipient whose identifying number is required to be shown on the
related information return for dividend payments.
(b) Form of the statement. The statement required by paragraph (a)
of this section must be either the official Form 1099 prescribed by the
Internal Revenue Service for the respective calendar year or an
acceptable substitute statement that contains provisions that are
substantially similar to those of the official Form 1099 for the
respective calendar year. For further guidance on how to prepare an
acceptable substitute statement, see Rev. Proc. 95-30 (1995-27 I.R.B. 9)
(or its successor), republished as ``Rules and Specifications for
Private Printing of Substitute Forms 1096, 1098, 1099 Series, 5498, and
W-2G.'' See Sec. 601.601(d)(2) of this chapter.
(c) Aggregation of payments. A payor may aggregate on one Form 1099
all payments made to a recipient with respect to each separate account
during a calendar year.
(d) Manner of providing statements to recipients--(1) In general.
The Form 1099, or acceptable substitute statement, must be provided to
the recipient either in person or by first-class mail to the recipient's
last known address in a statement mailing.
(2) Statement mailing requirement. The mailing required under
section 6042(c) of a Form 1099 to a payee-recipient must qualify as a
statement mailing. A statement mailing must contain the required Form
1099 or acceptable substitute statement (written statement) and must
comply with enclosure and envelope restrictions.
(i) Enclosure restrictions. To qualify as a statement mailing, the
mailing cannot contain any enclosures except those listed in this
paragraph (d)(2)(i). Moreover, no promotional or advertising material is
permitted in the mailing of the written statement. Even a de minimis
amount of promotional or advertising material violates the statement
mailing requirement. However, a logo on the envelope containing the
written statement and on nontax enclosures described in paragraph
(d)(2)(i) (A) through (D) of this section does not violate the written
statement requirement. The written statement required under section
6042(c) and paragraph (a) of this section may be perforated to a check
or to a statement of the recipient-payee's specific account with the
payor described in paragraph (d)(2)(i) (A) or (C) of this section. The
enclosure to which the written statement is perforated must contain, in
a bold and conspicuous type, the legend: ``Important Tax Return Document
Attached.'' The enclosures permitted in a mailing are limited to--
(A) A check with respect to the account reported on the written
statement;
(B) A letter explaining why a check with respect to such account is
not enclosed with the written statement (for example, because a dividend
has not been declared payable);
(C) A statement of the taxpayer-recipient's specific account with
the payor if payments on such account are reflected on the written
statement;
(D) A letter limited to an explanation of the tax consequences of
the information set forth on the enclosed written statement;
(E) Payee statements related to other Forms 1099, Form 1098, and
Form 5498 (or the account balance on a Form 5498), Forms W-2 and W-2G;
and
(F) Any document concerning the solicitation of the Form W-9, as
described in Sec. 31.3406(h)-3(a) of this chapter, or of the Form W-8
as described in Sec. 1.1441-1(e)(1).
(ii) Envelope and delivery restrictions--(A) Envelope restrictions.
The outside of the envelope in which the written statement is mailed and
each nontax
[[Page 201]]
enclosure enclosed in the envelope must contain, in a bold and
conspicuous type, the legend: ``Important Tax Return Document
Enclosed.'' For purposes of this paragraph (d)(2)(ii), a nontax
enclosure is any item listed in paragraphs (d)(2)(i)(A) through (C) of
this section. However, a payor is not required to include the legend on
the outside of an envelope containing only the enclosures in paragraph
(d)(2)(i)(D) through (F) of this section.
(B) Delivery restrictions. The requirement to provide the written
statement in person or by first-class mail may be satisfied by sending
the written statement and any enclosures described in paragraph
(d)(2)(i) of this section by intra-office mail, provided that intra-
office mail is used by the payor in sending account activity, balance
information, and other correspondence to the payee. If a payor does not
personally deliver the written statement (i.e., the Form 1099 or its
acceptable substitute) to the recipient or mail it to the recipient in a
statement mailing as described in this paragraph (d), the payor is
considered to have failed to mail the statement required under section
6042(c) and will be subject to the penalty under section 6722.
(e) Time for furnishing statements--(1) In general. Each statement
required by section 6042(c) and this section to be furnished to any
person for a calendar year must be furnished to such person after
November 30 of the year and on or before January 31 (February 10 in the
case of a nominee filing under Sec. 1.6042-2(a)(1)(iii)) of the
following year, but no statement may be furnished before the final
dividend for the calendar year has been paid. However, the statement may
be furnished at any time after April 30 if it is furnished with the
final dividend for the calendar year.
(2) Extensions of time. For good cause upon written application of
the person required to furnish statements under this section, the
Director, Martinsburg Computing Center, may grant an extension of time
not exceeding 30 days in which to furnish such statements. The
application must be addressed to the Director, Martinsburg Computing
Center, and must contain a full recital of the reasons for requesting
the extension to aid the Director in determining the period of the
extension, if any, that will be granted. Such a request in the form of a
letter to the Director, Martinsburg Computing Center, signed by the
applicant will suffice as an application. The application must be filed
on or before the date prescribed in paragraph (e)(1) of this section.
(3) Last day for furnishing statement. For provisions relating to
the time for performance of an act when the last day prescribed for
performance falls on Saturday, Sunday, or a legal holiday, see section
7503 and Sec. 301.7503-1 of this chapter (Regulations on Procedure and
Administration).
(f) Cross-reference to penalty. For provisions relating to the
penalty provided for failure to furnish timely a correct payee statement
required under section 6042(c), see Sec. 301.6722-1 of this chapter
(Procedure and Administration Regulations). See Sec. 301.6724-1 of this
chapter for the waiver of a penalty if the failure is due to reasonable
cause and is not due to willful neglect.
(g) Effective date. This section is effective for payee statements
due after December 31, 1995, without regard to extensions. For the
substantially similar statement mailing requirements that apply with
respect to forms required to be filed after October 22, 1986, and before
January 1, 1996, see Rev. Proc. 84-70 (1984-2 C.B. 716) (or successor
revenue procedures). See Sec. 601.601(d)(2) of this chapter.
[T.D. 8637, 60 FR 66110, Dec. 21, 1995, as amended by T.D. 8734, 62 FR
53476, Oct. 14, 1997]
Sec. 1.6042-5 Coordination with reporting rules for widely held fixed
investment trusts under Sec. 1.671-5.
See Sec. 1.671-5 for the reporting rules for widely held fixed
investment trusts (as defined under that section).
[T.D. 9241, 71 FR 4025, Jan. 24, 2006]
Sec. 1.6043-1 Return regarding corporate dissolution or liquidation.
(a) Requirement of returns. Within 30 days after the adoption of any
resolution or plan for or in respect of the dissolution of a corporation
or the liquidation of the whole or any part of its capital stock, the
corporation shall file a return on Form 966, containing the information
required by paragraph (b)
[[Page 202]]
of this section and by such form. Such return shall be filed with the
district director for the district in which the income tax return of the
corporation is filed. Further, if after the filing of a Form 966 there
is an amendment of or supplement to the resolution or plan, an
additional Form 966, based on the resolution or plan as amended or
supplemented, must be filed within 30 days after the adoption of such
amendment or supplement. A return must be filed under section 6043 and
this section in respect of a liquidation whether or not any part of the
gain or loss to the shareholders upon the liquidation is recognized
under the provisions of section 1002.
(b) Contents of return--(1) In general. There shall be attached to
and made a part of the return required by section 6043 and paragraph (a)
of this section a certified copy of the resolution or plan, together
with any amendments thereof or supplements thereto, and such return
shall in addition contain the following information:
(i) The name and address of the corporation;
(ii) The place and date of incorporation;
(iii) The date of the adoption of the resolution or plan and the
dates of any amendments thereof or supplements thereto; and
(iv) The internal revenue district in which the last income tax
return of the corporation was filed and the taxable year covered
thereby.
(2) Returns in respect of amendments or supplements. If a return has
been filed pursuant to section 6043 and this section, any additional
return made necessary by an amendment of or a supplement to the
resolution or plan will be deemed sufficient if it gives the date the
prior return was filed and contains a duly certified copy of the
amendment or supplement and all other information required by this
section and by Form 966 which was not given in the prior return.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6949, 33 FR
5531, Apr. 9, 1968; T.D. 7926, 48 FR 55847, Dec. 16, 1983]
Sec. 1.6043-2 Return of information respecting distributions in
liquidation.
(a) Unless the distribution is one in respect of which information
is required to be filed pursuant to Sec. 1.332-6T(a), Sec. 1.368-
3T(a), or Sec. 1.1081-11T , every corporation making any distribution
of $600 or more during a calendar year to any shareholder in liquidation
of the whole or any part of its capital stock shall file a return of
information on Forms 1096 and 1099, giving all the information required
by such form and by the regulations in this part. A separate Form 1099
must be prepared for each shareholder to whom such distribution was
made, showing the name and address of such shareholder, the number and
class of shares owned by him in liquidation of which such distribution
was made, and the total amount distributed to him on each class of
stock. If the amount distributed to such shareholder on any class of
stock consisted in whole or in part of property other than money, the
return on such form shall in addition show the amount of money
distributed, if any, and shall list separately each class of property
other than money distributed, giving a description of the property in
each such class and a statement of its fair market value at the time of
the distribution. Such forms, accompanied by transmittal Form 1096
showing the number of Forms 1099 filed therewith, shall be filed on or
before February 28 (March 31 if filed electronically) of the year
following the calendar year in which such distribution was made with any
of the Internal Revenue Service Centers, the addresses of which are
listed in the instructions for Form 1096.
(b) If the distribution is in complete liquidation of a domestic
corporation pursuant to a plan of liquidation in accordance with which
all the capital stock of the corporation is cancelled or redeemed, and
the transfer of all property under the liquidation occurs within some
one calendar month pursuant to section 333, and any shareholder claims
the benefit of such section, the return on Form 1096 shall show:
(1) The amount of earnings and profits of the corporation
accumulated after February 28, 1913, determined as
[[Page 203]]
of the close of such calendar month, without diminution by reason of
distributions made during such calendar month, but including in such
computation all items of income and expense accrued up to the date on
which the transfer of all the property under the liquidation is
completed;
(2) The ratable share of such earnings and profits of each share of
stock canceled or redeemed in the liquidation;
(3) The date and circumstances of the acquisition by the corporation
of any or securities distributed to shareholders in the liquidation;
(4) If the liquidation is pursuant to section 333(g), a schedule
showing the amount of earnings and profits to which the corporation has
succeeded after December 31, 1963, pursuant to any corporate
reorganization or pursuant to a liquidation to which section 332
applies, except earnings and profits which on December 31, 1963,
constituted earnings and profits of a corporation referred to in section
333(g)(3), and except earnings and profits which were earned after such
date by a corporation referred to in section 333(g)(3); and
(5) If the liquidation occurs after December 31, 1966, and is
pursuant to section 333(g)(2), the amount of earnings and profits of the
corporation accumulated after February 28, 1913, and before January 1,
1967, and the ratable share of such earnings and profits of each share
of stock canceled or redeemed in the liquidation.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6949, 33 FR
5531, Apr. 9, 1968; T.D. 8734, 62 FR 53476, Oct. 14, 1997; T.D. 8804, 63
FR 72188, Dec. 31, 1998; T.D. 8895, 65 FR 50406, Aug. 18, 2000; T.D.
9264, 71 FR 30608, May 30, 2006]
Sec. 1.6043-3 Return regarding liquidation, dissolution, termination,
or substantial contraction of organizations exempt from taxation under
section 501(a).
(a) In general--(1) Requirement to provide information. Except as
provided in paragraph (b) of this section, for taxable years beginning
after December 31, 1969, every organization which for any of its last 5
taxable years preceding any liquidation, dissolution, termination, or
substantial contraction of the organization was exempt from taxation
under section 501(a) shall provide the information will respect to such
liquidation, dissolution, termination, or substantial contraction
required by the instructions accompanying the organization's annual
return of information. The information required by this section shall be
provided with, and at the time prescribed for filing, the organization's
annual return of information for the period during which any
liquidation, dissolution (or the adopting of a resolution or plan for
the dissolution or liquidation in whole or part), termination or
substantial contraction occurred with respect to the organization. An
organization which is no longer exempt from taxation under section
501(a) shall use the annual return of information it would have been
required to file when the organization was exempt.
(2) Transitional rule. In the case of an annual return of
information of an organization which was filed before September 11,
1978, if the organization had failed to provide the information with
such return in accordance with paragraph (a)(1) of this section, the
organization may comply with this section by providing the information
with the organization's first annual return of information filed after
such date.
(b) Exceptions. The following organizations are not required to
provide the information under paragraph (a) of this section:
(1) Churches, their integrated auxiliaries, or conventions or
associations of churches;
(2) Any organization which is not a private foundation (as defined
in section 509(a)) and the gross receipts of which in each taxable year
are normally not more than $5,000;
(3) Any organization which has terminated its private foundation
status under section 507(b)(1)(B) with respect to a liquidation,
dissolution, termination, or substantial contraction which is in
connection with the termination under section 507(b)(1)(B);
(4) Any organization described in section 401(a) if the employer who
established such organization files a return which provides the
information under paragraph (a) of this section;
[[Page 204]]
(5) Any organization described in section 501(c)(1) and any
corporation described in section 501(c)(2) which holds title to property
for such 501(c)(1) organizations;
(6) Any organization described in section 501(c)(14)(A) subject to a
group exemption letter issued to a state regulatory body; and
(7) Any subordinate unit of a central organization (other than a
private foundation) which established its exempt status under the group
ruling procedure of regulations Sec. 601.201 (n)(7), if the central or
parent organization files an annual information return for the group in
accordance withSec. 1.6033-2(d); and
(8) Any organization no longer exempt from taxation under section
501(a) and which during the period of its exemption under such section
was neither described in section 501(c)(3) nor a corporation described
in section 501(c)(2) which held title to property for an organization
described in section 501(c)(3).
The Commissioner may relieve any organization or class or organizations
from filing the return required by section 6043(b) of this section,
where it is determined that such information is not necessary for the
efficient administration of the internal revenue laws.
(c) Penalties. For provisions relating to the penalty provided for
failure to furnish any information required by this section, see section
6652(d) and the regulations thereunder.
(d) Definitions. (1)(i) The term ``substantial contraction'', as
used in this section, shall include any partial liquidation or any other
significant disposition of assets, other than transfers for full and
adequate consideration or distributions out of current income. For
purposes of this subparagraph, the term ``significant disposition of
assets'' shall not include any disposition for a taxable year where the
aggregate of--
(A) The dispositions for the taxable year and
(B) Where any disposition for the taxable year is part of a series
of related dispositions made during such prior taxable years, the total
of the related dispositions made during prior taxable years, is less
than 25 percent of the fair market value of the net assets of the
organization at the beginning of the taxable year (in the case of (A) of
this subdivision) or at the beginning of the first taxable year in which
any of the series of related dispositions was made (in the case of (B)
of this subdivision). A ``significant disposition of assets'' may result
from the transfer of assets to a single organization or to several
organizations, and it may occur in a single taxable year (as in (A) of
this subdivision) or over the course of two or more taxable years (as in
(B) of this subdivision). The determination whether a significant
disposition has occurred through a series of related dispositions
(within the meaning of (B) of this subdivision) will be determined from
all the facts and circumstances of the particular case. Ordinarily, a
distribution described in section 170(b)(1)(D)(ii) shall not be taken
into account as a significant disposition of assets within the meaning
of this subparagraph.
(ii) The provisions of this subparagraph may be illustrated by the
following examples:
Example (1). M, an organization described is section 501(c)(4), is
on the calendar year basis. It has net assets worth $100,000 as of
January 1, 1971. In 1971, in addition to distributions out of current
income, M transfers $10,000 to N, $10,000 to O, and $10,000 to P. Such
dispositions to N, O, and P are not distributions described in section
170(b)(1)(E)(ii). N, O, and P are all organizations described in section
501(c)(4). Under subdivision (i)(a) of this subparagraph, M has made a
significant disposition of its assets in 1971 since M has disposed of
more than 25 percent of its net assets (with respect to the fair market
value of such assets as of January 1, 1971). Thus. M is subject to the
provisions of section 6043(b) and this section for the year 1971.
Example (2). U, a tax-exempt private foundation on the calendar year
basis, has net assets worth $100,000 as of January 1, 1971. As part of a
series of related dispositions in 1971 and 1972. U transfers in 1971, in
addition to distributions out of current income, $10,000 to private
foundation X and $10,000 to private foundation Y, and in 1972, in
addition to distributions out of current income, U transfers $10,000 to
private foundation Z. Such dispositions to X, Y, and Z are not
distributions described in section 170(b)(1)(E)(ii). Under subdivision
(i) of this subparagraph, U is treated as having made a series of
related dispositions in 1971 and 1972. The aggregate of the 1972
disposition (under subdivision (i)(a)of this subparagraph) and the
series of related
[[Page 205]]
dispositions (under subdivision (i)(b) of this subparagraph) is $30,000,
which is more than 25 percent of the fair market value of U's net assets
as of the beginning of 1971 ($100,000), the first year in which any such
disposition was made. Thus, U has made a significant disposition of its
assets and is subject to the provisions of section 6043(b) and this
section for the year 1972.
Example (3). Assume in Example (1) that in 1973 M makes a $5,000
disposition related to the 1971 disposition. Under subdivision (i)(B) of
this subparagraph M is treated as having made a series of related
dispositions in 1971 and 1973. The aggregate of the 1971 disposition
under subdivision (i)(A) of this subparagraph and the 1973 related
disposition under subdivision (i)(B) of this subparagraph is $35,000,
which is more than 25 percent of the fair market value of M's net assets
as of the beginning of 1971, the first year in which any disposition was
made. Thus M has made a significant disposition of its assets and is
subject to the provisions of section 6043(b) and this section for the
year 1973.
(2) For the definition of the term ``normally'' as used in paragraph
(b)(2) of this section, see Sec. 1.6033-2(g)(3).
(3) For examples of the term ``integrated auxiliaries'' as used in
paragraph (b)(1) of this section, see Sec. 1.6033-2(g)(1)(i)(a).
[T.D. 7563, 43 FR 40221, Sept. 11, 1978]
Sec. 1.6043-4 Information returns relating to certain acquisitions of
control and changes in capital structure.
(a) Information returns for an acquisition of control or a
substantial change in capital structure--(1) General rule. If there is
an acquisition of control (as defined in paragraph (c) of this section)
or a substantial change in the capital structure (as defined in
paragraph (d) of this section) of a domestic corporation (reporting
corporation), the reporting corporation must file a completed Form 8806,
``Information Return for Acquisition of Control or Substantial Change in
Capital Structure,'' in accordance with the instructions to that form.
The Form 8806 will request information with respect to the following and
such other information specified in the instructions:
(i) Reporting corporation. The name, address, and taxpayer
identification number (TIN) of the reporting corporation.
(ii) Common parent, if any, of the reporting corporation. If the
reporting corporation was a subsidiary member of an affiliated group
filing a consolidated return immediately prior to the acquisition of
control or the substantial change in capital structure, the name,
address, and TIN of the common parent of that affiliated group.
(iii) Acquiring corporation. The name, address and TIN of any
corporation that acquired control of the reporting corporation within
the meaning of paragraph (c) of this section or combined with or
received assets from the reporting corporation pursuant to a substantial
change in capital structure within the meaning of paragraph (d) of this
section (acquiring corporation) and whether the acquiring corporation
was newly formed prior to its involvement in the transaction.
(iv) Information about acquisition of control or substantial change
in capital structure. (A) A description of the transaction or
transactions that gave rise to the acquisition of control or the
substantial change in capital structure of the corporation;
(B) The date or dates of the transaction or transactions that gave
rise to the acquisition of control or the substantial change in capital
structure; and
(C) A description of and a statement of the fair market value of any
stock and other property, if any, provided to the reporting
corporation's shareholders in exchange for their stock.
(2) Consent election. Form 8806 will provide the reporting
corporation with the ability to elect to permit the Internal Revenue
Service (IRS) to publish information that will inform brokers of the
transaction and enable brokers to satisfy their reporting obligations
under Sec. 1.6045-3. The information to be published, whether on the
IRS Web site or in an IRS publication, would be limited to the name and
address of the corporation, the date of the transaction, a description
of the shares affected by the transaction, and the amount of cash and
the fair market value of stock or other property provided to each class
of shareholders in exchange for a share.
(3) Time for making return. Form 8806 must be filed on or before the
45th day following the acquisition of control or substantial change in
capital structure
[[Page 206]]
of the corporation, or, if earlier, on or before January 5th of the year
following the calendar year in which the acquisition of control or
substantial change in capital structure occurs.
(4) Exception where transaction is reported under section 6043(a).
No reporting is required under this paragraph (a) with respect to a
transaction for which information is required to be reported pursuant to
section 6043(a), provided the transaction is properly reported in
accordance with that section.
(5) Exception where shareholders are exempt recipients. No reporting
is required under this paragraph (a) if the reporting corporation
reasonably determines that all of its shareholders who receive cash,
stock, or other property pursuant to the acquisition of control or
substantial change in capital structure are exempt recipients under
paragraph (b)(5) of this section.
(b) Information returns regarding shareholders--(1) General rule. A
corporation that is required to file Form 8806 pursuant to paragraph
(a)(1) of this section shall file a return of information on Forms 1096,
``Annual Summary and Transmittal of U.S. Information Returns,'' and
1099-CAP, ``Changes in Corporate Control and Capital Structure,'' with
respect to each shareholder of record in the corporation (before or
after the acquisition of control or the substantial change in capital
structure) who receives cash, stock, or other property pursuant to the
acquisition of control or the substantial change in capital structure
and who is not an exempt recipient as defined in paragraph (b)(5) of
this section. A corporation is not required to file a Form 1096 or 1099-
CAP with respect to a clearing organization if the corporation makes the
election described in paragraph (a)(2) of this section.
(2) Time for making information returns. Forms 1096 and 1099-CAP
must be filed on or before February 28 (March 31 if filed
electronically) of the year following the calendar year in which the
acquisition of control or the substantial change in capital structure
occurs.
(3) Contents of return. A separate Form 1099-CAP must be filed with
respect to amounts received by each shareholder (who is not an exempt
recipient as defined in paragraph (b)(5) of this section). The Form
1099-CAP will request information with respect to the following and such
other information as may be specified in the instructions:
(i) The name, address, telephone number and TIN of the reporting
corporation;
(ii) The name, address and TIN of the shareholder;
(iii) The number and class of shares in the reporting corporation
exchanged by the shareholder; and
(iv) The aggregate amount of cash and the fair market value of any
stock or other property provided to the shareholder in exchange for its
stock.
(4) Furnishing of forms to shareholders. The Form 1099-CAP filed
with respect to each shareholder must be furnished to such shareholder
on or before January 31 of the year following the calendar year in which
the shareholder receives cash, stock, or other property as part of the
acquisition of control or the substantial change in capital structure.
The Form 1099-CAP filed with respect to a clearing organization must be
furnished to the clearing organization on or before January 5th of the
year following the calendar year in which the acquisition of control or
substantial change in capital structure occurred. A Form 1099-CAP is not
required to be furnished to a clearing organization if the reporting
corporation makes the election described in paragraph (a)(2) of this
section.
(5) Exempt recipients. A corporation is not required to file a Form
1099-CAP pursuant to this paragraph (b) with respect to any of the
following shareholders that is not a clearing organization:
(i) Any shareholder who receives stock in an exchange that is not
subject to gain recognition under section 367(a) and the regulations.
(ii) Any shareholder if the corporation reasonably determines that
the total amount of cash and the fair market value of stock and other
property received by the shareholder does not exceed $1,000.
(iii) Any shareholder described in paragraphs (b)(5)(iii)(A) through
(M) of this section if the corporation has actual knowledge that the
shareholder is described in one of paragraphs (b)(5)(iii)(A) through (M)
of this section
[[Page 207]]
or if the corporation has a properly completed exemption certificate
from the shareholder (as provided in Sec. 31.3406(h)-3 of this
chapter). The corporation also may treat a shareholder as described in
paragraphs (b)(5)(iii)(A) through (M) of this section based on the
applicable indicators described in Sec. 1.6049-4(c)(1)(ii).
(A) A corporation, as described in Sec. 1.6049-4(c)(1)(ii)(A)
(except for corporations for which an election under section 1362(a) is
in effect).
(B) A tax-exempt organization, as described in Sec. 1.6049-
4(c)(1)(ii)(B)(1).
(C) An individual retirement plan, as described in Sec. 1.6049-
4(c)(1)(ii)(C).
(D) The United States, as described in Sec. 1.6049-4(c)(1)(ii)(D).
(E) A state, as described in Sec. 1.6049-4(c)(1)(ii)(E).
(F) A foreign government, as described in Sec. 1.6049-
4(c)(1)(ii)(F).
(G) An international organization, as described in Sec. 1.6049-
4(c)(1)(ii)(G).
(H) A foreign central bank of issue, as described in Sec. 1.6049-
4(c)(1)(ii)(H).
(I) A securities or commodities dealer, as described in Sec.
1.6049-4(c)(1)(ii)(I).
(J) A real estate investment trust, as described in Sec. 1.6049-
4(c)(1)(ii)(J).
(K) An entity registered under the Investment Company Act of 1940
(15 U.S.C. 80a-1), as described in Sec. 1.6049-4(c)(1)(ii)(K).
(L) A common trust fund, as described in Sec. 1.6049-
4(c)(1)(ii)(L).
(M) A financial institution such as a bank, mutual savings bank,
savings and loan association, building and loan association, cooperative
bank, homestead association, credit union, industrial loan association
or bank, or other similar organization.
(iv) Any shareholder that the corporation, prior to the transaction,
associates with documentation upon which the corporation may rely in
order to treat payments to the shareholder as made to a foreign
beneficial owner in accordance with Sec. 1.1441-1(e)(1)(ii) or as made
to a foreign payee in accordance with Sec. 1.6049-5(d)(1) or presumed
to be made to a foreign payee under Sec. 1.6049-5(d)(2) or (3). For
purposes of this paragraph (b)(5)(iv), the provisions in Sec. 1.6049-
5(c) (regarding rules applicable to documentation of foreign status and
definition of U.S. payor and non-U.S. payor) shall apply. The provisions
of Sec. 1.1441-1 shall apply by using the terms ``corporation'' and
``shareholder'' in place of the terms ``withholding agent'' and
``payee'' and without regard to the fact that the provisions apply only
to amounts subject to withholding under chapter 3 of the Internal
Revenue Code. The provisions of Sec. 1.6049-5(d) shall apply by using
the terms ``corporation'' and ``shareholder'' in place of the terms
``payor'' and ``payee''. Nothing in this paragraph (b)(5)(iv) shall be
construed to relieve a corporation of its withholding obligations under
section 1441.
(v) Any shareholder if, on January 31 of the year following the
calendar year in which the shareholder receives cash, stock, or other
property, the corporation did not know and did not have reason to know
that the shareholder received such cash, stock, or other property in a
transaction or series of related transactions that would result in an
acquisition of control or a substantial change in capital structure
within the meaning of this section.
(6) Coordination with other sections. In general, no reporting is
required under this paragraph (b) with respect to amounts that are
required to be reported under sections 6042 or 6045, unless the
corporation knows or has reason to know that such amounts are not
properly reported in accordance with those sections. A corporation must
satisfy the requirements under this paragraph (b) with respect to any
shareholder of record that is a clearing organization.
(c) Acquisition of control of a corporation--(1) In general. For
purposes of this section, an acquisition of control of a corporation
(first corporation) occurs if, in a transaction or series of related
transactions--
(i) Before an acquisition of stock of the first corporation
(directly or indirectly) by a second corporation, the second corporation
does not have control of the first corporation;
(ii) After the acquisition, the second corporation has control of
the first corporation;
(iii) The fair market value of the stock acquired in the transaction
and in any related transactions as of the
[[Page 208]]
date or dates on which such stock was acquired is $100 million or more;
(iv) The shareholders of the first corporation receive stock or
other property pursuant to the acquisition; and
(v) The first corporation or any shareholder of the first
corporation is required to recognize gain (if any) under section 367(a)
and the regulations, as a result of the transaction.
(2) Control. For purposes of this section, control is determined in
accordance with the first sentence of section 304(c)(1). For these
purposes the rules of section 318 as modified by the rules of section
958(b) shall apply in determining the ownership of stock.
(d) Substantial change in capital structure of a corporation--(1) In
general. A corporation has a substantial change in capital structure if
it has a change in capital structure (as defined in paragraph (d)(2) of
this section) and the amount of any cash and the fair market value of
any property (including stock) provided to the shareholders of such
corporation pursuant to the change in capital structure, as of the date
or dates on which the cash or other property is provided, is $100
million or more.
(2) Change in capital structure. For purposes of this section, a
corporation has a change in capital structure if--
(i) The corporation in a transaction or series of transactions--
(A) Merges, consolidates or otherwise combines with another
corporation or transfers all or substantially all of its assets to one
or more corporations;
(B) Transfers all or part of its assets to another corporation in a
title 11 or similar case and, in pursuance of the plan, distributes
stock or securities of that corporation; or
(C) Changes its identity, form or place of organization; and
(ii) The corporation or any shareholder is required to recognize
gain (if any) under section 367(a) and the regulations, as a result of
the transaction.
(e) Reporting by successor entity. If a corporation (transferor)
transfers all or substantially all of its assets to another entity
(transferee) in a transaction that constitutes a substantial change in
the capital structure of transferor, transferor must satisfy the
reporting obligations in paragraph (a) and (b) of this section. If
transferor does not satisfy one or both of those reporting obligations,
then transferee must do so. If neither transferor nor transferee
satisfies the reporting obligations in paragraphs (a) and (b) of this
section, then transferor and transferee shall be jointly and severally
liable for any applicable penalties (see paragraph (g) of this section).
(f) Receipt of property. For purposes of this section, a shareholder
is treated as receiving property (or as having property provided to it)
pursuant to an acquisition of control or a substantial change in capital
structure if a liability of the shareholder is assumed in the
transaction and, as a result of the transaction, an amount is realized
by the shareholder from the sale or exchange of stock.
(g) Penalties for failure to file. For penalties for failure to file
as required under this section, see section 6652(l). The information
returns required to be filed under paragraphs (a) and (b) of this
section shall be treated as one return for purposes of section 6652(l)
and, accordingly, the penalty shall not exceed $500 for each day the
failure continues (up to a maximum of $100,000) with respect to any
acquisition of control or any substantial change in capital structure.
Failure to file as required under this section also includes the failure
to satisfy the requirement to file on magnetic media as required by
section 6011(e) and Sec. 1.6011-2. In addition, criminal penalties
under sections 7203, 7206 and 7207 may apply in appropriate cases.
(h) Examples. The following examples illustrate the application of
the rules of this section. For purposes of these examples, assume the
transaction is not reported under sections 6042, 6043(a), or 6045,
unless otherwise specified, and assume that the fair market value of the
consideration provided to the shareholders exceeds $100 million. The
examples are as follows:
Example 1. The shareholders of X, a domestic corporation and parent
of an affiliated group, exchange their X stock for stock in Y, a foreign
corporation, pursuant to sections 351 and 354. After the transaction, Y
owns all the outstanding X stock. Assume that, under section 367(a) and
the regulations, the X shareholders must recognize gain (if any) on the
exchange of their stock. Because the
[[Page 209]]
transaction results in an acquisition of control of X, X must comply
with the rules in paragraphs (a) and (b) of this section. X must file
Form 8806 reporting the transaction. X must also file a Form 1099-CAP
with respect to each shareholder who is not an exempt recipient showing
the fair market value of the Y stock received by that shareholder, and X
must furnish a copy of the Form 1099-CAP to that shareholder. If X
elects on the Form 8806 to permit the IRS to publish information
regarding the transaction, X is not required to file or furnish Forms
1099-CAP with respect to shareholders that are clearing organizations.
Example 2. The facts are the same as in Example 1, except X hires a
transfer agent to effectuate the exchange. The transfer agent is treated
as a broker under section 6045 and is required to report the fair market
value of the Y stock received by X's shareholders under Sec. 1.6045-3.
Under paragraph (b)(6) of this section, X is not required to file
information returns under paragraph (b) of this section with respect to
a shareholder of record, unless X knows or has reason to know that the
transfer agent does not satisfy its information reporting obligation
under Sec. 1.6045-3 with respect to that shareholder. Thus, if the
transfer agent satisfies its information reporting requirements under
Sec. 1.6045-3 with respect to shareholder I, an individual who receives
X stock, X is not required to file a Form 1099-CAP with respect to I.
Conversely, if the transfer agent does not have an information reporting
obligation under Sec. 1.6045-3 with respect to one of X's shareholders
of record (for example, a clearing organization that is an exempt
recipient under Sec. 1.6045-3(b)(2)), or if X knows or has reason to
know that the transfer agent has not satisfied its information reporting
requirement with respect to a shareholder, then X must provide a Form
1099-CAP to that shareholder.
(i) Effective date. This section applies to transactions occurring
after December 5, 2005.
[T.D. 9230, 70 FR 72378, Dec. 5, 2005]
Sec. 1.6044-1 Returns of information as to patronage dividends with
respect to patronage occurring in taxable years beginning before 1963.
(a) Requirement--(1) In general. Except as provided in subparagraph
(2) of this paragraph, any corporation allocating to any patron in
respect of patronage occurring in any taxable year of the corporation
beginning before January 1, 1963, amounts aggregating $100 or more
during a calendar year as patronage dividends, rebates, or refunds
(whether in cash, merchandise, capital stock, revolving fund
certificates, retain certificates, letters of advice, or in some other
manner that discloses to each patron the amount of such dividend,
rebate, or refund) shall for each such calendar year file a return of
information with respect to such allocation on Forms 1096 and 1099. A
separate Form 1099 shall be prepared for each patron showing the name
and address of the patron to whom such allocation is made, and the
amount of the allocation. The allocation shall be reported for the
calendar year during which the allocation is made, regardless of whether
the allocation is deemed for the purpose of section 522 to be made at
the close of a preceding taxable year of the corporation.
(2) Exception. A return is not required under this section in the
case of any corporation (including any cooperative or nonprofit
corporation engaged in rural electrification) described in section
501(c) (12) or (15) which is exempt from tax under section 501(a), or in
the case of any corporation subject to a tax imposed by subchapter L,
chapter 1, of the Code.
(b) Time and place for filing. Returns made under this section on
Forms 1096 and 1099 for any calendar year shall be filed on or before
February 28 of the following year with any of the Internal Revenue
Service Centers, the addresses of which are listed in the instructions
for such forms.
(c) Definitions. The terms ``cooperative association'', ``patron'',
``patronage dividends, rebates, and refunds'', and ``allocation'' are
defined, for the purpose of this section, in paragraph (b) of Sec.
1.522-1.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6628, 27 FR
12798, Dec. 28, 1962]
Sec. 1.6044-2 Returns of information as to payments of patronage
dividends.
(a) Requirement of reporting--(1) In general. Except as provided in
Sec. 1.6044-4, every organization described in paragraph (b) of this
section which makes payments with respect to patronage occurring on or
after the first day of the first taxable year of the organization
beginning after December 31, 1962, of
[[Page 210]]
amounts described in Sec. 1.6044-3 aggregating $10 or more to any
person during any calendar year shall make an information return on
Forms 1096 and 1099 for the calendar year showing the aggregate amount
of such payments, the name and address of the person to whom paid, the
total of such payments for all persons, and such other information as is
required by the forms. The organization is required to make an
information return regardless of the amount of the payment if the tax
imposed by section 3406 is required to be withheld. Thus, in the case of
any amount subject to backup withholding under section 3406 and not
refunded by the payor before the due date of the information return in
accordance with the regulations under section 3406, an information
return shall be made even if the payment is not generally reportable
because it is made to an exempt recipient described in Sec. 1.6049-
4(c)(1)(ii) or the amount paid during the calendar year to the recipient
aggregates less than $10.
(2) Definitions. The term ``person'' when used in this section does
not include the United States, a State, the District of Columbia, a
foreign government, a political subdivision of a State or of a foreign
government, or an international organization. Therefore, payment of
amounts described in Sec. 1.6044-3 to one of these entities need not be
reported.
(3) Determination of person to whom a patronage dividend is paid.
For purposes of applying the provisions of this section, the person
whose identifying number is required to be included by the cooperative
on an information return with respect to a patronage dividend shall be
considered the person to whom such dividend is paid. For regulations
relating to the use of identifying numbers, see Sec. 1.6109-1.
(4) Inclusion of other payments. The Form 1099 filed by an
organization with respect to payments of patronage dividends made to any
person during a calendar year may, at the election of the organization,
include other payments made by it to such person during such year which
are required to be reported on Form 1099.
(b) Organizations subject to reporting requirement. The
organizations subject to the reporting requirements of paragraph (a) of
this section are:
(1) Any organization exempt from tax under section 521 (relating to
exemption of farmers' cooperatives from tax), and
(2) Any corporation operating on a cooperative basis other than an
organization:
(i) Which is exempt from tax under chapter 1 (other than section
521), or
(ii) Which is subject to the provisions of part II of subchapter H
of chapter 1 (relating to mutual savings banks, etc.), or subchapter L
of chapter 1 (relating to insurance companies), or
(iii) Which is engaged in furnishing electric energy, or providing
telephone service, to persons in rural areas.
(c) When payment deemed made. For purposes of this section, money or
other property (except written notices of allocation) is deemed to have
been paid when it is credited or set apart to a person without any
substantial limitation or restriction as to the time or manner of
payment or condition upon which payment is to be made, and is made
available to him so that it may be drawn at any time, and its receipt
brought within his own control and disposition. A written notice of
allocation is considered to have been paid when it is issued by the
organization to the distributee. Similarly, a qualified check (as
defined in section 1388(d)(4)) is considered to have been paid when it
is issued to the distributee.
(d) Time and place for filing. The return required under this
section on Forms 1096 and 1099 for any calendar year shall be filed
after September 30 of such year, but not before the payer's final
payment for the year, and on or before February 28 (March 31 if filed
electronically) of the following year, with any of the Internal Revenue
Service Centers, the addresses of which are listed in the instructions
for such forms. For extensions of time for filing returns under this
section, see Sec. 1.6081-1.
(e) Cross-reference to penalty. For provisions relating to the
penalty provided for failure to file timely a correct information return
required under section 6044(a), see Sec. 301.6721-1 of this chapter
(Procedure and Administration Regulations). See Sec. 301.6724-1 of this
[[Page 211]]
chapter for the waiver of a penalty if the failure is due to reasonable
cause and is not due to willful neglect.
(f) Magnetic media requirement. For the requirement to submit the
information required by Form 1099 on magnetic media for payments after
December 31, 1983, see section 6011(e) and Sec. 301.6011-2 of this
chapter (Procedure and Administration Regulations). For rules relating
to permission to submit the information required by Form 1099 on
magnetic tape or other media, see Sec. 1.9101-1.
[T.D. 6628, 27 FR 12798, Dec. 28, 1962, as amended by T.D. 6677, 28 FR
10147, Sept. 17, 1963; T.D. 6879, 31 FR 3493, Mar. 8, 1966; T.D. 6883,
31 FR 6589, May 3, 1966; T.D. 8734, 62 FR 53476, Oct. 14, 1997; T.D.
8895, 65 FR 50407, Aug. 18, 2000]
Sec. 1.6044-3 Amounts subject to reporting.
(a) In general. Except as provided in paragraph (c) of this section,
the amounts subject to reporting under Sec. 1.6044-2 are:
(1) Payments by all organizations subject to such reporting
requirements of:
(i) Patronage dividends (as defined in section 1388(a)) paid in
money, qualified written notices of allocation (as defined in section
1388(c)), or other property (except nonqualified written notices of
allocation as defined in section 1388(d)); and
(ii) Amounts described in section 1382(b)(2) (relating to redemption
of nonqualified written notices of allocation previously paid as
patronage dividends) paid in money or property (except written notices
of allocation); and
(2) Payments by farmers' cooperatives exempt from tax under section
521 of:
(i) Amounts described in section 1382(c)(2)(A) (relating to
distributions with respect to earnings derived from sources other than
patronage) paid in money, qualified written notices of allocation, or
other property (except nonqualified written notices of allocation); and
(ii) Amounts described in section 1382(c)(2)(B) (relating to
redemption of nonqualified written notices of allocation previously paid
as distributions with respect to earnings derived from sources other
than patronage) paid in money or other property (except written notices
of allocation).
(b) Special rules. (1) If an organization makes a distribution
consisting in whole or in part of a written notice of allocation and a
qualified check and, at the time it files its return under Sec. 1.6044-
2, is unable to determine whether such written notice of allocation and
such check constitute nonqualified written notices of allocation, such
organization shall for purposes of such return treat such written notice
of allocation as a qualified written notice of allocation and such
qualified check as a payment in money.
(2) An amount described in paragraph (a) of this section is subject
to reporting even though the organization paying such amount is allowed
no deduction for it because it was not paid within the time prescribed
in section 1382. Thus, a patronage dividend of $25 paid by a marketing
cooperative must be reported even though it is paid after the end of the
payment period (see section 1382(d)) for the organization's taxable year
in which the patronage occurred.
(c) Exceptions. An amount described in paragraph (a) of this section
does not include--
(1) Any amount described in Sec. 1.6042-3(b); or
(2) With respect to amounts paid or credited after December 31,
1982, any amount paid or credited to any person described in Sec.
1.6049-4(c)(1)(ii).
(d) Determination of amount paid. For purposes of Sec. 1.6044-2 and
this section, in determining the amount of any payment subject to
reporting under paragraph (a) of this section:
(1) Property (other than a qualified written notice of allocation)
shall be taken into account at its fair market value, and
(2) A qualified written notice of allocation shall be taken into
account at its stated dollar amount.
[T.D. 6628, 27 FR 12798, Dec. 28, 1962, as amended by T.D. 8734, 62 FR
53476, Oct. 14, 1997]
Sec. 1.6044-4 Exemption for certain consumer cooperatives.
(a) In general--(1) Determination of exemption. Exemption from the
reporting requirements of Sec. 1.6044-2 shall, upon
[[Page 212]]
application therefor, be granted by the district director to any
cooperative which he determines is primarily engaged in selling at
retail goods or services of a type which is generally for personal,
living, or family use. A cooperative is not exempt from the reporting
requirements merely because it is an organization of a type to which
section 6044(c) and this section relate. In order for the exemption from
reporting to apply, it is necessary that the cooperative file an
application in accordance with this section and obtain a determination
of exemption.
(2) Basis for exemption. For a cooperative to qualify for the
exemption from reporting provided by section 6044(c) and this section 85
percent of its gross receipts for the preceding taxable year, or 85
percent of its aggregate gross receipts for the preceding three taxable
years, must have been derived from the sale at retail of goods or
services of a type which is generally for personal, living, or family
use. In determining whether an item is of a type that is generally for
personal, living, or family use, an item which may be purchased either
for such use or for business use and which when acquired for business
purposes is generally purchased at wholesale will, when sold by a
cooperative at retail, be treated as goods or services of a type
generally for personal, living, or family use.
(3) Period of exemption. A determination of exemption from reporting
shall apply beginning with the payments made during the calendar year in
which the determination is made and shall automatically cease to be
effective beginning with payments made after the close of the first
taxable year of the cooperative in which less than 70 percent of its
gross receipts is derived from the sale at retail of goods or services
of a type which is generally for personal, living, or family use.
(b) Application for exemption. Application for exemption from the
reporting requirements of section 6044 shall be made on Form 3491, and
shall be filed with the district director for the internal revenue
district in which the cooperative has its principal place of business.
[T.D. 6628, 27 FR 12799, Dec. 28, 1962]
Sec. 1.6044-5 Statements to recipients of patronage dividends.
(a) Requirement. A person required to make an information return
under section 6044(a)(1) and Sec. 1.6044-2 must furnish a statement to
each recipient whose identifying number is required to be shown on the
related information return for patronage dividends paid.
(b) Form, manner, and time for providing statements to recipients.
The statement required by paragraph (a) of this section must be either
the official Form 1099 prescribed by the Internal Revenue Service for
the respective calendar year or an acceptable substitute statement. The
rules under Sec. 1.6042-4 (relating to statements with respect to
dividends) apply comparably in determining the form of an acceptable
substitute statement permitted by this section. Those rules also apply
for purposes of determining the manner of and time for providing the
Form 1099 or its acceptable substitute to a recipient under this
section. However, each Form 1099 or acceptable substitute statement
required by this section must be furnished on or before January 31 of
the following year, but no statement may be furnished before the final
payment has been made for the calendar year.
(c) Cross-reference to penalty. For provisions relating to the
penalty provided for failure to furnish timely a correct payee statement
required under section 6044(e), see Sec. 301.6722-1 of this chapter
(Procedure and Administration Regulations). See Sec. 301.6724-1 of this
chapter for the waiver of a penalty if the failure is due to reasonable
cause and is not due to willful neglect.
(d) Effective date. This section is effective for payee statements
due after December 31, 1995, without regard to extensions. For the
substantially similar statement mailing requirements that apply with
respect to forms required to be filed after October 22, 1986, and before
January 1, 1996, see Rev. Proc. 84-70 (1984-2 C.B. 716) (or successor
revenue procedures). See Sec. 601.601(d)(2) of this chapter.
[T.D. 8637, 60 FR 66111, Dec. 21, 1995, as amended by T.D. 8734, 62 FR
53476, Oct. 14, 1997]
[[Page 213]]
Sec. 1.6045-1 Returns of information of brokers and barter exchanges.
(a) Definitions. The following definitions apply for purposes of
this section and Sec. 1.6045-2:
(1) The term broker means any person (other than a person who is
required to report a transaction under section 6043), U.S. or foreign,
that, in the ordinary course of a trade or business during the calendar
year, stands ready to effect sales to be made by others. A broker
includes an obligor that regularly issues and retires its own debt
obligations or a corporation that regularly redeems its own stock.
However, with respect to a sale (including a redemption or retirement)
effected at an office outside the United States, a broker includes only
a person described as a U.S. payor or U.S. middleman in Sec. 1.6049-
5(c)(5). In addition, a broker does not include an international
organization described in Sec. 1.6049-4(c)(1)(ii)(G) that redeems or
retires an obligation of which it is the issuer.
(2) The term customer means, with respect to a sale effected by a
broker, the person (other than such broker) that makes the sale, if the
broker acts as:
(i) An agent for such person in the sale;
(ii) A principal in the sale; or
(iii) The participant in the sale responsible for paying to such
person or crediting to such person's account the gross proceeds on the
sale.
(3) The term security means:
(i) A share of stock in a corporation (foreign or domestic);
(ii) An interest in a trust;
(iii) An interest in a partnership;
(iv) A debt obligation;
(v) An interest in or right to purchase any of the foregoing in
connection with the issuance thereof from the issuer or an agent of the
issuer or from an underwriter that purchases any of the foregoing from
the issuer, or
(vi) An interest in a security described in paragraph (a)(3) (i) or
(iv) (but not including options or executory contracts that require
delivery of such type of security).
(4) The term barter exchange means any person with members or
clients that contract either with each other or with such person to
trade or barter property or services either directly or through such
person. The term does not include arrangements that provide solely for
the informal exchange of similar services on a noncommercial basis.
(5) The term commodity means:
(i) Any type of personal property or an interest therein (other than
securities as defined in paragraph (a)(3)) the trading of regulated
futures contracts in which has been approved by the Commodity Futures
Trading Commission;
(ii) Lead, palm oil, rapeseed, tea, tin, or an interest in any of
the foregoing; or
(iii) Any other personal property or an interest therein that is of
a type the Secretary determines is to be treated as a ``commodity''
under this section, from and after the date specified in a notice of
such determination published in the Federal Register.
(6) The term regulated futures contract means a regulated futures
contract within the meaning of section 1256(b).
(7) The term forward contract means:
(i) An executory contract that requires delivery of a commodity in
exchange for cash and which contract is not a regulated futures
contract; or
(ii) An executory contract that requires delivery of personal
property or an interest therein in exchange for cash, or a cash
settlement contract, if such executory contract or cash settlement
contract is of a type the Secretary determines is to be treated as a
``forward contract'' under this section, from and after the date
specified in a notice of such determination published in the Federal
Register.
(8) The term closing transaction means any termination of an
obligation under a forward contract or a regulated futures contract.
(9) The term sale means any disposition of securities, commodities,
regulated futures contracts, or forward contracts for cash, and includes
redemptions of stock, retirements of indebtedness, and enterings into
short sales. In the case of a regulated futures contract or a forward
contract, the term ``sale'' means any closing transaction. When a
closing transaction in a regulated futures contract involves making or
taking delivery, the profit or loss on the contract is a sale, and, if
delivery is
[[Page 214]]
made, such delivery is a separate sale. When a closing transaction in a
forward contract involves making or taking delivery, the delivery is a
sale without separation of the profit or loss on the contract from the
profit or loss on the delivery, except that taking delivery for United
States dollars is not a sale. The term ``sale'' does not include grants
or purchases of options, exercises of call options, or enterings into
contracts that require delivery of personal property or an interest
therein.
(10) The term effect means, with respect to a sale, to act as:
(i) An agent for a party in the sale wherein the nature of the
agency is such that the agent ordinarily would know the gross proceeds
from the sale; or
(ii) A principal in such sale.
Acting as an agent or principal with respect to grants or purchases of
options, exercises of call options, or enterings into contracts that
require delivery of personal property or an interest therein is not of
itself effecting a sale. A broker that has on its books a forward
contract under which delivery is made effects such delivery.
(11) The term foreign currency means currency of a foreign country.
(12) The term cash means United States dollars or any convertible
foreign currency.
(13) The term person includes any governmental unit and any agency
or instrumentality thereof.
(b) Examples. The following examples illustrate the definitions in
paragraph (a):
Example 1. The following persons generally are brokers within the
meaning of paragraph (a)(1):
(i) A mutual fund, an underwriter of the mutual fund, or an agent
for the mutual fund, any of which stands ready to redeem or repurchase
shares in such mutual fund.
(ii) A professional custodian (such as a bank) that regularly
arranges sales for custodial accounts pursuant to instructions from the
owner of the property.
(iii) A depositary trust or other person who regularly acts as an
escrow agent in corporate acquisitions, if the nature of the activities
of the agent is such that the agent ordinarily would know the gross
proceeds from sales.
(iv) A stock transfer agent for a corporation, which agent records
transfers of stock in such corporation, if the nature of the activities
of the agent is such that the agent ordinarily would know the gross
proceeds from sales.
(v) A dividend reinvestment agent for a corporation that stands
ready to purchase or redeem shares.
Example 2. The following persons are not brokers within the meaning
of paragraph (1)(a) in the absence of additional facts that indicate the
person is a broker:
(i) A stock transfer agent for a corporation, which agent daily
records transfers of stock in such corporation, if the nature of the
activities of the agent is such that the agent ordinarily would not know
the gross proceeds from sales.
(ii) A person (such as a stock exchange) that merely provides
facilities in which others effect sales.
(iii) An escrow agent or nominee if such agency is not in the
ordinary course of a trade or business.
(iv) An escrow agent, otherwise a broker, which agent effects no
sales other than such transactions as are incidental to the purpose of
the escrow (such as sales to collect on collateral).
(v) A floor broker on a commodities exchange, which broker maintains
no records with respect to the terms of sales.
(vi) A corporation that issues and retires long-term debt on an
irregular basis.
(vii) A clearing organization.
Example 3. A, B, and C belong to a carpool in which they commute to
and from work. Every third day, each member of the carpool provides
transportation for the other two members. Because the carpool
arrangement provides solely for the informal exchange of similar
services on a noncommercial basis, the carpool is not a barter exchange
within the meaning of paragraph (a)(4).
Example 4. X is an organization whose members include retail
merchants, wholesale merchants, and persons in the trade or business of
performing services. X's members exchange property and services among
themselves using credits on the books of X as a medium of exchange. Each
exchange through X is reflected on the books of X by crediting the
account of the member providing property or services and debiting the
account of the member receiving such property or services. X also
provides information to its members concerning property and services
available for exchange through X. X charges its members a commission on
each transaction in which credits on its books are used as a medium of
exchange. X is a barter exchange within the meaning of paragraph (a)(4)
of this section.
Example 5. A warehouse receipt is an interest in personal property
for purposes of paragraph (a). Consequently, a warehouse receipt for a
quantity of lead is a commodity under paragraph (a)(5)(ii). Similarly an
executory
[[Page 215]]
contract that requires delivery of a warehouse receipt for a quantity of
lead is a forward contract under paragraph (a)(7)(ii).
Example 6. The only customers of a depository trust acting as an
escrow agent in corporate acquisitions which trust is a broker, are
shareholders to whom the trust makes payments or shareholders for whom
the trust is acting as an agent.
Example 7. The only customers of a stock transfer agent, which agent
is a broker are shareholders to whom the agent makes payments or
shareholders for whom the agent is acting as an agent,
Example 8. D, an individual not otherwise exempt from reporting, is
the holder of an obligation issued by P, a corporation. R, a broker,
acting as an agent for P, retires such obligation held by D. Such
obligor payments from R represent obligor payments by P. (See paragraph
(c)(3)(v)). D, the person to whom the gross proceeds are paid or
credited by R, is the customer of R.
(c) Reporting by brokers--(1) Requirement of reporting. Any broker
shall, except as otherwise provided, report in the manner prescribed in
this section.
(2) Sales required to be reported. Except as provided in paragraphs
(c)(3), (c)(5), (g), and (p)(1), a broker shall make a return of
information with respect to each sale by a customer of the broker
effected by the broker in the ordinary course of a trade or business in
which the broker stands ready to effect sales to be made by others.
(3) Exceptions--(i) Sales effected for exempt recipients--
(A) In general. No return of information is required with respect to
a sale effected for a customer that is an exempt recipient under
paragraph (c)(3)(i)(B) of this section.
(B) Exempt recipient defined. The term exempt recipient means--
(1) A corporation as defined in section 7701(a)(3), whether domestic
or foreign;
(2) An organization exempt from taxation under section 501(a) or an
individual retirement plan;
(3) The United States or a State, the District of Columbia, a
possession of the United States, a political subdivision of any of the
foregoing, a wholly owned agency or instrumentality of any one or more
of the foregoing, or a pool or partnership composed exclusively of any
of the foregoing;
(4) A foreign government, a political subdivision thereof, an
international organization, or any wholly owned agency or
instrumentality of the foregoing;
(5) A foreign central bank of issue as defined in Sec. 1.895-
1(b)(1) (i.e., a bank that is by law or government sanction the
principal authority, other than the government itself, issuing
instruments intended to circulate as currency);
(6) A dealer in securities or commodities registered as such under
the laws of the United States or a State;
(7) A futures commission merchant registered as such with the
Commodity Futures Trading Commission;
(8) A real estate investment trust (as defined in section 856);
(9) An entity registered at all times during the taxable year under
the Investment Company Act of 1940 (15 U.S.C. 80a-1, et seq.);
(10) A common trust fund (as defined in section 584(a)); or
(11) A financial institution such as a bank, mutual savings bank,
savings and loan association, building and loan association, cooperative
bank, homestead association, credit union, industrial loan association
or bank, or other similar organization.
(C) Exemption certificate. A broker may treat a person described in
paragraph (c)(3)(i)(B) of this section as an exempt recipient based on a
properly completed exemption certificate (as provided in Sec.
31.3406(h)-3) of this chapter, on the broker's actual knowledge that the
payee is a person described in paragraph (c)(3)(i)(B), or on the
applicable indicators described in Sec. 1.6049-4(c)(1)(ii)(A) through
(M). A broker may require an exempt recipient to file a properly
completed exemption certificate and may treat an exempt recipient that
fails to do so as a recipient that is not exempt.
(ii) Excepted sales. No return of information is required with
respect to a sale effected by a broker for a customer if the sale is an
excepted sale. For this purpose, a sale is an excepted sale if it is so
designated by the Internal Revenue Service in a revenue ruling or
revenue procedure (see Sec. 601.601(d)(2) of this chapter).
(iii) Multiple brokers. If a broker is instructed to initiate a sale
by a person that is an exempt recipient described in paragraph
(c)(3)(i)(B)(6), (7), or (11) of
[[Page 216]]
this section, no return of information is required with respect to the
sale by that broker. In a redemption of stock or retirement of
securities, only the broker responsible for paying the holder redeemed
or retired, or crediting the gross proceeds on the sale to that holder's
account, is required to report the sale.
(iv) Cash on delivery transactions. In the case of a sale of
securities through a cash on delivery account, a delivery versus payment
account, or other similar account or transaction, only the broker that
receives the gross proceeds from the sale against delivery of the
securities sold is required to report the sale. If, however, the
broker's customer is another broker (second-party broker) that is an
exempt recipient, then only the second-party broker is required to
report the sale.
(v) Fiduciaries and partnerships. No return of information is
required with respect to a sale effected by a custodian or trustee in
its capacity as such or a redemption of a partnership interest by a
partnership, provided the sale is otherwise reported by the custodian or
trustee on a properly filed Form 1041, or the redemption is otherwise
reported by the partnership on a properly filed Form 1065, and all
Schedule K-1 reporting requirements are satisfied.
(vi) Sales at issue price. No return of information is required with
respect to a sale of an interest in a regulated investment company that
can hold itself out as a money market fund under Rule 2a-7 under the
Investment Company Act of 1940 that computes its current price per share
for purposes of distributions, redemptions, and purchases so as to
stabilize the price per share at a constant amount that approximates its
issue price or the price at which it was originally sold to the public.
(vii) Obligor payments on certain obligations. No return of
information is required with respect to payments representing obligor
payments on--
(A) Nontransferable obligations (including savings bonds, savings
accounts, checking accounts, and NOW accounts);
(B) Obligations as to which the entire gross proceeds are reported
by the broker on Form 1099 under provisions of the Internal Revenue Code
other than section 6045 (including stripped coupons issued prior to July
1, 1982); or
(C) Retirement of short-term obligations (i.e., obligations with a
fixed maturity date not exceeding 1 year from the date of issue) that
have original issue discount, as defined in section 1273(a)(1), with or
without application of the de minimis rule.
(D) Demand obligations that also are callable by the obligor and
that have no premium or discount.
(viii) Foreign currency. No return of information is required with
respect to a sale of foreign currency other than a sale pursuant to a
forward contract or regulated futures contract that requires delivery of
foreign currency.
(ix) Fractional share. No return of information is required with
respect to a sale of a fractional share of stock if the gross proceeds
on the sale of the fractional share are less than $20.
(x) Certain retirements. No return of information is required from
an issuer or its agent with respect to the retirement of book entry or
registered form obligations as to which the relevant books and records
indicate that no interim transfers have occurred.
(xi) Cross reference. For an exception for certain sales of
agricultural commodities and certificates issued by the Commodity Credit
Corporation after January 1, 1993, see paragraph (c)(7) of this section.
(xii) Effective date. The provisions of this paragraph (c)(3) apply
for sales effected after December 31, 2002.
(4) Examples. The following examples illustrate the application of
the rules in paragraph (c)(3) of this section:
Example 1. P, an individual who is not an exempt recipient, places
an order with B, a person generally known in the investment community to
be a federally registered broker/dealer, to effect a sale of P's stock
in a publicly traded corporation. B, in turn, places an order to sell
the stock with C, a second broker, who will execute the sale. B
discloses to C the identity of the customer placing the order. C is not
required to make a return of information with respect to the sale
because C was instructed by B, an exempt recipient as defined in
paragraph (c)(3)(i)(B)(6) of this section, to initiate the sale. B is
required to make a return of information with respect to the sale
because P is B's customer and is not an exempt recipient.
[[Page 217]]
Example 2. Assume the same facts as in Example 1 except that B has
an omnibus account with C so that B does not disclose to C whether the
transaction is for a customer of B or for B's own account. C is not
required to make a return of information with respect to the sale
because C was instructed by B, an exempt recipient as defined in
paragraph (c)(3)(i)(B)(6) of this section, to initiate the sale. B is
required to make a return of information with respect to the sale
because P is B's customer and is not an exempt recipient.
Example 3. D, an individual who is not an exempt recipient, enters
into a cash on delivery stock transaction by instructing K, a federally
registered broker/dealer, to sell stock owned by D, and to deliver the
proceeds to L, a custodian bank. Concurrently with the above
instructions, D instructs L to deliver D's stock to K (or K's designee)
against delivery of the proceeds from K. The records of both K and L
with respect to this transaction show an account in the name of D.
Pursuant to paragraph (h)(1) of this section, D is considered the
customer of K and L. Under paragraph (c)(3)(iv) of this section, K is
not required to make a return of information with respect to the sale
because K will pay the gross proceeds to L against delivery of the
securities sold. L is required to make a return of information with
respect to the sale because D is L's customer and is not an exempt
recipient.
Example 4. Assume the same facts as in Example 3 except that E, a
federally registered investment advisor, instructs K to sell stock owned
by D and to deliver the proceeds to L. Concurrently with the above
instructions, E instructs L to deliver D's stock to K (or K's designee)
against delivery of the proceeds from K. The records of both K and L
with respect to the transaction show an account in the name of D.
Pursuant to paragraph (h)(1) of this section, D is considered the
customer of K and L. Under paragraph (c)(3)(iv) of this section, K is
not required to make a return of information with respect to the sale
because K will pay the gross proceeds to L against delivery of the
securities sold. L is required to make a return of information with
respect to the sale because D is L's customer and is not an exempt
recipient.
Example 5. Assume the same facts as in Example 4 except that the
records of both K and L with respect to the transaction show an account
in the name of E. Pursuant to paragraph (h)(1) of this section, E is
considered the customer of K and L. Under paragraph (c)(3)(iv) of this
section, K is not required to make a return of information with respect
to the sale because K will pay the gross proceeds to L against delivery
of the securities sold. L is required to make a return of information
with respect to the sale because E is L's customer and is not an exempt
recipient. E is required to make a return of information with respect to
the sale because D is E's customer and is not an exempt recipient.
Example 6. F, an individual who is not an exempt recipient, owns
bonds that are held by G, a federally registered broker/dealer, in an
account for F with G designated as nominee for F. Upon the retirement of
the bonds, the gross proceeds are automatically credited to the account
of F. G is required to make a return of information with respect to the
retirement because G is the broker responsible for making payments of
the gross proceeds to F.
(5) Form of reporting for regulated futures contracts--(i) In
general. A broker effecting closing transactions in regulated futures
contracts shall report information with respect to regulated futures
contracts solely in the manner prescribed in this paragraph (c)(5). In
the case of a sale that involves making delivery pursuant to a regulated
futures contract, only the profit or loss on the contract is reported as
a transaction with respect to regulated futures contracts under this
paragraph (c)(5); such sales are, however, subject to reporting under
paragraph (d)(2). The information required under this paragraph (c)(5)
must be reported on a calendar year basis, unless the broker is advised
in writing by an account's owner that the owner's taxable year is other
than a calendar year and the broker elects to report with respect to
regulated futures contracts in such account on the basis of the owner's
taxable year. The following information must be reported as required by
Form 1099 with respect to regulated futures contracts held in a
customer's account:
(A) The name, address, and taxpayer identification number of the
customer.
(B) The net realized profit or loss from all regulated futures
contracts closed during the calendar year.
(C) The net unrealized profit or loss in all open regulated futures
contracts at the end of the preceding calendar year.
(D) The net unrealized profit or loss in all open regulated futures
contracts at the end of the calendar year.
(E) The aggregate profit or loss from regulated futures contracts
((b)+(d)-(c)).
(F) Any other information required by Form 1099. See 17 CFR 1.33.
For this purpose, the end of a year is the close of business of the last
business day of
[[Page 218]]
such year. In reporting under this paragraph (c)(5), the broker shall
make such adjustments for commissions that have actually been paid and
for option premiums as are consistent with the books of the broker. No
additional returns of information with respect to regulated futures
contracts so reported are required.
(ii) Determination of profit or loss from foreign currency
contracts. A broker effecting a closing transaction in foreign currency
contracts (as defined in section 1256(g)) shall report information with
respect to such contracts in the manner prescribed in paragraph
(c)(5)(i) of this section. If a foreign currency contract is closed by
making or taking delivery, the net realized profit or loss for purposes
of paragraph (c)(5)(i)(B) of this section is determined by comparing the
contract price to the spot price for the contract currency at the time
and place specified in the contract. If a foreign currency contract is
closed by entry into an offsetting contract, the net realized profit or
loss for purposes of paragraph (c)(5)(i)(B) of this section is
determined by comparing the contract price to the price of the
offsetting contract. The net unrealized profit or loss in a foreign
currency contract for purposes of paragraphs (c)(5)(i) (C) and (D) of
this section is determined by comparing the contract price to the
broker's price for similar contracts at the close of business of the
relevant year.
(iii) Examples. The following examples illustrate the application of
the rules in this paragraph (c)(5):
Example 1. On October 30, 1984, A, an individual who is a calendar
year taxpayer not otherwise exempt from reporting, buys one March 1985
put on Treasury Bond futures (i.e. A purchases an option to enter into a
short regulated futures contract of $100,000 face value U.S. Treasury
bonds). A pays $500 for the option. On December 19, 1984, A, through B,
exercises the option and enters into the futures contract. On February
15, 1985, A, through B, enters into a closing transaction with respect
to the futures contract. These are A's only transactions in the account.
Since B's books list A's regulated futures contract on December 31,
1984, B must report for A, for 1984, the unrealized profit or loss in
the contract as of December 31, 1984. For 1985, B will report the same
amount for A as the unrealized profit or loss at the beginning of 1985.
The return of information for 1985 will also include the gain or loss
from the contract in the net realized profit or loss from all regulated
futures contracts sales during 1985.
Example 2. The facts are the same as in Example (1) except that A
does not enter into the closing transaction, but instead, on March 20,
1985, B informs A that A will make delivery under the contract. On March
22, 1985, A does so; consequently, A becomes entitled to the gross
proceeds. B enters the closing transaction on its books on March 20,
1985. In addition to the returns of information required by paragraph
(c)(5), as described in Example (1), B must report the March 22, 1985
delivery as a separate transaction. B may use as the sale date for the
delivery either March 20, 1985, the date the transaction is entered on
the books of B, or March 22, 1985, the date A becomes entitled to the
gross proceeds. B may not deduct the $500 premium from the gross
proceeds with respect to the March 22, 1985 delivery.
Example 3. The facts are the same as in Example (2) except that A
buys a call on Treasury bond futures and takes delivery. B will supply
the returns of information required by paragraph (c)(5), as described in
Example (1). B is not required to make a return of information with
respect to A's taking delivery.
Example 4. C, an individual who is a calendar year taxpayer not
otherwise exempt from reporting, has an account with D, a broker. C
trades both regulated futures contracts and forward contracts through
C's account with D. D must report C's regulated futures contracts on an
annual basis as required by paragraph (c)(5). With respect to C's
forward contracts, D may elect to use the calendar month, quarter, or
year as D's reporting period as provided in paragraph (c)(6).
(6) Reporting periods and filing groups--(i) Reporting period--(A)
In general. A broker may elect to use the calendar month, quarter, or
year as the broker's reporting period. A broker may separately elect a
reporting period for each filing group.
(B) Election. For each calendar year, a broker shall elect a
reporting period by filing Forms 1096 and 1099 in the manner elected. A
different reporting period may be subsequently elected by filing in the
manner subsequently elected, provided no duplication of reported
transactions results.
(ii) Filing group--(A) In general. A broker may elect to group
customers or customer accounts by office, branch, department or other
method of operational classification and separately
[[Page 219]]
file Forms 1096 and 1099 for each filing group.
(B) Election. For each calendar year, a broker shall elect filing
groups by filing Forms 1096 and 1099 in the manner elected. Different
filing groups may be subsequently elected by filing in the manner
subsequently elected, provided no duplication of reported transactions
results.
(iii) Example. The following example illustrates the rules of this
paragraph (c)(6):
Example. The A department of C, a broker, files a separate report
for each month of 1984, whereas the B department of C files one report
for all of 1984. C makes no other reports or returns of information
under section 6045 for 1984. C had thereby elected two filing groups for
1984, the A department and the B department. The A department has the
calendar month as its 1984 reporting period, whereas the B department
has the calendar year as its 1984 reporting period. The same result
would occur if A and B were offices or branches of C.
(7) Exception for certain sales of agricultural commodities and
commodity certificates--(i) Agricultural commodities. No return of
information is required under section 6045 for a spot or forward sale of
an agricultural commodity. This paragraph (c)(7)(i) does not except from
reporting sales of agricultural commodities pursuant to regulated
futures contracts, sales of derivative interests in agricultural
commodities, or sales described in paragraph (c)(7)(iii) of this
section.
(ii) Commodity Credit Corporation certificates. Except as otherwise
provided in a revenue ruling or revenue procedure, no return of
information is required under section 6045 with respect to a sale of a
commodity certificate issued by the Commodity Credit Corporation under 7
CFR 1470.4 (1990).
(iii) Sales involving designated warehouses. Paragraph (c)(7)(i) of
this section does not apply to any sale involving a warehouse receipt
for an agricultural commodity issued by a designated warehouse for an
agricultural commodity of the type for which the warehouse is a
designated warehouse.
(iv) Definitions. For purposes of this paragraph (c)(7):
(A) Agricultural commodity. An ``agricultural commodity'' includes,
but is not limited to, a commodity within the meaning of paragraph
(a)(5) of this section that is a grain, feed, livestock, meat, oil seed,
timber, or fiber.
(B) Spot sale. A spot sale is a sale that results in the
substantially contemporaneous delivery of a commodity.
(C) Forward sale. A forward sale is a sale pursuant to a forward
contract within the meaning of paragraph (a)(7) of this section.
(D) Designated warehouse. A designated warehouse is a warehouse,
depository, or other similar entity, designated by a commodity exchange
under 7 CFR 1.43 (1992), in which or out of which a particular type of
agricultural commodity is deliverable in satisfaction of a regulated
futures contract.
(v) Effective dates. Paragraph (c)(7) of this section applies to
sales effected on or after January 1, 1993. For sales effected before
January 1, 1993, the following transactions are excepted from the
information reporting requirements of section 6045:
(A) Spot or forward sales of agricultural products or commodities
(but not sales of interests in agricultural products or commodities,
such as sales of regulated futures contracts or forward contracts),
effected by any person regardless of whether that person takes title to
the agricultural products or commodities; and
(B) Sales of negotiable commodity certificates issued by the
Commodity Credit Corporation.
(d) Information required--(1) In general. A broker that is required
to make a return of information under paragraph (c) during a reporting
period shall report on a separate Form 1096 for each filing group,
showing such information as may be required by Form 1096, in the form,
manner, and number of copies required by Form 1096.
(2) Transactional reporting. As to each sale with respect to which a
broker is required to make a return of information under this section,
the broker, except as provided in paragraphs (c)(5) and (p)(1), shall
show on Form 1099 the name, address, and taxpayer identification number
of the customer, the property sold, Committee on Uniform Security
Identification Procedures (CUSIP) number of the security sold (if
known), the gross proceeds, sale date, and such
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other information as may be required by Form 1099, in the form, manner,
and number of copies required by Form 1099.
(3) Bond sales between interest payment dates. As to each sale of a
debt obligation prior to maturity with respect to which a broker is
required to make a return of information under this section, a broker
shall show separately on Form 1099 the amount of accrued and unpaid
interest as of the sale date that must be reported by the customer as
interest income under Sec. 1.61-7(d) (but not the amount of any
original issue or market discount). Such interest information shall be
shown in the manner and at the time required by Form 1099 and section
6049.
(4) Sale date. With respect to sales of property that are reportable
under this section, a broker must report a sale as occurring on the date
the sale is entered on the books of the broker.
(5) Gross proceeds. The gross proceeds on a sale are the total
amount paid to the customer or credited to the customer's account as a
result of such sale reduced by the amount of any interest reported under
paragraph (d)(3) and increased by any amount not so paid or credited by
reason of repayment of margin loans. In the case of a closing
transaction which results in a loss, gross proceeds are the amount
debited from the customer's account. The broker may, but is not required
to, take commissions and option premiums into account in determining
gross proceeds, provided the treatment chosen is consistent with the
books of the broker.
(6) Conversion into United States dollars of proceeds paid in
foreign currency--(i) Conversion rules. When a payment is made in a
foreign currency, the U.S. dollar amount shall be determined by
converting such foreign currency into U.S. dollars on the date of
payment at the spot rate (as defined in Sec. 1.988-1(d)(1)) or pursuant
to a reasonable spot rate convention. For example, a withholding agent
may use a month-end spot rate or a monthly average spot rate. A spot
rate convention must be used consistently with respect to all non-dollar
amounts withheld and from year to year. Such convention cannot be
changed without the consent of the Commissioner or his or her delegate.
(ii) Effect of identification under Sec. 1.988-5(a), (b), or (c)
where the taxpayer effects a sale and a hedge through the same broker--
(A) In general. In lieu of the amount reportable under paragraph
(d)(6)(i) of this section, the amount subject to reporting shall be the
integrated amount computed under Sec. 1.988-5(a), (b) or (c) if--
(1) A taxpayer effects through a broker a sale or exchange of
nonfunctional currency (as defined in Sec. 1.988-1(c)) and hedges all
or a part of such sale as provided in Sec. 1.988-5(a), (b) or (c) with
the same broker; and
(2) The taxpayer complies with the requirements of Sec. 1.988-5(a),
(b) or (c) and so notifies the broker prior to the end of the calendar
year in which the sale occurs.
(B) Effective date. The provisions of this paragraph (d)(6)(ii)
apply to transactions entered into after December 31, 2000.
(7) Coordination with reporting rules for widely held fixed
investment trusts under Sec. 1.671-5 of this chapter. See Sec. 1.671-5
for the reporting rules for widely held fixed investment trusts (as
defined under that section).
(e) Reporting of barter exchanges--(1) Requirement of reporting. A
barter exchange shall, except as otherwise provided, report in the
manner prescribed in this section.
(2) Exchanges required to be reported--(i) In general. Except as
provided in paragraphs (e)(2)(ii), (g), and (p)(2), a barter exchange
shall make a return of information with respect to exchanges of personal
property or services through the barter exchange during the calendar
year among its members or clients or between such persons and the barter
exchange. For this purpose, property or services are exchanged through a
barter exchange if payment for property or services is made by means of
a credit on the books of the barter exchange or scrip issued by the
barter exchange or if the barter exchange arranges a direct exchange of
property or services among its members or clients or exchanges property
or services with a member or client.
(ii) Exemption. A barter exchange through which there are fewer than
100
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exchanges during the calendar year is not required to report for, or
make a return of information with respect to exchanges during, such
calendar year. The Commissioner may require multiple barter exchanges to
be combined for purposes of the proceeding sentence upon a determination
that a material purpose for the formation or continuation of one or more
of the barter exchanges to be combined was to receive one or more
exemptions pursuant to this subparagraph.
(f) Information required--(1) In general. A person that is a barter
exchange during a calendar year shall report on Form 1096 showing the
information required thereon for such year.
(2) Transactional reporting--(i) In general. As to each exchange
with respect to which a barter exchange is required to make a return of
information under this section, the barter exchange, except as provided
in paragraph (p)(2), shall show on Form 1099 the name, address, and
taxpayer identification number of each member or client providing
property or services in the exchange, the property or services provided,
the amount received by the member or client for such property or
services, the date on which the exchange occurred, and such other
information as may be required by Form 1099, in the form, manner, and
number of copies required by Form 1099.
(ii) Exception for corporate member or client. As to each corporate
member or client providing property or services in an exchange for which
a return of information is required under this section, the barter
exchange may report the name, address, and taxpayer identification
number of the corporate member or client, the aggregate amount received
by the corporate member or client during the reporting period for
property or services provided by such corporate member or client in
exchange for which a return of information is required, and such other
information as may be required by Form 1099, in the form, manner, and
number of copies required by Form 1099.
(iii) Definition. For purposes of paragraph (f)(2)(ii) of this
section, the term ``corporate member or client'' means a member or
client of a barter exchange which is a corporation as defined in section
7701(a)(3) (including an insurance company). The term corporation
includes a pool, syndicate, partnership, or unincorporated association
composed exclusively of corporations. A barter exchange may treat a
member or client as a corporation (and therefore as a corporate member
or client) if such member or client provides an exemption certificate as
described in Sec. 31.3406(h)-3(a) of this chapter or provided that--
(A) The name of the member or client contains the term ``insurance
company,'' ``indemnity company,'' ``reinsurance company,'' or
``assurance company'';
(B) The name of the member or client contains one of the following
unambiguous expressions of corporate status: Incorporated, Inc.,
Corporation, Corp., or P.C., but not Company or Co.; or
(C) The member or client is known to the barter exchange to be a
corporation through a corporate resolution or similar document on file
with the barter exchange clearly indicating corporate status.
(3) Exchange date. For purposes of this section an exchange is
considered to occur with respect to a member or client of a barter
exchange on the date cash, property, a credit, or scrip is actually or
constructively received by the member or client as a result of the
exchange. (See Sec. 1.451-2 for rules pertaining to constructive
receipt.)
(4) Amount received. The amount received by a member or client in an
exchange includes cash received, the fair market value of any property
or services received, and the fair market value of any credits to the
account of the member or client on the books of the barter exchange or
scrip issued to the member or client by the barter exchange, but does
not include any amount received by the member or client in a subsequent
exchange of credits or scrip. For purposes of this section, the fair
market value of a credit or scrip is the value assigned to such credit
or scrip by the issuing barter exchange for the purpose of exchanges
unless the Commissioner requires the use of a different value that the
Commissioner determines more accurately reflects fair market value.
[[Page 222]]
(5) Meaning of terms. For purposes of this paragraph (f)--(i) A
credit is an amount on the books of the barter exchange that is
transferable from one member or client of the barter exchange to another
such member or client, or to the barter exchange in payment for property
or services;
(ii) Scrip is a token issued by the barter exchange that is
transferable from one member or client, of the barter exchange to
another such member or client, or to the barter exchange, in payment for
property or services; and
(iii) Property does not include a credit or scrip.
(6) Reporting period. A barter exchange shall use the calendar year
as the reporting period.
(g) Exempt foreign persons--(1) Brokers. No return of information is
required to be made by a broker with respect to a customer who is
considered to be an exempt foreign person under this paragraph (g)(1). A
broker may treat a customer as an exempt foreign person under the
circumstances described in paragraphs (g)(1)(i) through (iii) of this
section.
(i) With respect to a sale effected at an office of a broker either
inside or outside the United States, the broker may treat the customer
as an exempt foreign person if the broker can, prior to the payment,
associate the payment with documentation upon which it can rely in order
to treat the customer as a foreign beneficial owner in accordance with
Sec. 1.1441-1(e)(1)(ii), or as made to a foreign payee in accordance
with Sec. 1.6049-5(d)(1) or presumed to be made to a foreign payee
under Sec. 1.6049-5(d)(2) or (3). For purposes of this paragraph
(g)(1)(i), the provisions in Sec. 1.6049-5(c) (regarding rules
applicable to documentation of foreign status and definition of U.S.
payor, U.S. middleman, non-U.S. payor, and non-U.S. middleman) shall
apply. The provisions of Sec. 1.1441-1 shall apply by substituting the
terms broker and customer for the terms withholding agent and payee and
without regard for the fact that the provisions apply to amounts subject
to withholding under chapter 3 of the Internal Revenue Code (Code). The
provisions of Sec. 1.6049-5(d) shall apply by substituting the terms
broker and customer for the terms payor and payee. For purposes of this
paragraph (g)(1)(i), a broker that is required to obtain, or chooses to
obtain, a beneficial owner withholding certificate described in Sec.
1.1441-1(e)(2)(i) from an individual may rely on the withholding
certificate only to the extent the certificate includes a certification
that the beneficial owner has not been, and at the time the certificate
is furnished, reasonably expects not to be present in the United States
for a period aggregating 183 days or more during each calendar year to
which the certificate pertains. The certification is not required if a
broker receives documentary evidence under Sec. 1.6049-5(c)(1) or (4).
(ii) With respect to a redemption or retirement of stock or an
obligation (the interest or original issue discount on, which is
described in Sec. 1.6049-5(b) (6), (7), (10), or (11) or the dividends
on, which are described in Sec. 1.6042-3(b)(1)(iv)) that is effected at
an office of a broker outside the United States by the issuer (or its
paying or transfer agent), the broker may treat the customer as an
exempt foreign person if the broker is not also acting in its capacity
as a custodian, nominee, or other agent of the payee.
(iii) With respect to a sale effected by a broker at an office of
the broker either inside or outside the United States, the broker may
treat the customer as an exempt foreign person for the period that those
proceeds are assets blocked, as described in Sec. 1.1441-2(e)(3). For
purposes of this paragraph (g)(1)(iii) and section 3406, a sale is
deemed to occur in accordance with paragraph (d)(4) of this section. The
exemption in this paragraph (g)(1)(iii) shall terminate when payment of
the proceeds is deemed to occur in accordance with the provisions of
Sec. 1.1441-2(e)(3).
(2) Barter exchange. No return of information is required by a
barter exchange with respect to a client or a member that the barter
exchange may treat as a foreign person pursuant to the procedures
described in paragraph (g)(1) of this section.
(3) Applicable rules--(i) Joint owners. Amounts paid to joint owners
for which a certificate or documentation is
[[Page 223]]
required as a condition for being exempt from reporting under paragraph
(g) (1)(i) or (2) of this section are presumed made to U.S. payees who
are not exempt recipients if, prior to payment, the broker or barter
exchange cannot reliably associate the payment either with a Form W-9
furnished by one of the joint owners in the manner required in
Sec. Sec. 31.3406(d)-1 through 31.3406(d)-5 of this chapter, or with
documentation described in paragraph (g)(1)(i) of this section furnished
by each joint owner upon which it can rely to treat each joint owner as
a foreign payee or foreign beneficial owner. For purposes of applying
this paragraph (g)(3)(i), the grace period described in Sec. 1.6049-
5(d)(2)(ii) shall apply only if each payee qualifies for such grace
period.
(ii) Special rules for determining who the customer is. For purposes
of this paragraph (g), the determination of who the customer is shall be
made on the basis of the provisions in Sec. 1.6049-5(d) by substituting
in that section the terms payor and payee with the terms broker and
customer.
(iii) Place of effecting sale--(A) Sale outside the United States.
For purposes of this paragraph (g), a sale is considered to be effected
by a broker at an office outside the United States if, in accordance
with instructions directly transmitted to such office from outside the
United States by the broker's customer, the office completes the acts
necessary to effect the sale outside the United States. The acts
necessary to effect the sale may be considered to have been completed
outside the United States without regard to whether--
(1) Pursuant to instructions from an office of the broker outside
the United States, an office of the same broker within the United States
undertakes one or more steps of the sale in the United States; or
(2) The gross proceeds of the sale are paid by a draft drawn on a
United States bank account or by a wire or other electronic transfer
from a United States account.
(B) Sale inside the United States. For purposes of this paragraph
(g), a sale that is considered to be effected by a broker at an office
outside the United States under paragraph (g)(3)(iii)(A) of this section
shall nevertheless be considered to be effected by a broker at an office
inside the United States if either--
(1) The customer has opened an account with a United States office
of that broker;
(2) The customer has transmitted instructions concerning this and
other sales to the foreign office of the broker from within the United
States by mail, telephone, electronic transmission or otherwise (unless
the transmissions from the United States have taken place in isolated
and infrequent circumstances);
(3) The gross proceeds of the sale are paid to the customer by a
transfer of funds into an account (other than an international account
as defined in Sec. 1.6049-5(e)(4)) maintained by the customer in the
United States or mailed to the customer at an address in the United
States;
(4) The confirmation of the sale is mailed to a customer at an
address in the United States; or
(5) An office of the same broker within the United States negotiates
the sale with the customer or receives instructions with respect to the
sale from the customer.
(iv) Special rules where the customer is a foreign intermediary or
certain U.S. branches. A foreign intermediary, as defined in Sec.
1.1441-1(c)(13), is an exempt foreign person, except when the broker has
actual knowledge (within the meaning of Sec. 1.6049-5(c)(3)) that the
person for whom the intermediary acts is a U.S. person that is not
exempt from reporting under paragraph (c)(3) of this section or the
broker is required to presume under Sec. 1.6049-5(d)(3) that the payee
is a U.S. person that is not an exempt recipient. If an intermediary, as
defined in Sec. 1.1441-1(c)(13), or a U.S. branch described in Sec.
1.1441-1(b)(2)(iv) (other than a U.S. branch that is treated as a U.S.
person) receives a payment from a payor or middleman, which payment the
payor or middleman can associate with a valid withholding certificate
described in Sec. 1.1441-1(e)(3)(ii), (iii), or (v) furnished by such
intermediary or U.S. branch, then the intermediary or U.S. branch is not
required to report such payment when it, in turn, pays
[[Page 224]]
the amount to the person whose name is on the certificate furnished by
the intermediary or U.S. branch to the payor or middleman, unless, and
to the extent, the intermediary or U.S. branch knows that the payment is
required to be reported under this section and was not so reported. For
example, if a foreign intermediary or U.S. branch fails to provide
information regarding U.S. persons that are not exempt from reporting
under paragraph (c)(3) of this section to the person from whom the
intermediary or U.S. branch receives the payment, the foreign
intermediary or U.S. branch must report the payment on an information
return. The exception of this paragraph (g)(3)(iv) shall not apply to a
qualified intermediary that assumes reporting responsibility under
chapter 61 of the Internal Revenue Code.
(4) Examples. The application of the provisions of this paragraph
(g) may be illustrated by the following examples:
Example 1. FC is a foreign corporation that is not a U.S. payor or
U.S. middleman described in Sec. 1.6049-5(c)(5) that regularly issues
and retires its own debt obligations. A is an individual whose residence
address is inside the United States, who holds a bond issued by FC that
is in registered form (within the meaning of section 163(f) and the
regulations under that section). The bond is retired by FP, a foreign
corporation that is a broker within the meaning of paragraph (a)(1) of
this section and the designated paying agent of FC. FP mails the
proceeds to A at A's U.S. address. The sale would be considered to be
effected at an office outside the United States under paragraph
(g)(3)(iii)(A) of this section except that the proceeds of the sale are
mailed to a U.S. address. For that reason, the sale is considered to be
effected at an office of the broker inside the United States under
paragraph (g)(3)(iii)(B) of this section. Therefore, FC is a broker
under paragraph (a)(1) of this section with respect to this transaction
because, although it is not a U.S. payor or U.S. middleman, as described
in Sec. 1.6049-5(c)(5), it is deemed to effect the sale in the United
States. FP is a broker for the same reasons. However, under the multiple
broker exception under paragraph (c)(3)(iii) of this section, FP, rather
than FC, is required to report the payment because FP is responsible for
paying the holder the proceeds from the retired obligations. Under
paragraph (g)(1)(i) of this section, FP may not treat A as an exempt
foreign person and must make an information return under section 6045
with respect to the retirement of the FC bond, unless FP obtains the
certificate or documentation described in paragraph (g)(1)(i) of this
section.
Example 2. The facts are the same as in Example 1 except that FP
mails the proceeds to A at an address outside the United States. Under
paragraph (g)(3)(iii)(A) of this section, the sale is considered to be
effected at an office of the broker outside the United States.
Therefore, under paragraph (a)(1) of this section, neither FC nor FP is
a broker with respect to the retirement of the FC bond. Accordingly,
neither is required to make an information return under section 6045.
Example 3. The facts are the same as in Example 2 except that FP is
also the agent of A. The result is the same as in Example 2. Neither FP
nor FC are brokers under paragraph (a)(1) of this section with respect
to the sale since the sale is effected outside the United States and
neither of them are U.S. payors (within the meaning of Sec. 1.6049-
5(c)(5)).
Example 4. The facts are the same as in Example 1 except that the
registered bond held by A was issued by DC, a domestic corporation that
regularly issues and retires its own debt obligations. Also, FP mails
the proceeds to A at an address outside the United States. Interest on
the bond is not described in paragraph (g)(1)(ii) of this section. The
sale is considered to be effected at an office outside the United States
under paragraph (g)(3)(iii)(A) of this section. DC is a broker under
paragraph (a)(1)(i)(B) of this section. DC is not required to report the
payment under the multiple broker exception under paragraph (c)(3)(iii)
of this section. FP is not required to make an information return under
section 6045 because FP is not a U.S. payor described in Sec. 1.6049-
5(c)(5) and the sale is effected outside the United States. Accordingly,
FP is not a broker under paragraph (a)(1) of this section.
Example 5. The facts are the same as in Example 4 except that FP is
also the agent of A. DC is a broker under paragraph (a)(1) of this
section. DC is not required to report under the multiple broker
exception under paragraph (c)(3)(iii) of this section. FP is not
required to make an information return under section 6045 because FP is
not a U.S. payor described in Sec. 1.6049-5(c)(5) and the sale is
effected outside the United States and therefore FP is not a broker
under paragraph (a)(1) of this section.
Example 6. The facts are the same as in Example 4 except that the
bond is retired by DP, a broker within the meaning of paragraph (a)(1)
of this section and the designated paying agent of DC. DP is a U.S.
payor under Sec. 1.6049-5(c)(5). DC is not required to report under the
multiple broker exception under paragraph (c)(3)(iii) of this section.
DP is required to make an information return under section 6045 because
it is the person responsible for paying the proceeds from the retired
obligations unless DP
[[Page 225]]
obtains the certificate or documentary evidence described in paragraph
(g)(1)(i) of this section.
Example 7. Customer A, an individual, owns U.S. corporate bonds
issued in registered form after July 18, 1984 and carrying a stated rate
of interest. The bonds are held through an account with foreign bank, X,
and are held in street name. X is a wholly-owned subsidiary of a U.S.
company and is not a qualified intermediary within the meaning of Sec.
1.1441-1(e)(5)(ii). X has no documentation regarding A. A instructs X to
sell the bonds. In order to effect the sale, X acts through its agent in
the United States, Y. Y sells the bonds and remits the sales proceeds to
X. X credits A's account in the foreign country. X does not provide
documentation to Y.
(i) Y's obligations to withhold and report. Y treats X as the
customer, and not A, because Y cannot treat X as an intermediary because
it has received no documentation from X. Y is not required to report the
sales proceeds under the multiple broker exception under paragraph
(c)(3)(iii) of this section, because X is an exempt recipient. Further,
Y is not required to report the amount of accrued interest paid to X on
Form 1042-S under Sec. 1.1461-1(c)(2)(ii) because accrued interest is
not an amount subject to reporting unless the withholding agent knows
that the obligation is being sold with a primary purpose of avoiding
tax.
(ii) X's obligations to withhold and report. Although X has
effected, within the meaning of paragraph (a)(1) of this section, the
sale of a security at an office outside the United States under
paragraph (g)(3)(iii) of this section, X is treated as a broker, under
paragraph (a)(1) of this section, because as a wholly-owned subsidiary
of a U.S. corporation, X is a U.S. payor. See Sec. 1.6049-5(c)(5).
Under the presumptions described in Sec. 1.6049-5(d)(2), X must presume
that, with respect to the sales proceeds, A is a U.S. person who is not
an exempt recipient. Therefore the payment of sales proceeds to A by X
is reportable on a Form 1099 under paragraph (c)(2) of this section. X
has no obligation to backup withhold on the payment based on the
exemption under Sec. 31.3406(g)-1(e) of this chapter, unless X has
actual knowledge that A is a U.S. person that is not an exempt
recipient. X is also required to separately report the accrued interest
(see paragraph (d)(3) of this section) on Form 1099 under section 6049
because A is also presumed to be a U.S. person who is not an exempt
recipient under the presumption rule in Sec. 1.6049-5(d)(2) and Sec.
1.1441-1(b)(3)(iii) since accrued interest is not an amount subject to
reporting and therefore the presumption of foreign status for offshore
accounts under Sec. 1.1441-1(b)(3)(iii)(D) does not apply.
Example 8. The facts are the same as in Example 7, except that
instead of U.S. corporate bonds that carry stated interest, A owns
original issue discount instruments described in section 871(g)(1)(B)(i)
(i.e., obligations payable 183 days or less from the date of original
issue). In addition, the sale is in a transaction other than a
redemption.
(i) Y's obligations to withhold and report. Y is not required to
report the sales proceeds under the multiple broker exception under
paragraph (c)(3)(iii) of this section, because X is an exempt recipient.
(ii) X's obligations to withhold and report. Although X has
effected, within the meaning of paragraph (a)(1) of this section, the
sale of a security at an office outside the United States under
paragraph (g)(3)(iii) of this section, X is treated as a broker, under
paragraph (a)(1) of this section, because as a wholly-owned subsidiary
of a U.S. corporation, X is a U.S. payor. See Sec. 1.6049-5(c)(5).
Under the presumptions described in Sec. 1.6049-5(d)(2), X must presume
that, with respect to the sales proceeds, A is a U.S. person who is not
an exempt recipient. Therefore the payment of sales proceeds to A by X
is reportable on a Form 1099 under paragraph (c)(2) of this section. X
has no obligation to backup withhold on the payment based on the
exemption under Sec. 31.3406(g)-1(e) of this chapter, unless X has
actual knowledge that A is a U.S. person that is not an exempt
recipient. X is not required to separately report the amount of accrued
original issue discount. See paragraph (d)(3) of this section.
Example 9. The facts are the same as in Example 8, except that X is
a foreign corporation that is not a U.S. payor under Sec. 1.6049-5(c).
(i) Y's obligations to withhold and report. Y is not required to
report the sales proceeds under the multiple broker exception under
paragraph (c)(3)(iii) of this section, because X is the person
responsible for paying the proceeds from the sale to A.
(ii) X's obligations to withhold and report. Although A is presumed
to be a U.S. payee under the presumptions of Sec. 1.6049-5(d)(2), X is
not considered to be a broker under paragraph (a)(1) of this section
because it is a not a U.S. payor under Sec. 1.6049-5(c)(5). Therefore X
is not required to report the sale under paragraph (c)(2) of this
section.
(5) Effective date--(i) General rule. The provisions of this
paragraph (g) apply to payments made after December 31, 2000.
(ii) Transition rules. The validity of a withholding certificate
(namely, Form W-8 or other form upon which the payor is permitted to
rely to hold the payee as a foreign person) that was valid on January 1,
1998, under the regulations in effect prior to January 1, 2001 (see 26
CFR parts 1 and 35a, revised
[[Page 226]]
April 1, 1999) and expired, or will expire, at any time during 1998, is
extended until December 31, 1998. The validity of a withholding
certificate that is valid on or after January 1, 1999, remains valid
until its validity expires under the regulations in effect prior to
January 1, 2001 (see 26 CFR parts 1 and 35a, revised April 1, 1999) but
in no event shall such a withholding certificate remain valid after
December 31, 2000. The rule in this paragraph (g)(5)(ii), however, does
not apply to extend the validity period of a form that expires in 1998
solely by reason of changes in the circumstances of the person whose
name is on the certificate. Notwithstanding the first three sentences of
this paragraph (g)(5)(ii), a payor may choose not to take advantage of
the transition rule in this paragraph (g)(5)(ii) with respect to one or
more withholding certificates valid under the regulations in effect
prior to January 1, 2001 (see 26 CFR parts 1 and 35a, revised April 1,
1999) and, therefore, to require withholding certificates conforming to
the requirements described in this section (new withholding
certificates). For purposes of this section, a new withholding
certificate is deemed to satisfy the documentation requirement under the
regulations in effect prior to January 1, 2001 (see 26 CFR parts 1 and
35a, revised April 1, 1999). Further, a new withholding certificate
remains valid for the period specified in Sec. 1.1441-1(e)(4)(ii),
regardless of when the certificate is obtained.
(h) Identity of customer--(1) In general. For purposes of this
section, a broker or barter exchange shall treat the person who appears
on the books and records of the broker or barter exchange with respect
to property or services as the principals with respect thereto.
(2) Examples. The following examples illustrate the rule of this
paragraph (h):
Example 1. The records of A, a broker, show an account in the name
of ``B''. B is a nominee for C. All reporting with respect to such
account shall treat B as the customer.
Example 2. J, an individual, places an order with H, a broker, to
sell J's stock that is held by P, a broker/dealer, in an account for J
with P designated as nominee for J, and to credit the gross proceeds
from the sale to J's account with P. The account is in the name of P, so
that H's customer is P.
(i) [Reserved]
(j) Time and place for filing; cross-reference to penalty. Forms
1096 and 1099 required under this section shall be filed after the last
calendar day of the reporting period elected by the broker or barter
exchange and on or before February 28 of the following calendar year
with the appropriate Internal Revenue Service Center, the address of
which is listed in the instructions for Form 1096. See paragraph (l) of
this section for the requirement to file certain returns on magnetic
media. For provisions relating to the penalty provided for the failure
to file timely a correct information return under section 6045(a), see
Sec. 301.6721-1 of this chapter. See Sec. 301.6724-1 of this chapter
for the waiver of a penalty if the failure is due to reasonable cause
and is not due to willful neglect.
(k) Requirement and time for furnishing statement; cross-reference
to penalty--(1) General requirements. A broker or barter exchange making
a return of information under this section with respect to a transaction
shall furnish to the person whose identifying number is (or is required
to be) shown on such return a written statement showing the information
required by paragraph (c)(5), (d), (f), or (p) of this section and
containing a legend stating that such information is being reported to
the Internal Revenue Service. If the return of information is not made
on magnetic media, this requirement may be satisfied by furnishing to
such person a copy of all Forms 1099 with respect to such person filed
with the Internal Revenue Service Center. A statement shall be
considered to be furnished to a person to whom a statement is required
to be made under this paragraph (k) if it is mailed to such person at
the last address of such person known to the broker or barter exchange.
(2) Time for furnishing statements. A broker or barter exchange may
furnish the statements required by this paragraph (k) yearly, quarterly,
monthly, or on any other basis, without regard to the reporting period
elected by the broker or barter exchange, provided that all statements
required to be furnished under this paragraph (k) for a
[[Page 227]]
calendar year shall be furnished on or before January 31 of the
following calendar year.
(3) Cross-reference to penalty. For provisions for failure to
furnish timely a correct payee statement, see Sec. 301.6724-1 of this
chapter (Procedure and Administration Regulations). See Sec. 301.6724-1
of this chapter for the waiver of a penalty if the failure is due to
reasonable cause and is not due to willful neglect.
(l) Use of magnetic media. For information returns filed after
December 31, 1996, see Sec. 301.6011-2 of this chapter for rules
relating to filing information returns on magnetic media and for rules
relating to waivers granted for undue hardship. A broker or barter
exchange that fails to file a Form 1099 on magnetic media, when
required, may be subject to a penalty under section 6721 for each such
failure. See paragraph (j) of this section.
(m) Reporting on options transactions. [Reserved]
(n) Reporting on bond discounts. [Reserved]
(o) Additional reporting by stock transfer agents. [Reserved]
(p) Transitional rules--(1) Information required from brokers. In
the case of reporting periods ending before January 1, 1984, a broker
may show the information required by this paragraph (p)(1) on Form 1099
in lieu of the information required under paragraph (d)(2). As to each
customer account for which a return of information is required under
this section with respect to sales, the broker must report the name,
address, and taxpayer identification number of the customer, the
aggregate gross proceeds of all sales of the account during the
reporting period for which a return of information is required under
this section, and such other information as may be required by Form
1099, in the form, manner, and number of copies required by Form 1099.
(2) Information required from barter exchanges. In the case of
reporting periods ending before January 1, 1984, a barter exchange may
show the information required by this paragraph (p)(2) on Form 1099 in
lieu of the information required under paragraph (f)(2). As to each
member or client providing property or services in an exchange for which
a return of information is required under this section, the barter
exchange must report the name, address, and taxpayer identification
number of the member or client, the aggregate amount received by the
member or client during the reporting period for property or services
provided by such member or client in exchanges for which a return of
information is required, and such other information as may be required
by Form 1099, in the form, manner, and number of copies required by Form
1099.
(q) Effective date. This section applies to calendar year 1983 and
all succeeding calendar years, and, as to 1983, only to transactions
occurring on or after July 1, 1983. With regard to paragraph (l) of this
section, see section 6011(e) of the Internal Revenue Code for
information returns required to be filed after December 31, 1989, and
before January 1, 1997; and see paragraph (l) of this section for
information returns required to be filed after December 31, 1996.
(r) Electronic filing. Notwithstanding the time prescribed for
filing in paragraph (j) of this section, Forms 1096 and 1099 required
under this section for reporting periods ending during a calendar year
shall, if filed electronically, be filed after the last calendar day of
the reporting period elected by the broker or barter exchange and on or
before March 31 of the following calendar year.
[T.D. 7873, 48 FR 10304, Mar. 11, 1983, as amended by T.D. 7932, 48 FR
57485, Dec. 30, 1983; 49 FR 2469, Jan. 20, 1984; T.D. 7960, 49 FR 22283,
May 29, 1984; T.D. 8445, 57 FR 53032, Nov. 6, 1992; T.D. 8452, 57 FR
58984, Dec. 14, 1992; T.D. 8683, 61 FR 53060, Oct. 10, 1996; T.D. 8734,
62 FR 53476, Oct. 14, 1997; T.D. 8445, 63 FR 12410, Mar. 13, 1998; T.D.
8770, 63 FR 35519, June 30, 1998; T.D. 8804, 63 FR 72186, 72188, Dec.
31, 1998; T.D. 8856, 64 FR 73411, 73412, Dec. 30, 1999; T.D. 8881, 65 FR
32206, 32212, May 22, 2000; T.D. 8895, 65 FR 50407, Aug. 18, 2000; 66 FR
18189, Apr. 6, 2001; T.D. 9010, 67 FR 48758, July 26, 2002; T.D. 9241,
71 FR 4025, Jan. 24, 2006]
Sec. 1.6045-1T Returns of information of brokers and barter exchanges
(temporary).
(a)-(k) [Reserved]
For further guidance, see Sec. 1.6045-1 (a) through (k).
[[Page 228]]
(l) Use of magnetic media. For information returns filed after
December 31, 1996, see Sec. 301.6011-2T of this chapter for rules
relating to filing information returns on magnetic media and for rules
relating to waivers granted for undue hardship. For information returns
filed prior to January 1, 1997, see Sec. 1.6045-1(l)
[T.D. 8683, 61 FR 53060, Oct. 10, 1996]
Sec. 1.6045-2 Furnishing statement required with respect to certain
substitute payments.
(a) Requirement of furnishing statements--(1) In general. Any broker
(as defined in paragraph (a)(4)(ii) of this section) that transfers
securities (as defined in Sec. 1.6045-1(a)(3)) of a customer (as
defined in paragraph (a)(4)(iii) of this section) for use in a short
sale and receives on behalf of the customer a substitute payment (as
defined in paragraph (a)(4)(i)) shall, except as otherwise provided,
furnish a statement to the customer identifying such payment as being a
substitute payment.
(2) Special rule for transfers for broker's own use. Any broker that
borrows securities of a customer for use in a short sale entered into
for the broker's own account shall be deemed to have transferred the
stock to itself and received on behalf of the customer any substitute
payment made with respect to the transferred securities, and shall be
required to furnish a statement with respect to such payments in
accordance with paragraph (a)(1) of this section.
(3) Special rule for furnishing statements to individual customers
with respect to payments in lieu of dividends--(i) In general. Except as
otherwise provided in paragraph (a)(3)(ii) of this section, for taxable
years beginning before January 1, 2003, a broker that receives a
substitute payment in lieu of a dividend on behalf of a customer who is
an individual (``individual customer'') need not furnish a statement to
the customer.
(ii) Reporting for certain dividends. Any broker that receives on
behalf of an individual customer a substitute payment in lieu of--
(A) An exempt-interest dividend (as defined in paragraph (a)(4)(vii)
of this section);
(B) A capital gain dividend (as defined in paragraph (a)(4)(vi) of
this section);
(C) A distribution treated as a return of capital under section
301(c)(2) or (c)(3); or
(D) An FTC dividend (as defined in paragraph (a)(4)(viii) of this
section) shall furnish a statement to the individual customer
identifying the payment as being a substitute payment as prescribed by
this section, provided that the broker has reason to know not later than
the record date of the dividend payment that the payment is a substitute
payment in lieu of an exempt-interest dividend, a capital gain dividend,
a distribution treated as a return of capital, or an FTC dividend.
(4) Meaning of terms. The following definitions apply for purposes
of this section.
(i) The term substitute payment means a payment in lieu of--
(A) Tax-exempt interest, to the extent that interest has accrued on
the obligation for the period during which the short sale is open;
(B) A dividend, the ex-dividend date for which occurs during the
period after the transfer of stock for use in a short sale, and prior to
the closing of the short sale; or
(C) Any other item specified in a rule-related notice published in
the Federal Register (provided that such items shall be subject to the
rules of this section only subsequent to the time of such publication).
For purposes of this section original issue discount accruing on an
obligation (the interest upon which is exempt from tax under section
103) for the period during which the short sale is open shall be deemed
a payment in lieu of tax-exempt interest.
(ii) The term broker means both a person described in Sec. 1.6045-
1(a)(1) and a person that, in the ordinary course of a trade or business
during the calendar year, loans securities owned by others.
(iii) The term customer means, with respect to a transfer of
securities for use in a short sale, the person that is the record owner
of the securities so transferred.
[[Page 229]]
(iv) The term dividend means a dividend (as defined in section 316)
or a distribution that is treated as a return of capital under section
301(c)(2) or (c)(3).
(v) The term tax-exempt interest means interest to which the
exception in section 6049 (b)(2)(B) applies.
(vi) The term capital gain dividend means a capital gain dividend as
defined in section 852(b)(3)(C) or section 857(b)(3)(C).
(vii) The term exempt-interest dividend means an exempt-interest
dividend as defined in section 852(b)(5)(A).
(viii) The term FTC dividend means a dividend with respect to which
the recipient is entitled to claim a foreign tax credit under section
901 (but not by virtue of taxes deemed paid under section 902 or 960).
(5) Examples. The following examples illustrate the definition of a
substitute payment in lieu of tax-exempt interest found in paragraph
(a)(4)(i)(A) of this section.
Example (1). On September 1, 1984, L, a broker, borrows 200 State Q
Bonds (the interest upon which is exempt from tax under section 103)
held in street name for customer R and transfers the bonds to W for use
in a short sale. The bonds each have a face value of $100 and bear 12%
stated annual interest paid semiannually on January 1 and July 1 of each
year. The bonds were not issued with original issue discount. On
November 1, 1984, W closes the short sale and returns State Q Bonds to
L. On January 1, 1985, L receives a $1200 interest payment (6%x$100x200
bonds =$1200) from State Q with respect to R's bonds. Four hundred
dollars (2 months the bonds were on loan/6 months in the interest period
=\1/3\x$1200=$400) of the interest payment represents accrued interest
on the obligations for the period during which the short sale was open
and is a substitute payment in lieu of tax-exempt interest within the
meaning of paragraph (a)(4)(i)(A) of this section. L must furnish a
statement under paragraph (a) of this section to R for calendar year
1985 with respect to the $400 substitute payment.
Example (2). Assume the same facts as in Example (1), except that W
closes the short sale on February 1, 1985. On January 1, 1985, L
receives a $1200 payment from W with respect to R's bonds. Eight hundred
dollars (4 months the bonds were on loan prior to January 1, 1985/6
months in the interest period =\2/3\x$1200=$800) of the payment
represents accrued interest on the obligation for the period during
which the short sale was open and is a substitute payment in lieu of
tax-exempt interest. On July 1, 1985, L receives a $1200 payment from
State Q. Two hundred dollars (1 month the bonds were on loan after
December 31, 1984/6 months in the interest period =\1/6\x$1200=$200) of
the payment represents accrued interest on the obligation for the period
during which the short sale was open and is a substitute payment in lieu
of the tax-exempt interest. Because both payments are received by L in
1985, L must furnish a statement under paragraph (a) of this section to
R for that year with respect to both payments.
(b) Exceptions--(1) Minimal payments. No statement is required to be
furnished under section 6045(d) or this section to any customer if the
aggregate amount of the substitute payments received by a broker on
behalf of the customer during a calendar year for which a statement must
be furnished is less than $10.
(2) Exempt recipients--(i) In general. A statement shall not be
required to be furnished with respect to substitute payments made to a
broker on behalf of--
(A) An organization exempt from taxation under section 501(a);
(B) An individual retirement plan;
(C) The United States, a possession of the United States, or an
instrumentality or a political subdivision or a wholly-owned agency of
the foregoing;
(D) A State, the District of Columbia, or a political subdivision or
a wholly-owned agency or instrumentality of either of the foregoing;
(E) A foreign government or a political subdivision thereof;
(F) An international organization; or
(G) A foreign central bank of issue, as defined in Sec. 1.6049-
4(c)(1)(ii)(H), or the Bank for International Settlements.
(ii) Determination of whether a person is described in paragraph
(b)(2)(i) of this section. The determination of whether a person is
described in paragraph (b)(2)(i) of this section shall be made in the
manner provided in Sec. 1.6045-1(c)(3)(i)(B).
(3) Exempt foreign persons. A statement shall not be required to be
furnished with respect to substitute payments made to a broker on behalf
of a person that is an exempt foreign person as described in Sec.
1.6045-1(g)
(c) Form of statement. A broker shall furnish the statement required
by paragraph (a) of this section on Form 1099. The statement must show
the aggregate dollar amount of all substitute
[[Page 230]]
payments received by the broker on behalf of a customer (for which the
broker is required to furnish a statement) during a calendar year, and
such other information as may be required by Form 1099. A statement
shall be considered to be furnished to a customer if it is mailed to the
customer at the last address of the customer known to the broker.
(d) Time for furnishing statements. A broker must furnish the
statements required by paragraph (a) of this section for each calendar
year. Such statements shall be furnished after April 30th of such
calendar year but in no case before the final substitute payment for the
calendar year is made, and on or before January 31 of the following
calendar year.
(e) When substitute payment deemed received. A Broker is deemed to
have received a substitute payment on behalf of a customer when the
amount is paid or deemed paid to the broker (or as it accrues in the
case of original issue discount deemed a payment in lieu of tax-exempt
interest).
(f) Identification of customer and recordkeeping with respect to
substitute payments--(1) Payments in lieu of tax-exempt interest and
exempt-interest dividends. A broker that receives substitute payments in
lieu of tax-exempt interest, exempt-interest dividends, or other items
(to the extent specified in a rule-related notice published pursuant to
paragraph (a)(4)(i)(C) of this section) on behalf of a customer and is
required to furnish a statement under paragraph (a) of this section must
determine the identity of the customer whose security was transferred
and on whose behalf the broker received such substitute payments by
specific identification of the record owner of the security so
transferred. A broker must keep adequate records of the determination so
made.
(2) Payments in lieu of dividends other than exempt-interest
dividends--(i) Requirements and methods. A broker that receives
substitute payments in lieu of dividends, other than exempt-interest
dividends, on behalf of a customer and is required to furnish a
statement under paragraph (a) of this section must make a determination
of the identity of the customer whose stock was transferred and on whose
behalf such broker receives substitute payments. Such determination must
be made as of the record date with respect to the dividend distribution,
and must be made in a consistent manner by the broker in accordance with
any of the following methods:
(A) Specific identification of the record owner of the transferred
stock;
(B) The method of allocation and selection specified in paragraph
(f)(2)(ii) of this section; or
(C) Any other method, with the prior approval of the Commissioner.
A broker must keep adequate records of the determination so made.
(ii) Method of allocation and selection--(A) Allocation to borrowed
shares and individual and nonindividual pools. With respect to each
substitute payment in lieu of a dividend received by a broker, the
broker must allocate the transferred shares (i.e., the shares giving
rise to the substitute payment) among all shares of stock of the same
class and issue as the transferred shares which were (1) borrowed by the
broker, and (2) which the broker holds (or has transferred in a
transaction described in paragraph (a)(1) of this section) and is
authorized by its customers to transfer (including shares of stock of
the same class and issue held for the broker's own account) (``loanable
shares''). The broker may first allocate the transferred shares to any
borrowed shares. Then to the extent that the number of transferred
shares exceeds the number of borrowed shares (or if the broker does not
allocate to the borrowed shares first), the broker must allocate the
transferred shares between two pools, one consisting of the loanable
shares of all individual customers (the ``individual pool'') and the
other consisting of the loanable shares of all nonindividual customers
(the ``nonindividual pool''). The transferred shares must be allocated
to the individual pool in the same proportion that the number of
loanable shares held by individual customers bears to the total number
of loanable shares available to the broker. Similarly, the transferred
shares must be allocated to the nonindividual pool in the same
proportion that the number of loanable shares held by nonindividual
customers bears
[[Page 231]]
to the total number of loanable shares available to the broker.
(B) Selection of deemed transferred shares within the nonindividual
pool. The broker must select which shares within the nonindividual pool
are deemed transferred for use in a short sale (the ``deemed transferred
shares''). Selection of deemed transferred shares may be made either by
purely random lottery or on a first-in-first-out (``FIFO'') basis.
(C) Selection of deemed transferred shares within the individual
pool. The broker must select which shares within the individual pool are
deemed transferred shares (in the manner described in the preceding
paragraph) only with respect to substitute payments as to which a
statement is required to be furnished under paragraph (a)(2)(ii) of this
section.
(3) Examples. The following examples illustrate the identification
of customer rules of paragraph (f)(2):
Example (1). A, a broker, holds X corporation common stock (of which
there is only a single class) in street name for five customers: C, a
corporation; D, a partnership; E, a corporation; F, an individual; and
G, a corporation. C owns 100 shares of X stock, D owns 50 shares of X
stock, E owns 100 shares of X stock, F owns 50 shares of X stock, and G
owns 100 shares of X stock. A is authorized to loan all of the X stock
of C, D, E, and F. G, however, has not authorized A to loan its X
stocks. A does not hold any X stock in its trading account nor has A
borrowed any X stock from another broker. A transfers 150 shares of X
stock to H for use in a short sale on July 1, 1985. A dividend of $2 per
share is declared with respect to X stock on August 1, 1985, payable to
the owners of record as of August 15, 1985 (the ``record'' date). A
receives $2 per transferred share as a payment in lieu of a dividend
with respect to X stock or a total of $300 on September 15, 1985. H
closes the short sale and returns X stock to A on January 2, 1986. A's
records specifically identify the owner of each loanable share of stock
held in street name. From A's records it is determined that the shares
transferred to H consisted of 100 shares owned by C, 25 shares owned by
D, and 25 shares owned by F. The substitute payment in lieu of dividends
with respect to X stock is therefore attributed to C, D and F based on
the actual number of their shares that were transferred to H.
Accordingly, C receives $200 (100 shares x $2 per share), and D and F
each receive $50 (25 shares each x $2 per share). A must furnish
statements identifying the payments as being in lieu of dividends to
both C and D, unless they are exempt recipients as defined in paragraph
(b)(2) of this section or exempt foreign persons as defined in paragraph
(b)(3) of this section. Assuming that A had no reason to know on the
record date of the payment that the dividend paid by X is of a type
described in paragraphs (a)(3)(ii)(A) through (D) of this section, A
need not furnish F with a statement under section 6045(d) because F is
an individual. (However, A may be required to furnish F with a statement
in accordance with section 6042 and the regulations thereunder. See
paragraph (h) of this section.) By recording the ownership of each share
transferred to H, A has complied with the identification requirement of
paragraph (f)(2) of this section.
Example (2). Assume the same facts as in example (1), except that
A's records do not specifically identify the record owner of each share
of stock. Rather, all shares of X stock held in street name are pooled
together. When A receives the $2 per share payment in lieu of a
dividend, A determines the identity of the customers to which the
payment relates by the method of allocation and selection prescribed in
paragraph (f)(2)(ii) of this section. First, the transferred shares are
allocated proportionately between the individual pool and the
nonindividual pool. One-sixth of the transferred shares or 25 shares are
allocated to the individual pool (50 loanable shares owned by
individuals/300 total loanable shares-\1/6\; \1/6\x150 transferred
shares=25 shares). Assuming A has no reason to know by the record date
of the payment that the payment is in lieu of a dividend of a type
described in paragraphs (a)(3)(ii)(A) through (D) of this section, no
selection of deemed transferred shares within the individual customer
pool is required. (However, A may be required to furnish F with a
statement under section 6042 and the regulations thereunder. See
paragraph (h) of this section.) Five-sixths of the transferred shares or
125 shares are allocated to the nonindividual pool (250 loanable shares
owned by nonindividuals/300 total loanable shares=\5/6\; \5/6\x150
transferred shares=125 shares). A must select which 125 shares within
the nonindividual pool are deemed to have been transferred. Using a
purely random lottery, A selects 100 shares identified as being owned by
C, and 25 shares identified as being owned by D. Accordingly, A is
deemed to have transferred 100 shares and 25 shares owned by C and D
respectively, and received substitute payments in lieu of dividends of
$200 (100 shares x $2 per share) and $50 (25 shares x $2 per share) on
behalf of C and D respectively. A must furnish statements to both C and
D identifying such payments as being in lieu of dividends unless they
are exempt recipients as defined in paragraph (b)(2) of this section or
exempt foreign persons as defined in paragraph (b)(3) of this section. A
has complied
[[Page 232]]
with the identification requirement of paragraph (f)(2) of this section.
(g) Reporting by brokers--(1) Requirement of reporting. Any broker
required to furnish a statement under paragraph (a) of this section
shall report on Form 1096 showing such information as may be required by
Form 1096, in the form, manner, and number of copies required by Form
1096. With respect to each customer for which a broker is required to
furnish a statement, the broker shall make a return of information on
Form 1099, in the form, manner and number of copies required by Form
1099.
(2) Use of magnetic media. For information returns filed after
December 31, 1996, see Sec. 301.6011-2 of this chapter for rules
relating to filing information returns on magnetic media and for rules
relating to waivers granted for undue hardship. A broker or barter
exchange that fails to file a Form 1099 on magnetic media, when
required, may be subject to a penalty under section 6721 for each such
failure. See paragraph (g)(4) of this section.
(3) Time and place of filing. The returns required under this
paragraph (g) for any calendar year shall be filed after September 30 of
such year, but not before the final substitute payment for the year is
received by the broker, and on or before February 28 (March 31 if filed
electronically) of the following year with any of the Internal Revenue
Service Centers, the addresses of which are listed in the instructions
for Form 1096.
(4) Cross-reference to penalties. For provisions relating to the
penalty provided for failure to file timely a correct information return
required under section 6045(d) and Sec. 1.6045-2(g)(1), including a
failure to file on magnetic media, see Sec. 301.6721-1 of this chapter.
For provisions relating to the penalty provided for failure to furnish
timely a correct payee statement required under section 6045(d) and
Sec. 1.6045-2(a), see Sec. 301.6722-1 of this chapter. See Sec.
301.6724-1 of this chapter for the waiver of a penalty if the failure is
due to reasonable cause and is not due to willful neglect.
(h) Coordination with section 6042. In cases in which reporting is
required by both sections 6042 and 6045(d) with respect to the same
substitute payment in lieu of a dividend, the provisions of section
6045(d) control, and no report or statement under section 6042 need be
made. If reporting is not required under section 6045(d) with respect to
a substitute payment in lieu of a dividend, a report under section 6042
must be made if required in accordance with the rules of section 6042
and the regulations thereunder. Thus, if a broker receives a substitute
payment in lieu of a dividend on behalf of an individual customer and
the broker does not have reason to know by the record date of the
payment that the payment is in lieu of a dividend of a type described in
paragraphs (a)(3)(ii)(A) through (D) of this section, the broker must
report with respect to the substitute payment if required in accordance
with section 6042 and the regulations thereunder.
(i) Effective date. These regulations apply to substitute payments
received by a broker after December 31, 1984. With regard to paragraph
(g)(2) of this section, see section 6011(e) of the Internal Revenue Code
for information returns required to be filed after December 31, 1989,
and before January 1, 1997; and see paragraph (g)(2) of this section for
information returns required to be filed after December 31, 1996.
[T.D. 8029, 50 FR 23677, June 5, 1985, as amended by T.D. 8683, 61 FR
53060, Oct. 10, 1996; T.D. 8734, 62 FR 53480, Oct. 14, 1997; T.D. 8770,
63 FR 35519, June 30, 1998; T.D. 8895, 65 FR 50407, Aug. 18, 2000; T.D.
9010, 67 FR 48758, July 26, 2002; T.D. 9103, 68 FR 74848, Dec. 29, 2003]
Sec. 1.6045-2T Furnishing statement required with respect to certain
substitute payments (temporary).
(a)-(g)(1) [Reserved]
For further guidance, see Sec. 1.6045-2 (a) through (g)(1).
(g)(2) Use of magnetic media. For information returns filed after
December 31, 1996, see Sec. 301.6011-2T of this chapter for rules
relating to filing information returns on magnetic media and for rules
relating to waivers granted for undue hardship. For information returns
filed prior to January 1, 1997, see Sec. 1.6045-2(g)(2).
[T.D. 8683, 62 FR 53060, Oct. 10, 1996]
[[Page 233]]
Sec. 1.6045-3 Information reporting for an acquisition of control or
a substantial change in capital structure.
(a) In general. Any broker (as defined in Sec. 1.6045-1(a)(1)) that
holds shares on behalf of a customer in a corporation that the broker
knows or has reason to know based on readily available information
(including, for example, information from a clearing organization or
from information published by the Internal Revenue Service (IRS)) has
engaged in a transaction described in Sec. 1.6043-4(c) (acquisition of
control) or Sec. 1.6043-4(d) (substantial change in capital structure)
shall file a return of information with respect to the customer, unless
the customer is an exempt recipient as defined in paragraph (b) of this
section.
(b) Exempt recipients. A broker is not required to file a return of
information under this section with respect to the following customers:
(1) Any customer who receives only cash in exchange for its stock in
the corporation, which must be reported by the broker pursuant to Sec.
1.6045-1.
(2) Any customer who is an exempt recipient as defined in Sec.
1.6043-4(b)(5) or Sec. 1.6045-1(c)(3)(i).
(c) Form, manner and time for making information returns. The return
required by paragraph (a) of this section must be on Forms 1096,
``Annual Summary and Transmittal of U.S. Information Returns,'' and
1099-B, ``Proceeds from Broker and Barter Exchange Transactions,'' or on
an acceptable substitute statement. Such forms must be filed on or
before February 28 (March 31 if filed electronically) of the year
following the calendar year in which the acquisition of control or the
substantial change in capital structure occurs.
(d) Contents of return. A separate Form 1099-B must be prepared for
each customer. The Form 1099-B will request information with respect to
the following and such other information as may be specified in the
instructions:
(1) The name, address and taxpayer identification number (TIN) of
the customer;
(2) The name of the corporation which engaged in the transaction
described in Sec. 1.6043-4(c) or (d);
(3) The number and class of shares in the corporation exchanged by
the customer; and
(4) The aggregate amount of cash and the fair market value of any
stock or other property provided to the customer in exchange for its
stock.
(e) Furnishing of forms to customers. The Form 1099-B prepared for
each customer must be furnished to the customer on or before January 31
of the year following the calendar year in which the customer receives
stock, cash or other property.
(f) Single Form 1099. If a broker is required to file a Form 1099-B
with respect to a customer under Sec. Sec. 1.6045-3 and 1.6045-1(c)
with respect to the same transaction, the broker may satisfy the
requirements of both sections by filing and furnishing one Form 1099-B
that contains all the relevant information, as provided in the
instructions to Form 1099-B.
(g) Effective date. This section applies with respect to any
acquisition of control and any substantial change in capital structure
occurring after December 5, 2005.
[T.D. 9230, 70 FR 72380, Dec. 5, 2005]
Sec. 1.6045-4 Information reporting on real estate transactions
with dates of closing on or after January 1, 1991.
(a) Requirement of reporting. Except as otherwise provided in
paragraphs (c) and (d) of this section, a real estate reporting person
(``reporting person'') must make an information return with respect to a
real estate transaction and, under paragraph (m) of this section, must
furnish a statement to the transferor. A reporting person may also
report with respect to transactions otherwise excepted in paragraphs (c)
and (d) of this section. However, if the reporting person so elects, the
return must be filed and the statement furnished in accordance with the
provisions of this section. For the definition of a real estate
transaction for purposes of these reporting requirements, see paragraph
(b) of this section. For rules for determining the reporting person with
respect to a real estate transaction, see paragraph (e) of this section.
[[Page 234]]
(b) Definition of real estate transaction--(1) In general. A
transaction is a ``real estate transaction'' under this section if the
transaction consists in whole or in part of the sale or exchange of
``reportable real estate'' (as defined in paragraph (b)(2) of this
section) for money, indebtedness, property other than money, or
services. The term ``sale or exchange'' shall include any transaction
properly treated as a sale or exchange for Federal income tax purposes,
whether or not the transaction is currently taxable. Thus, for example,
a sale or exchange of a principal residence is a real estate transaction
under this section even though the transferor is entitled to defer
recognition under section 1034 (relating to rollover of gain on sale of
principal residence), or the transferor is entitled to the special one-
time exclusion of gain from the sale of a principal residence provided
by section 121 to certain persons who have attained age 55.
(2) Definition of reportable real estate. Except as otherwise
provided in paragraph (c)(2) of this section, the term ``reportable real
estate'' means any present or future ownership interest in--
(i) Land (whether improved or unimproved), including air space;
(ii) Any inherently permanent structure, including any residential,
commercial or industrial building;
(iii) Any condominium unit, including appurtenant fixtures and
common elements (including land); or
(iv) Any stock in a cooperative housing corporation (as defined in
section 216).
For purposes of this section, the term ``ownership interest'' includes
fee simple interests, life estates, reversions, remainders, and
perpetual easements. In addition, the term ``ownership interest''
includes any previously created rights to possession or use for all or a
portion of any particular year (i.e., a leasehold, easement, or
``timeshare''), with a remaining term of at least 30 years, including
any period for which such rights may be renewed at the option of the
holder of the rights, as determined on the date of closing (as defined
in paragraph (h)(2)(ii) of this section). Thus, for example, a pre-
existing leasehold on a building with an original term of 99 years is an
ownership interest in real estate for purposes of this section if it has
a remaining term of 35 years as of the date of closing, but not if it
has a remaining term of only 10 years as of the date of closing.
However, the term ``ownership interest'' does not include an option to
acquire otherwise reportable real estate.
(c) Exception for certain exempt transactions--(1) Certain
transfers. No return of information is required with respect to--
(i) A transaction that is not a sale or exchange (such as a gift
(including a transaction treated as a gift under section 1041) or
bequest, or a financing or refinancing that is not related to the
acquisition of reportable real estate), even if the transaction involves
reportable real estate, as defined in paragraph (b)(2) of this section;
(ii) A transfer in full or partial satisfaction of any indebtedness
secured by the property so transferred including a foreclosure, a
transfer in lieu of foreclosure or an abandonment; or
(iii) A transaction (a ``de minimis transfer'') in which it can be
determined with certainty that the total consideration (in money,
services and property), received or to be received in connection with
the transaction is less than $600 in value (determined without regard to
any allocation of gross proceeds among multiple transferors under
paragraph (i)(5) of this section) as of the date of the closing (as
defined in paragraph (h)(2)(ii) of this section), even if the
transaction involves reportable real estate. Thus, for example, if a
contract for sale of reportable real estate recites total consideration
of ``$1.00 plus other valuable consideration,'' the transfer is not a de
minimis transfer unless the reporting person can determine that the
``other valuable consideration'' received or to be received is less than
$599 in value as measured on the date of closing.
(2) Certain property. Notwithstanding the provisions of paragraph
(b)(2) of this section, no return of information is required with
respect to a sale or exchange of an interest in any of the following
property--provided the sale or exchange of such property is not related
to the sale or exchange of reportable real estate--
[[Page 235]]
(i) An interest in surface or subsurface natural resources (i.e.,
timber, water, ores and other natural deposits) or crops, whether or not
such natural resources or crops are severed from the land;
(ii) A burial plot or vault; or
(iii) A manufactured structure used as a dwelling that is
manufactured and assembled at a location different from that where it is
used, but only if such structure is not affixed, at the date of closing
(as defined in paragraph (h)(2)(ii) of this section), to a foundation.
Thus, a transfer of an unaffixed mobile home that is unrelated to the
sale or exchange of reportable real estate is excepted from the
reporting requirements of this section.
(d) Exception for certain exempt transferors--(1) General rule. No
return of information is required with respect to a transferor that is a
corporation under section 7701(a)(3) or section 7704(a) or is considered
under paragraph (d)(2) of this section to be--
(i) A corporation;
(ii) A governmental unit; or
(iii) An exempt volume transferor.
In the case of a real estate transaction with respect to which there is
one or more exempt transferor(s) and one or more non-exempt
transferor(s), the reporting person is required to report with respect
to any non-exempt transferor. The special rule for allocation of gross
proceeds, as provided in paragraph (i)(5) of this section, applies to
such a transaction.
(2) Treatment as exempt transferor. Absent actual knowledge to the
contrary, a reporting person may treat a transferor as--
(i) A corporation if--
(A) The name of the transferor contains an unambiguous expression of
corporate status, such as Incorporated, Inc., Corporation, Corp., or
P.C. (but not Company or Co.);
(B) The name of the transferor contains the term ``insurance
company,'' ``reinsurance company,'' or ``assurance company''; or
(C) The transfer or loan documents clearly indicate the corporate
status of the transferor;
(ii) A governmental unit if the transferor is--
(A) The United States or a state, the District of Columbia, a
possession of the United States, a political subdivision of any of the
foregoing, or any wholly owned agency or instrumentality of any one or
more of the foregoing; or
(B) A foreign government, a political subdivision thereof, an
international organization, as defined in section 7701(a)(18), or any
wholly-owned agency or instrumentality of the foregoing; or
(iii) An exempt volume transferor if, and only if, the reporting
person receives a certification of exempt status under paragraph (d)(3)
of this section.
(3) Certification of exempt status--(i) In general. A certification
of exempt status must contain--
(A) The name, address, and taxpayer identification number of the
transferor (the address must be that of the permanent residence (in the
case of an individual), that of the principal office (in the case of a
corporation or partnership), or that of the permanent residence or
principal office of any fiduciary (in the case of a trust or estate));
(B) Sufficient information to identify any otherwise reportable real
estate not reported by virtue of the exempt status of the transferor;
and
(C) A declaration that the transferor has sold or exchanged during
either of the prior two calendar years, or previously sold or exchanged
during the current calendar year, or, as of the date of closing (as
defined in paragraph (h)(2)(ii) of this section), reasonably expects to
sell or exchange during the current calendar year at least 25 separate
items of reportable real estate (as defined in paragraph (b)(2) of this
section) to at least 25 separate transferees, and that each such item,
at the date of closing of the sale of such item was or will be held
primarily for sale or resale to customers in the ordinary course of a
trade or business. For example, the declaration may be worded as
follows:
________________________________________________________________________
[Insert name of transferor]
[check one or more]:
(1) ---- has sold or exchanged during either of the prior two
calendar years,
(2) ---- previously sold or exchanged during the current calendar
year,
[[Page 236]]
(3) ---- on the date of closing expects to sell or exchange during
the current calendar year,
at least 25 separate items of reportable real estate to at least 25
separate transferees and each such item, at the date of closing of such
item was or will be held primarily for sale or resale to customers in
the ordinary course of a trade or business.
(ii) Additional requirements. A certification of exempt status must
be--
(A) Signed under penalties of perjury by the transferor or any
person who is authorized to sign a declaration under penalties of
perjury in behalf of the transferor as described in section 6061 and the
regulations thereunder;
(B) Received by the reporting person no later than the time of
closing; and
(C) Retained by the reporting person for four years following the
close of the calendar year in which the date of closing (as determined
under paragraph (h)(2)(ii) of this section) occurs.
(iii) Reporting person may accept or disregard certification. A
reporting person may solicit or merely accept a certification of exempt
status. Moreover, notwithstanding a transferor's furnishing of such
certification, a reporting person may disregard the certification and,
instead, report with respect to the transaction. See paragraph (a) of
this section for the requirement that such elective reporting must be in
compliance with the provisions of this section.
(e) Person required to report--(1) In general. Although there may be
other persons involved in a real estate transaction, only the reporting
person is required to report with respect to any real estate
transaction. Except as provided in a designation agreement under
paragraph (e)(5) of this section, the reporting person with respect to a
real estate transaction is--
(i) The person responsible for closing the transaction, as defined
in paragraph (e)(3) of this section; or
(ii) If there is no person responsible for closing the transaction,
the person determined to be the reporting person under paragraph (e)(4)
of this section.
A person may be the reporting person with respect to a transaction
whether or not such person performs or is licensed to perform real
estate brokerage services for a commission or fee.
(2) Employees, agents, and partners. For purposes of this paragraph
(e), if an employee, agent, or partner (other than an employee, agent,
or partner of the transferor or the transferee) acting within the scope
of such person's employment, agency, or partnership participates in a
real estate transaction--
(i) Such participation shall be attributed to such person's
employer, principal, or partnership; and
(ii) Only the employer, principal, or partnership (and not such
person) may be the reporting person with respect to such transaction as
a result of such participation.
However, the participation of a person described in paragraph
(e)(3)(i) of this section (i.e., a person listed on the Uniform
Settlement Statement as the settlement agent) acting as an agent of
another is not attributed to the principal.
(3) Person responsible for closing the transaction--(i) Uniform
Settlement Statement used. If a Uniform Settlement Statement prescribed
under the Real Estate Settlement Procedures Act of 1974 (RESPA), 12
U.S.C. 2601 et seq. (a ``Uniform Settlement Statement''), is used with
respect to the real estate transaction and a person is listed as
settlement agent on the statement, such person is the person responsible
for closing the transaction. For purposes of this section, a Uniform
Settlement Statement shall include any amendments or variations thereto,
or substitutions therefore that may hereafter be prescribed under RESPA,
provided that any such amended, varied, or substituted form requires
disclosure of the parties to the transaction, the application of the
proceeds of the transaction, and the identity of the settlement agent or
other person responsible for preparing the form.
(ii) Other closing statement used. If a Uniform Settlement Statement
is not used, or if a Uniform Settlement Statement is used, but no person
is listed as settlement agent, the person responsible for closing the
transaction is the person who prepares a closing statement presented to
the transferor and transferee at, or in connection with, the closing of
the real estate transaction. For purposes of this section, a
[[Page 237]]
closing statement is any closing statement, settlement statement
(including a Uniform Settlement Statement), or other written document
that identifies the transferor and transferee, reasonably identifies the
transferred real estate, and describes the manner in which the proceeds
payable to the transferor are to be (or were) disbursed at, or in
connection with, the closing.
(iii) No closing statement used or multiple closing statements used.
If no closing statement is used or multiple closing statements are used,
the person responsible for closing the transaction is the first-listed
of the persons that participate in the transaction as--
(A) The attorney for the transferee who is present at the occasion
of the delivery of either the transferee's note or a significant portion
of the cash proceeds to the transferor, or who prepares or reviews the
preparation of the document(s) transferring legal or equitable ownership
of the real estate;
(B) The attorney for the transferor who is present at the occasion
of the delivery of either the transferee's note or a significant portion
of the cash proceeds to the transferor, or who prepares or reviews the
preparation of the document(s) transferring legal or equitable ownership
of the real estate; or
(C) The disbursing title or escrow company that is most significant
in terms of gross proceeds disbursed.
If more than one attorney would be the person responsible for closing
the transaction under the preceding sentence, the person among such
attorneys who is considered responsible for closing the transaction
under this paragraph (e)(3)(iii) is the person whose involvement in the
transaction is most significant.
(4) Determination of the real estate reporting person in the absence
of a person responsible for closing the transaction. If no person is
responsible for closing the transaction (within the meaning of paragraph
(e)(3) of this section), the reporting person with respect to the real
estate transaction is the person first-listed below of the persons that
participate in the transaction as--
(i) The mortgage lender (as defined in paragraph (e)(6)(i) of this
section);
(ii) The transferor's broker (as defined in paragraph (e)(6)(ii) of
this section);
(iii) The transferee's broker (as defined in paragraph (e)(6)(iii)
of this section); or
(iv) The transferee (as defined in paragraph (e)(6)(iv) of this
section).
(5) Designation agreement--(i) In general. If a written designation
agreement executed at or prior to the time of closing designates one of
the persons described in paragraph (e)(5)(ii) of this section as the
reporting person with respect to the transaction and the designated
person is a party to the agreement, the designated person is the
reporting person with respect to the transaction. It is not necessary
that all parties to the transaction (or that more than one party) be
parties to the agreement.
(ii) Persons eligible. A person may be designated as the reporting
person under this paragraph (e)(5) only if the person is--
(A) The person responsible for closing the transaction (as defined
in paragraph (e)(3) of this section);
(B) A person described in paragraph (e)(3)(iii) (A), (B) or (C) of
this section (whether or not such person is responsible for closing the
transaction); or
(C) The mortgage lender (as defined in paragraph (e)(6)(i) of this
section).
(iii) Form of designation agreement. A designation agreement may be
in any form that is consistent with the requirements of this paragraph
(e)(5), and may be included on a closing statement with respect to the
transaction. The designation agreement must, however, include the name
and address of the transferor and transferee and the address and any
additional information necessary to identify the real estate
transferred. The agreement must identify, by name and address, the
person designated as the reporting person with respect to the
transaction, and all other parties (if any) to the agreement. All
parties to the agreement must date and sign the agreement and must
retain the agreement for four years following the close of the calendar
year in which the date of closing (as determined under paragraph
(h)(2)(ii) of this section) occurs. Upon request by the
[[Page 238]]
Internal Revenue Service, or any person involved in the transaction who
did not participate in the designation agreement, the agreement must be
made available for inspection.
(6) Meaning of terms--(i) Mortgage lender. For purposes of this
paragraph (e), the term ``mortgage lender'' means the person who lends
new funds in connection with the transaction, but only if the repayment
of such funds is secured in whole or in part by the real estate
transferred. If new funds are advanced by more than one person, the
mortgage lender is the person who advances the largest amount of new
funds. If two or more persons advance equal amounts of new funds and no
other person advances a greater amount of new funds, the mortgage lender
among the persons advancing such equal amounts is the person with the
security interest that is most senior in terms of priority. For purposes
of this paragraph (e)(6)(i), any amounts advanced by the transferor are
not treated as new funds.
(ii) Transferor's broker. For purposes of this paragraph (e), the
term ``transferor's broker'' means only the broker that contracts with
the transferor and is compensated in connection with the transaction.
(iii) Transferee's broker. For purposes of this paragraph (e), the
term ``transferee's broker'' means only the broker that participates to
a significant extent in the preparation of the transferee's offer to
acquire the real estate or that presents such offer to the transferor.
If more than one person is so described, the transferee's broker is the
person whose participation in the preparation of the transferee's offer
to acquire the real estate is most significant or, in the event there is
no such person, the person whose participation in the presentation of
the offer is most significant.
(iv) Transferee. For purposes of this paragraph (e), the term
``transferee'' means the person who acquires the greatest interest in
the real estate. If there is no such person, the transferee is the
person listed first on the document(s) transferring legal or equitable
ownership of the real estate.
(f) Multiple transferors--(1) General rule. In the case of multiple
transferors, each of which transfers an interest in the same reportable
real estate, the reporting person shall make a separate information
return with respect to each transferor. Paragraph (i)(5) of this section
provides rules for the determination of gross proceeds to be reported in
the case of multiple transferors.
(2) Rules for spouses. Transferors who are husband and wife at the
time of closing and hold the reportable real estate as tenants in
common, joint tenants, tenants by the entirety, or community property
are treated as a single transferor for purposes of paragraphs (f)(1),
(h)(1)(i), (i)(5) and (l)(1)(i) of this section, unless the reporting
person receives, at or prior to the time of closing, an uncontested
allocation of gross proceeds between them. In the case of a husband and
wife treated as a single transferor, the reporting person may treat
either as the transferor for purposes of paragraphs (h)(1)(i) and (l)(1)
of this section, relating to reporting and soliciting taxpayer
identification numbers.
(g) Prescribed form. Except as otherwise provided in paragraph (k)
of this section, the information return required by paragraph (a) of
this section shall be made on Form 1099.
(h) Information required--(1) In general. The following information
must be set forth on the Form 1099 required by this section:
(i) The name, address, and taxpayer identification number (TIN) of
the transferor (see also paragraph (f)(2) of this section);
(ii) A general description of the real estate transferred (in
accordance with paragraph (h)(2)(i) of this section);
(iii) The date of closing (as defined in paragraph (h)(2)(ii) of
this section);
(iv) To the extent required by the Form 1099 and its instructions,
the entire gross proceeds with respect to the transaction (as determined
under the rules of paragraph (i) of this section), and, in the case of
multiple transferors, the gross proceeds allocated to the transferor (as
determined under paragraph (i)(5) of this section);
(v) To the extent required by the Form 1099 and its instructions, an
indication that the transferor--
[[Page 239]]
(A) Received (or will, or may, receive) property (other than cash
and consideration treated as cash in computing gross proceeds) or
services as part of the consideration for the transaction,
(B) May receive property (other than cash) or services in
satisfaction of an obligation having a stated principal amount, or
(C) May receive, in connection with a contingent payment
transaction, an amount of gross proceeds that cannot be determined with
certainty using the method described in paragraph (i)(3)(iii) of this
section and is therefore not included in gross proceeds under paragraphs
(i)(3)(i) and (i)(3)(iii) of this section;
(vi) The real estate reporting person's name, address, and TIN;
(vii) [Reserved]; and
(viii) Any other information required by the Form 1099 or its
instructions.
(2) Meaning of terms--(i) General description of the real estate
transferred. A general description of the real estate transferred
includes the complete address of the property. If the address would not
sufficiently identify the property, a general description of the real
estate also includes a legal description (e.g., section, lot, and block)
of the property.
(ii) Date of closing. In the case of a real estate transaction with
respect to which a Uniform Settlement Statement is used, the date of
closing shall be the date (if any) properly described as the
``Settlement Date'' on such statement. In all other cases, the date of
closing shall be the earlier of the date on which title is transferred
or the date on which the economic burdens and benefits of ownership of
the real estate shift from the transferor to the transferee.
(i) Gross proceeds--(1) In general. Except as otherwise provided in
this paragraph (i), the term ``gross proceeds'' means the total cash
received or to be received by or on behalf of the transferor in
connection with the real estate transaction. For purposes of this
paragraph (i), the following amounts are treated as cash received or to
be received by or on behalf of the transferor in connection with the
real estate transaction:
(i) The stated principal amount of any obligation to pay cash to or
for the benefit of the transferor in the future (including any
obligation having a stated principal amount that may be satisfied by the
delivery of property (other than cash) or services);
(ii) The amount of any liability of the transferor assumed by the
transferee as part of the consideration for the transfer or of any
liability to which the real estate acquired is subject (whether or not
the transferor is personally liable for the debt); and
(iii) In the case of a contingent payment transaction, as defined in
paragraph (i)(3)(ii) of this section, the maximum determinable proceeds,
as defined in paragraph (i)(3)(iii) of this section.
Gross proceeds does not include the value of any property (other than
cash and consideration treated as cash) or services received by, or on
behalf of, the transferor in connection with the real estate
transaction. See paragraph (h)(1)(v) of this section for the information
that must be included on the Form 1099 required by this section in cases
in which the transferor receives (or will, or may, receive) property
(other than cash and consideration treated as cash) or services as part
of the consideration for the transfer.
(2) Treatment of sales commissions and similar expenses. In
computing gross proceeds, the total cash received or to be received by
or on behalf of the transferor shall not be reduced by expenses borne by
the transferor (such as sales commissions, expenses of advertising the
real estate, expenses of preparing the deed, and the cost of legal
services in connection with the transfer).
(3) Special rules for contingent payments--(i) In general. If a real
estate transaction is a contingent payment transaction, gross proceeds
consist of the maximum determinable proceeds, if any.
(ii) Contingent payment transaction. For purposes of this section,
the term ``contingent payment transaction'' means a real estate
transaction with respect to which the receipt, by or on
[[Page 240]]
behalf of the transferor, of cash or consideration treated as cash under
paragraph (i)(1)(i) of this section is subject to a contingency.
(iii) Maximum determinable proceeds. For purposes of this section,
the term ``maximum determinable proceeds'' means the gross proceeds
determined by assuming that all of the contingencies contemplated by the
documents available at closing are met or otherwise resolved in a manner
that will maximize the gross proceeds. If the maximum amount of gross
proceeds cannot be determined with certainty using this method, the
maximum determinable proceeds are the greatest amount that can be
determined with certainty using this method. See paragraph (h)(1)(v)(C)
of this section for the information that must be included on the Form
1099 required by this section in cases in which the maximum amount of
gross proceeds cannot, by using the method described in this paragraph
(i)(3)(iii), be determined with certainty.
(4) Uniform Settlement Statement used. If a Uniform Settlement
Statement is used with respect to a real estate transaction involving a
transfer of reportable real estate solely for cash and consideration
treated as cash in computing gross proceeds, the gross proceeds
generally will be the same amount as the contract sales price properly
shown on that statement.
(5) Special rules for multiple transferors--(i) General rules. In
the case of multiple transferors (within the meaning of paragraph (f) of
this section) each of which transfers an interest in the same reportable
real estate, the reporting person must request the transferors to
provide an allocation of the gross proceeds among the transferors. The
request must be made at or before the time of closing. Neither the
request nor the response is required to be in writing. The reporting
person must make a reasonable effort to contact all transferors of whom
the reporting person has actual knowledge. The reporting person may,
however, rely on the unchallenged response of any transferor and need
not make additional efforts to contact other transferors after at least
one complete allocation (whether or not contained in a single response)
is received. Except as otherwise provided in this paragraph (i)(5), the
reporting person shall report the gross proceeds in accordance with any
allocation received at or before the time of closing. The reporting
person may (but is not required to) report the gross proceeds in
accordance with any allocation received after the time of closing and
before the date (determined without regard to extensions) the Forms 1099
are required to be filed. The reporting person may not report the gross
proceeds in accordance with any allocation received on or after the date
(determined without regard to extensions) the Forms 1099 are required to
be filed. If no gross proceeds are allocated to a transferor because no
allocation or an incomplete allocation is received by the reporting
person, the reporting person shall report the entire unallocated gross
proceeds (if any) on the return of information made with respect to such
transferor. If the reporting person receives conflicting allocations
from the transferors, the reporting person shall report the entire gross
proceeds on each return of information made with respect to the
transaction.
(ii) Rules for spouses. The reporting person need not request an
allocation of gross proceeds if the only transferors are husband and
wife at the time of closing. If there are other transferors, the
reporting person need only make a reasonable effort to contact either
the husband or wife in connection with the request for an allocation.
See paragraph (f)(2) of this section for rules that treat a husband and
wife as multiple transferors if an uncontested allocation of gross
proceeds is received by the reporting person at or prior to the time of
closing.
(6) Multiple asset transactions. In the case of a real estate
transaction reportable under this section that involves the transfer of
reportable real estate and other assets, the amount attributable to both
the real estate and other assets is treated as the gross proceeds with
respect to that real estate transaction. No allocation of gross proceeds
is made among the assets.
(j) Time and place for filing. A reporting person shall file the
information returns required by this section with respect to a real
estate transaction
[[Page 241]]
after December 31 of the calendar year that includes the date of closing
(as determined under paragraph (h)(2)(ii) of this section) and on or
before February 28 (March 31 if filed electronically) of the following
calendar year. The returns shall be filed with the appropriate Internal
Revenue Service Center at the address listed in the Instructions to Form
1099.
(k) Use of magnetic media and substitute forms--(1) Magnetic media--
(i) General rule. A reporting person that is required to make a return
of information under this section shall, except as otherwise provided in
paragraph (k)(1) (ii) or (iii) of this section, submit the information
required by this section on magnetic media (within the meaning of 26 CFR
301.6011-2). Returns on magnetic media shall be made in accordance with
26 CFR 301.6011-2) and applicable revenue procedures.
(ii) Exception for low-volume filers. For rules allowing a reporting
person to make the information returns required by this section on the
prescribed paper Form 1099 if the reporting person is required by this
section to file fewer than 250 returns during the calendar year, see
section 6011(e) and guidance issued by the Internal Revenue Service
thereunder.
(iii) Undue hardship. The Commissioner may authorize a reporting
person to file information returns on the prescribed paper Form 1099
instead of on magnetic media if undue hardship is shown either on Form
8508, Request for Waiver From Filing Information Returns on Magnetic
Media, or on a written statement requesting a waiver for undue hardship
filed with the Martinsburg Computing Center, Martinsburg, West Virginia
in accordance with applicable revenue procedures.
(2) Substitute forms. A reporting person that is described in
paragraph (k)(1)(ii) of this section or that receives permission to file
returns on the prescribed paper Form 1099 under paragraph (k)(1)(iii) of
this section may prepare and use a form that contains provisions
identical with those of Form 1099 if the reporting person complies with
all applicable revenue procedures relating to substitute Form 1099,
including any requirement relating to the use of machine-readable paper
forms.
(l) Requesting taxpayer identification numbers (TINS)--(1)
Solicitation--(i) General requirements. A reporting person who is
required to make an information return with respect to a real estate
transaction under this section must solicit a TIN from the transferor at
or before the time of closing. The solicitation may be made in person or
in a mailing that includes other items. Any person whose TIN is
solicited under this paragraph (l) must furnish such TIN to the
reporting person and certify that the TIN is correct. See paragraph
(f)(2) of this section for rules that treat a husband and wife as a
single transferor (and provide for the TIN solicitation of either) in
the absence of an allocation of gross proceeds under paragraph (i)(5) of
this section.
(ii) Content of solicitation. The solicitation shall be made by
providing to the person from whom the TIN is solicited a written
statement that the person is required by law to furnish a correct TIN to
the reporting person, and that the person may be subject to civil or
criminal penalties for failing to furnish a correct TIN. For example,
the solicitation may be worded as follows:
You are required by law to provide [insert name of reporting person]
with your correct taxpayer identification number. If you do not provide
[insert name of reporting person] with your correct taxpayer
identification number, you may be subject to civil or criminal penalties
imposed by law.
The solicitation shall contain space for the name, address, and TIN of
the person from whom the TIN is solicited and for the person to certify
under penalties of perjury that the TIN furnished is that person's
correct TIN. The wording of the certification must be substantially
similar to the following: ``Under penalties of perjury, I certify that
the number shown on this statement is my correct taxpayer identification
number.'' The requirements of this paragraph (l)(1)(ii) may be met by
providing to the transferor a copy of Form W-9. In the case of a real
estate transaction for which a Uniform Settlement Statement is used, the
requirements of this paragraph (l)(1)(ii) may be met by providing to the
transferor a copy of
[[Page 242]]
such statement that is modified to conform to the requirements of this
paragraph (l)(1)(ii).
(iii) Retention requirement. The solicitation shall be retained by
the reporting person for four years following the close of the calendar
year that includes the date of closing (as determined under paragraph
(h)(2)(ii) of this section). Such solicitation must be made available
for inspection upon request by the Internal Revenue Service.
(2) No TIN provided. A reporting person that does not receive the
transferor's TIN will not be subject to any penalty cross-referenced in
paragraph (n) of this section by reason of failure to report such TIN if
the reporting person has complied with the requirements of paragraph
(l)(1) of this section in good faith (determined with proper regard for
a course of conduct and the overall results achieved for the year).
(m) Furnishing statements to transferors--(1) Requirement of
furnishing statements. A reporting person who is required to make a
return of information under paragraph (a) of this section shall furnish
to the transferor whose TIN is required to be shown on the return a
written statement of the information required to be shown on such
return. The written statement must bear either the legend shown on the
recipient copy of Form 1099 or the following:
This is important tax information and is being furnished to the
Internal Revenue Service. If you are required to file a return, a
negligence penalty or other sanction may be imposed on you if this item
is required to be reported and the IRS determines that it has not been
reported.
This requirement may be satisfied by furnishing to the transferor a copy
of a completed Form 1099 (or substitute Form 1099 that complies with
current revenue procedures). In the case of a real estate transaction
for which a Uniform Settlement Statement is used, this requirement also
may be satisfied by furnishing to the transferor a copy of a completed
statement that is modified to comply with the requirements of this
paragraph (m), and by designating on the Uniform Settlement Statement
the items of information (such as gross proceeds or allocated gross
proceeds) required to be set forth on the Form 1099. For purposes of
this paragraph (m), a statement shall be considered furnished to a
transferor if it is given to the transferor in person, either at the
closing or thereafter, or is mailed to the transferor at the
transferor's last known address.
(2) Time for furnishing statement. The statement required under this
paragraph (m) shall be furnished to the transferor on or after the date
of closing and before February 1 of the following calendar year.
(n) Cross-reference to penalties. See the following sections
regarding penalties for failure to comply with the requirements of
section 6045(e) and this section:
(1) Section 6721 for failure to file a correct information return;
(2) Section 6722 for failure to furnish a correct statement to the
transferor;
(3) Section 6723 for failure to comply with other information
reporting requirements (including the requirement to furnish a TIN);
(4) Section 6724 for definitions and rules relating to waiver and
payment; and
(5) Section 7203 for willful failure to supply information
(including a taxpayer identification number).
(o) No separate charge. A reporting person may not separately charge
any person involved in a real estate transaction for complying with any
requirements of this section.
(p) Backup withholding requirements. [Reserved]
(q) Federally-subsidized indebtedness. [Reserved]
(r) Examples. The following examples illustrate the application of
this section:
Example 1 Sale or exchange. (i) On June 1, 1991, A, an individual,
buys a house from B, an individual, for $200,000. The entire $200,000 is
financed by B under an ``installment land contract,'' whereby A takes
possession and assumes all significant economic benefits and burdens of
ownership of the house, and B retains legal title to the property until
A fully performs under the contract. On June 1, 1994, A refinances his
purchase of the house with Z, a financial institution. The balance owed
to B is repaid and B relinquishes title to the house. A retains
possession and the benefits and burdens of ownership of the house.
[[Page 243]]
(ii) For federal income tax purposes, the transaction occurring on
June 1, 1991 is considered a sale of the house by B, notwithstanding his
retention of legal title to the property. B's sale is subject to
information reporting under this section. However, the transaction
occurring on June 1, 1994 is not a sale or exchange for federal income
tax purposes, and notwithstanding the change in legal title upon the
deeding over of the property, that transaction is not subject to
information reporting under this section.
Example 2 Sale or exchange. On August 10, 1991, C, an individual,
accepts an offer from Y, a corporation that acts on behalf of T (C's
employer) to facilitate moves of T's transferred employees from one part
of the country to another. Under the offer, C transfers his residence to
Y for $250,000 by executing a deed to the property in blank and giving Y
a power of attorney to dispose of the residence. C also immediately
vacates the residence, whereupon Y begins paying all costs associated
with the residence and is entitled to all income from the residence,
including sales proceeds. On October 1, 1991, Y sells the residence to D
and inserts C's name in the deed previously executed by C. Thus, neither
Y nor T ever become record owners of the residence. C's transfer of the
residence to Y on August 10, 1991 is a sale of reportable real estate
and is subject to information reporting under this section; however, the
sale on October 1, 1991 is not required to be reported because Y (the
transferor in that sale) is a corporation. See paragraph (d) of this
section.
Example 3 Definition of ownership interest. E, an individual, owns a
perpetual timeshare interest in a residential unit of real property at
an oceanfront resort. For consideration, on November 15, 1991, E sells
her rights in the property for the period January 1, 1992 through
December 31, 1992 to F. The transfer of E's property interest is not the
transfer of an ownership interest, as defined in paragraph (b)(2) of
this section and therefore is not reportable real estate under paragraph
(b)(2) of this section. Accordingly, the transfer is not a real estate
transaction under section (b)(1) of this section, and no return of
information is required with respect to E's property transfer.
Example 4 Gross proceeds (exchange). (i) G, an individual, agrees to
transfer Blackacre, which has a fair market value of $100,000, plus
$10,000 cash to H, an individual, in exchange for Whiteacre, which as a
fair market value of $120,000 and is encumbered by a $10,000 liability
(which is assumed by G). No other liabilities are involved in the
transaction. P is the reporting person with respect to both sides of the
transaction.
(ii) With respect to the transfer of Blackacre by G to H, P must
report gross proceeds of $-0- (even though the exchange agreement may
recite total exchange value of $120,000). See paragraph (i)(1) of this
section. In addition, (to the extent required by the Form 1099 and its
instructions) P must indicate that G will receive property as part of
the consideration for the transaction. See paragraph (h)(v)(A) of this
section.
(iii) With respect to the transfer of Whiteacre by H to G, P must
report gross proceeds of $20,000 (the amount received by H consisting of
cash ($10,000) and consideration treated as cash ($10,000) under
paragraph (i) of this section). No other amount is reported under
paragraph (i)(1) of this section even though the exchange agreement may
recite total exchange value of $120,000. In addition, (to the extent
required by the Form 1099 and its instructions) P must indicate that H
will receive property as part of the consideration for the transaction.
See paragraph (h)(v)(A) of this section.
Example 5 Gross proceeds (deferred exchange). [Reserved]
Example 6 Gross proceeds (contingencies). K, an individual, sells an
unencumbered apartment building to L for $500,000, payable at closing,
plus an amount equal to 2% of gross rents from the apartment building
for each of the next 5 years, the contingent payments to be made
annually with adequate stated interest. The agreement provides that the
maximum amount K may receive (including the downpayment but excluding
the interest) is $600,000. Under paragraph (i)(3)(ii) of this section
the real estate transaction is a ``contingent payment transaction.''
Under paragraph (i)(3)(iii) of this section, the maximum amount of gross
proceeds determined by assuming all contingencies are satisfied is
$600,000. Thus, $600,000 is the ``maximum determinable proceeds'' and is
the amount reported.
Example 7 Gross proceeds (contingencies). The facts are the same as
in example (6), except that the agreement does not provide for adequate
stated interest. The result is the same as in example (6).
Example 8 Gross proceeds (contingencies). The facts are same as in
example (6), except that no maximum amount is stated in the agreement
(or any other document available at closing). Under paragraph
(i)(3)(iii) of this section, assuming all contingencies are satisfied,
the maximum amount of gross proceeds cannot be determined with
certainty. The greatest amount that can be determined with certainty at
the time of the closing, assuming all contingencies are satisfied, is
$500,000, the cash downpayment. Therefore, $500,000 is the ``maximum
determinable proceeds'' under paragraph (i)(3)(iii) of this section and
is the amount reported. In addition, (to the extent required by the Form
1099 and its instructions) the reporting person must indicate that the
gross proceeds cannot be determined with certainty. See paragraph
(h)(1)(iv)(C) of this section.
[[Page 244]]
Example 9 Gross proceeds (contingencies). The facts are the same as
in example (8), except that the agreement provides that the minimum
amount K will receive (including the downpayment) is $570,000. Thus,
under paragraph (i)(3)(iii) of this section, assuming all contingencies
are satisfied, the maximum amount of gross proceeds cannot be determined
with certainty. The greatest amount that can be determined with
certainty at the time of the closing, assuming all contingencies are
satisfied, is $570,000, the minimum amount stated in the agreement.
Therefore, $570,000 is the ``maximum determinable proceeds'' under
paragraph (i)(3)(iii) of this section and is the amount reported. In
addition, (to the extent required by the Form 1099 and its instructions)
the reporting person must indicate that the gross proceeds cannot be
determined with certainty. See paragraph (h)(1)(iv)(C) of this section.
(s) Effective date. This section is effective for real estate
transactions with dates of closing (as determined under paragraph
(h)(2)(ii) of this section) that occur on or after January 1, 1991.
[T.D. 8323, 55 FR 51284, Dec. 13, 1990; 56 FR 559, Jan. 7, 1991; 56 FR
3419, Jan. 30, 1991; T.D. 8895, 65 FR 50407, Aug. 18, 2000]
Sec. 1.6045-5 Information reporting on payments to attorneys.
(a) Requirement of reporting--(1) In general. Except as provided in
paragraph (c) of this section, every payor engaged in a trade or
business who, in the course of that trade or business, makes payments
aggregating $600 or more during a calendar year to an attorney in
connection with legal services (whether or not the services are
performed for the payor) must file an information return for such
payments. The information return must be filed on the form and in the
manner required by the Commissioner. For the time and place for filing
the form, see Sec. 1.6041-6. For definitions of the terms under this
section, see paragraph (d) of this section. The requirements of this
paragraph (a)(1) apply whether or not--
(i) A portion of a payment is kept by the attorney as compensation
for legal services rendered; or
(ii) Other information returns are required with respect to some or
all of a payment under other provisions of the Internal Revenue Code and
the regulations thereunder.
(2) Information required. The information return required under
paragraph (a)(1) of this section must include the following information:
(i) The name, address, and taxpayer identifying number (TIN) (as
defined in section 7701(a)) of the payor;
(ii) The name, address, and TIN of the payee attorney;
(iii) The amount of the payment or payments (as defined in paragraph
(d)(5) of this section); and
(iv) Any other information required by the Commissioner in forms,
instructions or publications.
(3) Requirement to furnish statement. A person required to file an
information return under paragraph (a)(1) of this section must furnish
to the attorney a written statement of the information required to be
shown on the return. This requirement may be met by furnishing a copy of
the return to the attorney. The written statement must be furnished to
the attorney on or before January 31 of the year following the calendar
year in which the payment was made.
(b) Special rules--(1) Joint or multiple payees--(i) Check delivered
to one payee attorney. If more than one attorney is listed as a payee on
a check, an information return must be filed under paragraph (a)(1) of
this section with respect to the payee attorney to whom the check is
delivered.
(ii) Check delivered to payee nonattorney. If an attorney is listed
as a payee on a check but the check is delivered to a nonattorney who is
a payee on the check, an information return must be filed under
paragraph (a)(1) of this section with respect to the payee attorney
listed on the check. If more than one attorney is listed as a payee on a
check but the check is delivered to a nonattorney who is a payee on the
check, the information return must be filed with respect to the first-
listed payee attorney on the check.
(iii) Check delivered to nonpayee. If two or more attorneys are
listed as payees on a check, but the check is delivered to a person who
is not a payee on the check, an information return must be filed under
paragraph (a)(1) of this section with respect to the first-listed payee
attorney on the check.
(2) Attorney required to report payments made to other attorneys. If
an information return is required to be filed with
[[Page 245]]
respect to a payee attorney under paragraph (b)(1) of this section, the
attorney with respect to whom the information return is required to be
filed (tier-one attorney) must file an information return under this
section for any payment that the tier-one attorney makes to other payee
attorneys with respect to that check, regardless of whether the tier-one
attorney is a payor under paragraph (d)(3) of this section.
(c) Exceptions. Notwithstanding paragraphs (a) and (b) of this
section, a return of information is not required under section 6045(f)
with respect to the following payments:
(1) Payments of wages or other compensation paid to an attorney by
the attorney's employer.
(2) Payments of compensation or profits paid or distributed to its
partners by a partnership engaged in providing legal services.
(3) Payments of dividends or corporate earnings and profits paid to
its shareholders by a corporation engaged in providing legal services.
(4) Payments made by a person to the extent that the person is
required to report with respect to the same payee the payments or
portions thereof under section 6041(a) and Sec. 1.6041-1(a) (or would
be required to so report the payments or portions thereof but for the
dollar amount limitation contained in section 6041(a) and Sec. 1.6041-
1(a)).
(5) Payments made to a nonresident alien individual, foreign
partnership, or foreign corporation that is not engaged in trade or
business within the United States, and does not perform any labor or
personal services in the United States, in the taxable year to which the
payment relates. For how a payor determines whether a payment is subject
to this exception, see Sec. 1.6041-4(a)(1).
(6) Payments made to an attorney in the attorney's capacity as the
person responsible for closing a transaction within the meaning of Sec.
1.6045-4(e)(3) for the sale or exchange or financing of any present or
future ownership interest in real estate described in Sec. 1.6045-
4(b)(2)(i) through (iv).
(7) Payments made to an attorney in the attorney's capacity as a
trustee in bankruptcy under Title 11, United States Code.
(d) Definitions. The following definitions apply for purposes of
this section:
(1) Attorney means a person engaged in the practice of law, whether
as a sole proprietorship, partnership, corporation, or joint venture.
(2) Legal services means all services related to, or in support of,
the practice of law performed by, or under the supervision of, an
attorney.
(3) Payor means a person who makes a payment if that person is an
obligor on the payment, or the obligor's insurer or guarantor. For
example, a payor includes--
(i) A person who pays a settlement amount to an attorney of a client
who has asserted a tort, contract, violation of law, or workers'
compensation claim against that person; and
(ii) The person's insurer if the insurer pays the settlement amount
to the attorney.
(4) Payments to an attorney include payments by check or other
method such as cash, wire or electronic transfer. Payment by check to an
attorney means a check on which the attorney is named as a sole, joint,
or alternative payee. The attorney is the payee on a check written to
the attorney's client trust fund. However, the attorney is not a payee
when the attorney's name is included on the payee line as ``in care
of,'' such as a check written to ``client c/o attorney,'' or if the
attorney's name is included on the check in any other manner that does
not give the attorney the right to negotiate the check.
(5) Amount of the payment means the amount tendered (e.g., the
amount of a check) plus the amount required to be withheld from the
payment under section 3406(a)(1), because a condition for withholding
exists with respect to the attorney for whom an information return is
required to be filed under paragraph (a)(1) of this section.
(e) Attorney to furnish TIN. A payor that is required to file an
information return under this section must solicit a TIN from the
attorney at or before the time the payor makes a payment to the
attorney. The attorney must furnish the correct TIN to the payor, but is
not required to certify the TIN. A payment for which a return of
information is required under this section is
[[Page 246]]
subject to backup withholding under section 3406 and the regulations
thereunder.
(f) Examples. The following examples illustrate the provisions of
this section. The examples assume that P is not a payor with respect to
A, the attorney, under section 6041. See section 6041 and the
regulations thereunder for rules regarding whether P is required under
section 6041 to file information returns with respect to C. The examples
are as follows:
Example 1. One check--joint payees--taxable to claimant. Employee C,
who sues employer P for back wages, is represented by attorney A. P
settles the suit for $300,000. The $300,000 represents taxable wages to
C under existing legal principles. P writes a settlement check payable
jointly to C and A in the amount of $200,000, net of income and FICA tax
withholding with respect to C. P delivers the check to A. A retains
$100,000 of the payment as compensation for legal services and disburses
the remaining $100,000 to C. P must file an information return with
respect to A for $200,000 under paragraph (a)(1) of this section. P also
must file an information return with respect to C under sections 6041
and 6051, in the amount of $300,000. See Sec. Sec. 1.6041-1(f) and
1.6041-2.
Example 2. One check--joint payees--excludable to claimant. C, who
sues corporation P for damages on account of personal physical injuries,
is represented by attorney A. P settles the suit for a $300,000 damage
payment that is excludable from C's gross income under section
104(a)(2). P writes a $300,000 settlement check payable jointly to C and
A and delivers the check to A. A retains $120,000 of the payment as
compensation for legal services and remits the remaining $180,000 to C.
P must file an information return with respect to A for $300,000 under
paragraph (a)(1) of this section. P does not file an information return
with respect to tax-free damages paid to C.
Example 3. Separate checks--taxable to claimant. C, an individual
plaintiff in a suit for lost profits against corporation P, is
represented by attorney A. P settles the suit for $300,000, all of which
will be includible in C's gross income. A requests P to write two
checks, one payable to A in the amount of $100,000 as compensation for
legal services and the other payable to C in the amount of $200,000. P
writes the checks in accordance with A's instructions and delivers both
checks to A. P must file an information return with respect to A for
$100,000 under paragraph (a)(1) of this section. Pursuant to Sec.
1.6041-1(a) and (f), P must file an information return with respect to C
for the $300,000.
Example 4. Check made payable to claimant, but delivered to nonpayee
attorney. Corporation P is a defendant in a suit for damages in which C,
the plaintiff, has been represented by attorney A throughout the
proceeding. P settles the suit for $300,000. Pursuant to a request by A,
P writes the $300,000 settlement check payable solely to C and delivers
it to A at A's office. P is not required to file an information return
under paragraph (a)(1) of this section with respect to A, because there
is no payment to an attorney within the meaning of paragraph (d)(4) of
this section.
Example 5. Multiple attorneys listed as payees. Corporation P, a
defendant, settles a lost profits suit brought by C for $300,000 by
issuing a check naming C's attorneys, Y, A, and Z, as payees in that
order. Y, A, and Z do not belong to the same law firm. P delivers the
payment to A's office. A deposits the check proceeds into a trust
account and makes payments by separate checks to Y of $30,000 and to Z
of $15,000, as compensation for legal services, pursuant to
authorization from C to pay these amounts. A also makes a payment by
check of $155,000 to C. A retains $100,000 as compensation for legal
services. P must file an information return for $300,000 with respect to
A under paragraphs (a)(1) and (b)(1)(i) of this section. A, in turn,
must file information returns with respect to Y of $30,000 and to Z of
$15,000 under paragraphs (a)(1) and (b)(2) of this section because A is
not required to file information returns under section 6041 with respect
to A's payments to Y and Z because A's role in making the payments to Y
and Z is merely ministerial. See Sec. 1.6041-1(e)(1), (e)(2) and (e)(5)
Example 7 for information reporting requirements with respect to A's
payments to Y and Z. As described in Example 3, P must also file an
information return with respect to C, pursuant to Sec. 1.6041-1(a) and
(f).
Example 6. Amount of the payment--attorney does not provide TIN. (i)
Corporation P, a defendant, settles a suit brought by C for $300,000 of
damages. P will pay the damages by a joint check to C and his attorney,
A. A failed to furnish P with A's TIN. P is required to deduct and
withhold 28 percent tax from the $300,000 under section 3406(a)(1)(A)
and paragraph (e) of this section. P writes the check to C and A as
joint payees, in the amount of $216,000. P also must file an information
return with respect to A under paragraph (a)(1) of this section in the
amount of $300,000, as prescribed in paragraph (d)(5) of this section.
If the damages are reportable under section 6041 because they are not
excludable from gross income under existing legal principles, and are
not subject to any exception under section 6041, P must also file an
information return with respect to C pursuant to Sec. 1.6041-1(a) and
(f) in the amount of $300,000.
(ii) Rather than paying by joint check to C and A, P will pay the
damages by a joint
[[Page 247]]
check to C and F, A's law firm. F failed to furnish its TIN to P. P is
required to deduct and withhold 28 percent tax from the $300,000 under
section 3406(a)(1)(A) and paragraph (e) of this section. P writes the
check to C and F as joint payees, in the amount of $216,000. P also must
file an information return with respect to F under paragraph (a)(1) of
this section in the amount of $300,000, as prescribed in paragraph
(d)(5) of this section. If the damages are reportable under section 6041
because they are not excludable from gross income under existing legal
principles, and are not subject to any exception under section 6041, P
must also file an information return with respect to C pursuant to Sec.
1.6041-1(a) and (f) in the amount of $300,000.
Example 7. Home mortgage lending transaction. (i) Individual P
agrees to purchase a house that P will use solely as a residence. P
obtains a loan from lender L to finance a portion of the cost of
acquiring the house. L disburses loan proceeds of $300,000 to attorney
A, who is the settlement agent, by a check naming A as the sole payee.
A, in turn, writes checks from the loan proceeds and from other funds
provided by P to the persons involved in the purchase of the house,
including a check for $800 to attorney B, whom P hired to provide P with
legal services relating to the closing.
(ii) P, not L, is the payor of the payment to A under paragraph
(d)(3) of this section. P, however, is not required to file an
information return with respect to A under paragraph (a)(1) of this
section because the payment was not made in the course of P's trade or
business. Even if P made the payment in the course of P's trade or
business, P would not be required to file an information return under
section 6045(f) with respect to A because P is excepted under paragraph
(c)(6) of this section.
(iii) A is not required to file an information return under
paragraph (a)(1) of this section with respect to the payment to B
because A is not the payor as that term is defined under paragraph
(d)(3) of this section. A is not required to file an information return
under paragraph (b)(2) with respect to the payment to B because A was
listed as sole payee on the check it received from P. See section 6041
and Sec. 1.6041-1(e) for whether A or L must file information returns
under that section. See section 6045(e) and Sec. 1.6045-4 for whether A
is required to file an information return under that section.
Example 8. Business mortgage lending transaction. The facts are the
same as in Example 7 except that P buys real property that P will use in
a trade or business. P, not L, is the payor of the payment to A under
paragraph (d)(3) of this section. P, however, is not required to file an
information return under section 6045(f) with respect to A because P is
excepted under paragraph (c)(6) of this section. A is not required to
file an information return under paragraphs (a) or (b)(2) of this
section with respect to the payment to B. See section 6041 and Sec.
1.6041-1(e) to determine whether P or L must file an information return
under that section with respect to the payment to A, and whether P or A
must file a return with respect to the payment to B. See section 6045(e)
for rules regarding whether A is required to file information returns
under that section.
Example 9. Qualified settlement fund. Corporation P agrees to settle
for $300,000 a class action lawsuit brought by attorney A on behalf of a
claimant class. Pursuant to the settlement agreement and a preliminary
order of approval by a court, A establishes a bank account in the name
of Q Settlement Fund, which is a qualified settlement fund (QSF) under
Sec. 1.468B-1. A is also designated by the court as the administrator
of the QSF. Corporation P transfers $300,000 by wire in Year 1 to A, who
deposits the funds into the Q Settlement Fund. In Year 2, the court
approves an award of attorney's fees of $105,000 for A. In Year 2, Q
Settlement Fund delivers $105,000 to A. P is required to file an
information return under paragraph (a) of this section with respect to A
for Year 1 for the $300,000 payment it made to A. The Q Settlement Fund
is required to file an information return under section 6041(a) and
Sec. 1.468B-2(l)(2) with respect to A for Year 2 for the $105,000
payment it made to A.
(g) Cross reference to penalties. See the following sections
regarding penalties for failure to comply with the requirements of
section 6045(f) and this section:
(1) Section 6721 for failure to file a correct information return.
(2) Section 6722 for failure to furnish a correct payee statement.
(3) Section 6723 for failure to comply with other information
reporting requirements (including the requirement to furnish a TIN).
(4) Section 7203 for willful failure to supply information
(including a TIN).
(h) Effective date. The rules in this section apply to payments made
on or after January 1, 2007.
[T.D. 9270, 71 FR 39551, July 13, 2006, as amended at 71 FR 47080, Aug.
16, 2006]
Sec. 1.6046-1 Returns as to organization or reorganization of foreign
corporations and as to acquisitions of their stock.
(a) Officers or directors--(1) When liability arises on January 1,
1963. Each U.S. citizen or resident who is on January 1, 1963, an
officer or director of a
[[Page 248]]
foreign corporation shall make a return on Form 959 showing the name,
address, and identifying number of each U.S. person who, on January 1,
1963, owns 5 percent or more in value of the outstanding stock of such
foreign corporation.
(2) When liability arises after January 1, 1963--(i) Requirement of
return. Each U.S. citizen or resident who is at any time after January
1, 1963, an officer or director of a foreign corporation shall make a
return on Form 959 setting forth the information described in
subdivision (ii) of this subparagraph with respect to each U.S. person
who, during the time such citizen or resident is such an officer or
director:
(a) Acquires (whether in one or more transactions) outstanding stock
of such corporation which has, or which when added to any such stock
then owned by him (excluding any stock owned by him on January 1, 1963,
if on that date he owned 5 percent or more in value of such stock) has,
a value equal to 5 percent or more in value of the outstanding stock of
such foreign corporation, or
(b) Acquires (whether in one or more transactions) an additional 5
percent or more in value of the outstanding stock of such foreign
corporation.
(ii) Information required to be shown on return. The return required
under subdivision (i) of this subparagraph shall contain the following
information:
(a) Name, address, and identifying number of each shareholder with
respect to whom the return is filed;
(b) A statement showing that the shareholder is either described in
subdivision (i)(a) or (i)(b) of this subparagraph; and
(c) The date on which the shareholder became a person described in
subdivision (i)(a) or (i)(b) of this subparagraph.
(3) Application of rules. The provisions of this paragraph may be
illustrated by the following examples:
Example (1). A, a United States citizen, is, on January 1, 1963, a
director of M, a foreign corporation. X, on January 1, 1963, is a United
States person owning 5 percent in value of the outstanding stock of M
Corporation. A must file a return under the provisions of subparagraph
(1) of this paragraph.
Example (2). The facts are the same as in Example (1) except that X
owns only 2 percent in value of the outstanding stock of M Corporation
on January 1, 1963. On July 1, 1963, X acquires 2 percent in value of
the outstanding stock of M Corporation and on September 1, 1963, he
acquires an additional 2 percent in value of such stock. The July 1,
1963, transaction does not give rise to liability to file a return;
however, A must file a return as a result of the September 1, 1963,
transaction because X's holdings now exceed 5 percent.
Example (3). The facts are the same as in Example (2) and, on
September 15, 1963, X acquires an additional 4 percent in value of the
outstanding stock of M Corporation (X's total holdings are now 10
percent). On November 1, 1963, X acquires an additional 2 percent in
value of the outstanding stock of M Corporation. The September 15, 1963,
transaction does not give rise to liability to file a return since X has
not acquired 5 percent in value of the outstanding stock of M
Corporation since A last became liable to file a return. However, A must
file a return as a result of the November 1, 1963, transaction because X
has not acquired an additional 5 percent in value of the outstanding
stock of M Corporation.
Example (4). The facts are the same as in examples (2) and (3) and,
in addition, B, a United States citizen, becomes an officer of M
Corporation on October 1, 1963. B is not required to file a return
either as a result of the facts set forth in Example (2) or as a result
of the September 15, 1963, transaction described in Example (3).
However, B is required to file a return as a result of the November 1,
1963, transaction described in Example (3) because X has acquired an
additional 5 percent in value of the outstanding stock of M Corporation
while B is an officer or director.
(b) Returns required of U.S. persons when liability to file arises
on January 1, 1963. Each U.S. person who, on January 1, 1963, owns 5
percent or more in value of the outstanding stock of a foreign
corporation, shall make a return on Form 959 with respect to such
foreign corporation setting forth the following information:
(1) The name, address, and identifying number of the shareholder (or
shareholders) filing the return, and the internal revenue district in
which such shareholder filed his most recent United States income tax
return;
(2) The name, business address, and employer identification number,
if any, of the foreign corporation, the name of the country under the
laws of which it is incorporated, and the name of the country in which
is located its principal place of business;
[[Page 249]]
(3) The date of organization and, if any, of each reorganization of
the foreign corporation if such reorganization occurred on or after
January 1, 1960, while the shareholder owned 5 percent or more in value
of the outstanding stock of such corporation;
(4) The name and address of the foreign corporation's statutory or
resident agent in the country of incorporation;
(5) The name, address, and identifying number of any branch office
or agent of the foreign corporation located in the United States;
(6) If the foreign corporation has filed a United States income tax
return, or participated in the filing of a consolidated return, for any
of its last three calendar or fiscal years immediately preceding January
1, 1963, state each year for which a return was filed (including, in the
case of a consolidated return, the name of the corporation filing such
return), the type of form used, the internal revenue office to which it
was sent, and the amount of tax, if any, paid;
(7) The name and address of the person (or persons) having custody
of the books of account and records of the foreign corporation, and the
location of such books and records if different from such address;
(8) The names, addresses, and identifying numbers of all United
States persons who are principal officers (for example, president, vice
president, secretary, treasurer, and comptroller) or members of the
board of directors of the foreign corporation as of January 1, 1963;
(9) A complete description of the principal business activities in
which the foreign corporation is actually engaged and, if the foreign
corporation is a member of a group constituting a chain of ownership
with respect to each unit of which the shareholder owns 5 percent or
more in value of the outstanding stock, a chart showing the foreign
corporation's position in the chain of ownership and the percentages of
ownership;
(10) The following information prepared in accordance with generally
accepted accounting principles and in such detail as is customary for
the corporation's accounting records:
(i) The corporation's profit and loss statement for the most recent
complete annual accounting period; and
(ii) The corporation's balance sheet as of the end of the most
recent complete annual accounting period;
(11) A statement showing as of January 1, 1963, the amount and type
of any indebtedness of the foreign corporation:
(i) To any United States person owning 5 percent or more in value of
its stock, or
(ii) To any other foreign corporation owning 5 percent or more in
value of the outstanding stock of the foreign corporation with respect
to which the return is filed provided that the shareholder filing the
return owns 5 percent or more in value of the outstanding stock of such
other foreign corporation,
together with the name, address, and identifying number, if any, of each
such shareholder or entity;
(12) A statement, as of January 1, 1963, showing the name, address,
and identifying number, if any, of each person who is, on January 1,
1963, a subscriber to the stock of the foreign corporation, and the
number of shares subscribed to by each;
(13) A statement showing the number of shares of each class of stock
of the foreign corporation owned by each shareholder filing the return
and:
(i) If such stock was acquired after December 31, 1953, the dates of
acquisition, the amounts paid or value given therefor, the method of
acquisition, i.e., by original issue, purchase on open market, direct
purchase, gift, inheritance, etc., and from whom acquired; or
(ii) If such stock was acquired before Janaury 1, 1954, a statement
that such stock was acquired before such date, and the value at which
such stock is carried on the books of such shareholder;
(14) A statement showing as of January 1, 1963, the name, address,
and identifying number of each United States person who owns 5 percent
or more in value of the outstanding stock of the foreign corporation,
the classes of stock held, the number of shares of each class held,
including the name, address, and identifying number, if
[[Page 250]]
any, of each actual owner if such person is different from the
shareholder of record and a statement of the nature and amount of the
interests of each such actual owner; and
(15) The total number of shares of each class of outstanding stock
of the foreign corporation (or other data indicating the shareholder's
percentage of ownership).
(c) Returns required of U.S. persons when liability to file arises
after January 1, 1963--(1) U.S. persons required to file. A return on
Form 959, containing the information required by subparagraph (3) of
this paragraph, shall be made by each U.S. person when at any time after
January 1, 1963:
(i) Such person acquires (whether in one or more transactions)
outstanding stock of such foreign corporation which has, or which when
added to any such stock then owned by him (excluding any stock owned by
him on January 1, 1963, if on that date he owned 5 percent or more in
value of such stock) has, a value equal to 5 percent or more in value of
the outstanding stock of such foreign corporation, or
(ii) Such person, having already acquired the interest referred to
in paragraph (b) of this section or in subdivision (i) of this
subparagraph--
(a) Acquires (whether in one or more transactions) an additional 5
percent or more in value of the outstanding stock of such foreign
corporation,
(b) Owns 5 percent or more in value of the outstanding stock of such
foreign corporation when such foreign corporation is reorganized (as
defined in paragraph (f)), or
(c) Disposes of sufficient stock in such foreign corporation to
reduce his interest to less than 5 percent in value of the outstanding
stock of such foreign corporation.
The provisions of this subparagraph may be illustrated by the following
examples:
Example (1). On January 15, 1963, A, a United States person,
acquires 5 percent in value of the outstanding stock of M, a foreign
corporation. A must file a return under the provisions of this
subparagraph.
Example (2). On January 1, 1963, B, a United States person, owns 2
percent in value of the outstanding stock of M, a foreign corporation. B
is not required to file a return under the provisions of this section
because he does not own 5 percent or more in value of the outstanding
stock of M Corporation. On February 1, 1963, B acquires an additional 3
percent in value of the outstanding stock of M Corporation. B must file
a return under the provisions of this subparagraph.
Example (3). On January 1, 1963, C, a United States person, owns 6
percent in value of the outstanding stock of M, a foreign corporation. C
must file a return under the provisions of paragraph (b) of this
section. On February 1, 1963, C acquires an additional 2 percent in
value of the outstanding stock of M Corporation in a transaction not
involving a reorganization. C is not required to file a return under the
provisions of this subparagraph.
Example (4). The facts are the same as in Example (3) except that,
in addition, on April 1, 1963, C acquires 2 percent in value of the
outstanding stock of M Corporation in a transaction not involving a
reorganization. (C's total holdings are now 10 percent.) C is not
required to file a return under the provisions of this subparagraph
because he has not acquired 5 percent or more in value of the
outstanding stock of M Corporation since he last became liable to file a
return. On May 1, 1963, C acquires 1 percent in value of the outstanding
stock of M Corporation. C must file a return under the provisions of
this subparagraph.
Example (5). On June 1, 1963, D, a United States person, owns 12
percent in value of the outstanding stock of M, a foreign corporation.
Also, on June 1, 1963, M Corporation is reorganized and, as a result of
such reorganization, D owns only 6 percent of the outstanding stock of
such foreign corporation. D must file a return under the provisions of
this subparagraph.
Example (6). The facts are the same as in Example (5) except that,
in addition, on November 1, 1970, D donates 2 percent of the outstanding
stock of M Corporation to a charity. Since D has disposed of sufficient
stock to reduce his interest in M Corporation to less than 5 percent in
value of the outstanding stock of such corporation, D must file a return
under the provisions of this subparagraph.
(2) Shareholders who become U.S. persons. A return on Form 959,
containing the information required by subparagraph (3) of this
paragraph, shall be made by each person who at any time after Janaury 1,
1963, becomes a U.S. person while owning 5 percent or more in value of
the outstanding stock of such foreign corporation.
(3) Information required to be shown on return--(i) In general. The
return on Form 959, required to be filed by persons described in
subparagraph (1) or
[[Page 251]]
(2) of this paragraph, shall set forth the same information as is
required by the provisions of paragraph (b) of this section except that
where such provisions require information with respect to January 1,
1963, such information shall be furnished with respect to the date on
which liability arises to file the return required under this paragraph.
(ii) Additional information. In addition to the information required
under subdivision (i) of this subparagraph, the following information
shall also be furnished in the return required under this paragraph:
(a) The date on or after January 1, 1963, if any, on which such
shareholder (or shareholders) last filed a return under this section
with respect to the corporation;
(b) If a return is filed by reason of becoming a United States
person, the date the shareholder became a United States person;
(c) If a return is filed by reason of the disposition of stock, the
date and method of such disposition and the person to whom such
disposition was made; and
(d) If a return is filed by reason of the organization or
reorganization of the foreign corporation on or after January 1, 1963,
the following information with respect to such organization or
reorganization:
(1) A statement showing a detailed list of the classes and kinds of
assets transferred to the foreign corporation including a description of
the assets (such as a list of patents, copyrights, stock, securities,
etc.), the fair market value of each asset transferred (and, if such
asset is transferred by a United States person, its adjusted basis), the
date of transfer, the name, address, and identifying number, if any, of
the owner immediately prior to the transfer, and the consideration paid
by the foreign corporation for such transfer;
(2) A statement showing the assets transferred and the notes or
securities issued by the foreign corporation, the name, address, and
identifying number, if any, of each person to whom such transfer or
issue was made, and the consideration paid to the foreign corporation
for such transfer or issue; and
(3) An analysis of the changes in the corporation's surplus accounts
occurring on or after January 1, 1963.
(iii) Exclusion of information previously furnished. In any case
where any identical item of information required to be filed under this
paragraph by a shareholder with respect to a foreign corporation has
previously been furnished by such shareholder in any return made in
accordance with the provisions of this section, such shareholder may
satisfy the requirements of this paragraph by filing Form 959,
identifying such item of information, the date furnished, and stating
that it is unchanged.
(d) Associations, etc. Returns are required to be filed in
accordance with the provisions of this section with respect to any
foreign association, foreign joint-stock company, or foreign insurance
company, etc., which would be considered to be a corporation under Sec.
301.7701-2 of this chapter (Regulations on Procedure and
Administration). Persons who would qualify by the nature of their
functions and ownership in such associations, etc., as officers,
directors, or shareholders thereof will be treated as such for purposes
of this section without regard to their designations under local law.
(e) Special provisions--(1) Return jointly made. Any two or more
persons required under paragraph (a) of this section to make a return
with respect to one or more shareholders of the same corporation, or
under paragraph (b) or (c) of this section to make a return with respect
to the same corporation, may in lieu of making several returns, jointly
make one return.
(2) Separate return for each corporation. When returns are required
with respect to more than one foreign corporation, a separate return
must be made for each corporation.
(3) Use of power of attorney by officers or directors--(i) In
general. Any two or more persons required under paragraph (a) of this
section to make a return with respect to one or more shareholders of the
same corporation may, by means of one or more duly executed powers of
attorney, constitute one of their number as attorney in fact for the
purpose of making such returns or
[[Page 252]]
for the purpose of making a joint return under subparagraph (1) of this
paragraph.
(ii) Nature of power of attorney. The power of attorney referred to
in subdivision (i) of this subparagraph shall be limited to the making
of returns required under paragraph (a) of this section and shall be
limited to a single calendar year with respect to which such returns are
required.
(iii) Manner of execution of power of attorney. The use of technical
language in the preparation of the power of attorney referred to in
subdivision (i) of this subparagraph is not necessary. Such power of
attorney shall be signed by the individual United States citizen or
resident required to file a return or returns under paragraph (a) of
this section. Such power of attorney must be acknowledged before a
notary public or, in lieu thereof, witnessed by two disinterested
persons. The notarial seal must be affixed unless such seal is not
required under the laws of the state or country wherein such power of
attorney is executed.
(iv) Manner of execution of return under authority of power of
attorney. A return made under authority of one or more powers of
attorney referred to in subdivision (i) of this subparagraph shall be
signed by the attorney in fact for each principal for which such
attorney in fact is acting. A copy of such one or more powers of
attorney shall be kept at a convenient and safe location accessible to
internal revenue officers, and shall at all times be available for
inspection by such officers.
(v) Effect on penalties. The fact that a return is made under
authority of a power of attorney referred to in subdivision (i) of this
subparagraph shall not affect the principal's liability for penalties
provided for failure to file a return required under paragraph (a) of
this section or for filing a false or fraudulent return.
(4) Persons excepted from filing returns--(i) Return required of
officer or director under paragraph (a)(1). Notwithstanding paragraph
(a)(1) of this section, any U.S. citizen or resident required to make a
return under such paragraph with respect to shareholders of a foreign
corporation, need not make such return if, on January 1, 1963, three or
fewer U.S. persons own 95 percent or more in value of the outstanding
stock of such foreign corporation and file a return or returns with
respect to such corporation under paragraph (b) of this section.
(ii) Return required of officer or director under paragraph (a)(2).
Notwithstanding paragraph (a)(2) of this section, any U.S. citizen or
resident required to make a return under such paragraph with respect to
a person acquiring stock of a foreign corporation in an acquisition
described in subdivision (i)(a) or (b) of such paragraph need not make
such return, if:
(a) As a result of such acquisition of stock of such foreign
corporation, a U.S. person files a return as a shareholder under
paragraph (c)(1) of this section, and
(b) Immediately after such acquisition of stock, three or fewer U.S.
persons own 95 percent or more in value of the outstanding stock of such
foreign corporation.
(iii) Return required by reason of attribution rules.
Notwithstanding paragraph (b) or (c) of this section, any person
required to make a return under such paragraph with respect to a foreign
corporation need not make such return, if:
(a) Such person does not directly own an interest in the foreign
corporation,
(b) Such person is required to furnish the information solely by
reason of attribution of stock ownership from a U.S. person under
paragraph (i) of this section, and
(c) The person from whom the stock ownership is attributed furnishes
all of the information required under paragraph (b) or (c) of this
section of the person to whom such stock ownership is attributed.
(iv) Return required of officer or director with respect to person
described in subdivision (iii). Notwithstanding paragraph (a) of this
section, any U.S citizen or resident required to make a return under
such paragraph with respect to a person exempted under subdivision (iii)
of this subparagraph from making a return need not make a return with
respect to such person.
[[Page 253]]
(5) Persons excepted from furnishing items of information. Any
person required to furnish any item of information under paragraph (b)
or (c) of this section with respect to a foreign corporation, may, if
such item of information is furnished by another person having an equal
or greater stock interest (measured in terms of value of such stock) in
such foreign corporation, satisfy such requirement by filing a statement
with his return on Form 959 indicating that such liability has been
satisfied and identifying the return in which such item of information
was included.
(f) Meaning of terms. For purposes of this section:
(1) Acquisition. Stock in a foreign corporation shall be considered
acquired when a person has an unqualified right to receive such stock
even though such stock is not actually issued. For example, when under
the law of a foreign country, all the necessary steps for incorporation
are completed but stock in the corporation will not be issued within 30
days, every United States citizen or resident who is an officer or a
director of such corporation, provided a United States person has an
interest of 5 percent or more in such corporation, and every such United
States person shall, within 90 days of the date of incorporation, file
the returns required under section 6046 and this section. In the case of
a reorganization, new stock may be acquired, depending on the type of
reorganization, whether or not any stock certificates are surrendered or
exchanged or the designation of such stock is altered.
(2) Reorganization. With respect to a foreign corporation, the term
``reorganization'' shall mean not only a transaction described in
section 368(a)(1) and the regulations thereunder but also any other
transaction or series of transactions which has the same effect.
(3) [Reserved]. For further guidance, see Sec. 1.6046-1T(f)(3).
(4) Applicable Form 959. The Form 959 which shall be used for
purposes of this section is Form 959 (Revised January 1963) or such
subsequent revision of such form as may be in use at the time the
liability to file a return on Form 959 arises.
(5) Accounting period and taxable year. In the case of a specified
foreign corporation (as defined in section 898), the taxable year of
such corporation shall be treated as its annual accounting period.
(g) Method of reporting. All amounts furnished in returns prescribed
under this section shall be expressed in United States currency with a
statement of the exchange rates used. All statements required to be
submitted on or with returns under this section shall be rendered in the
English language. For taxable years ending after December 31, 1994, with
respect to returns filed after December 31, 1995, all amounts furnished
under paragraph (c) of this section shall be expressed in United States
dollars computed and translated in conformity with United States
generally accepted accounting principles. Amounts furnished under
paragraph (c)(3)(i) of this section shall also be furnished in the
foreign corporation's functional currency as required on the form.
Information described in paragraphs (b)(10) and (c)(3) of this section
shall be submitted in such form or manner as the form shall prescribe.
If an individual who is a United States person required to make a return
with respect to a foreign corporation under section 6046 is entitled
under a treaty to be treated as a nonresident of the United States, and
if the individual claims this treaty benefit, and if there are no other
United States persons that are required to furnish information under
section 6046 with respect to the foreign corporation, then the
individual may satisfy the requirements of paragraphs (b)(10), (11) and
(12), (c)(3)(ii)(d), and (g) of this section by filing the audited
foreign financial statements of the foreign corporation with the
individual's return required under section 6046.
(h) Actual ownership of stock. If any shareholder, referred to in
this section, is not the actual owner of the stock of the foreign
corporation, the information required under this section shall be
furnished in the name of and by such actual owner. For example, in the
case of stock held by a nominee, the information required under this
section shall be furnished by the actual owner of such stock.
[[Page 254]]
(i) Constructive ownership of stock--(1) In general. Stock owned
directly or indirectly by or for a foreign corporation or a foreign
partnership shall be considered as being owned proportionately by its
shareholders or partners. Thus, any United States person who is a member
of a nonresident foreign partnership which becomes a shareholder in a
foreign corporation shall be considered to be a shareholder in such
foreign corporation to the extent of his proportionate share in such
partnership.
(2) Members of family. An individual shall be considered as owning
the stock owned directly or indirectly by or for his brothers and
sisters (whether by the whole or half blood), his spouse, his ancestors,
and his lineal descendants. However, when stock is treated as owned by
an individual under the rule provided in this subparagraph, it shall not
be treated as owned by him for the purpose of again applying such rule
in order to make another the constructive owner of such stock. The
provisions of this subparagraph may be illustrated by the following
example:
Example. H, W, and HF are United States citizens. W, wife of H, owns
20 percent of the value of the outstanding stock of X, a foreign
corporation. X Corporation owns 90 percent of the value of the
outstanding stock of Y Corporation, a foreign corporation. Y Corporation
becomes the owner of 50 percent of the value of the outstanding stock of
each of two newly organized foreign corporations, M and N. In applying
the ``members of family'' rule, H is considered to own 20 percent of the
value of the outstanding stock of X Corporation, and 18 percent of the
value of the outstanding stock of Y Corporation, and 9 percent of M
Corporation and N Corporation. However, HF, the father of H, is not
considered to own stock of X, Y, M, or N since his son, H, is not
treated as the owner of such stock for purposes of again applying the
``members of family'' rule.
(j) Time and place for filing return--(1) Time for filing. Any
return required by section 6046 and this section shall be filed on or
before the 90th day after the date on which a United States citizen,
resident, or person becomes liable to file such return under any
provision of section 6046(a) and of paragraph (a), (b), or (c) of this
section. With respect to returns filed after September 3, 1982, such
return shall be filed on or before such later date (if any) as may be
authorized by the return form. The Director of the Internal Revenue
Service Center where the return is required to be filed is authorized to
grant reasonable extensions of time for filing returns under section
6046 and this section in accordance with the applicable provisions of
section 6081(a) and Sec. 1.6081-1.
(2) Place for filing. Returns required by section 6046 and this
section shall be filed with the Internal Revenue Service Center
designated in the instructions of the applicable form.
(k) Penalties. (1) For criminal penalties for failure to file a
return and filing a false or fraudulent return, see sections 7203, 7206,
and 7207.
(2) For civil penalty for failure to file return, or failure to show
information required on a return, under this section, see section 6679.
(Approved by the Office of Management and Budget under control number
1545-0794)
[T.D. 6623, 27 FR 11882, Dec. 1, 1962, as amended by T.D. 6997, 34 FR
932, Jan. 22, 1969; T.D. 7322, 39 FR 30932, Aug. 27, 1974; T.D. 7925, 48
FR 55454, Dec. 13, 1983; T.D. 8573, 59 FR 64302, Dec. 14, 1994; T.D.
8733, 62 FR 53385, Oct. 14, 1997; T.D. 9194, 70 FR 18946, Apr. 11, 2005]
Sec. 1.6046-1T Returns as to organization or reorganization of foreign
corporations and as to acquisitions of their stock (temporary).
(a) through (f)(2) [Reserved]. For further guidance, see Sec.
1.6046-1(a) through (f)(2).
(f)(3) U.S. person--(i) In general. For purposes of section 6046 and
this section, the term United States person has the meaning assigned to
it by section 7701(a)(30), except as provided in paragraphs (f)(3) (ii)
and (iii) of this section.
(ii) Special rule for individuals residing in certain possessions.
With respect to individuals who are bona fide residents of Puerto Rico
or any section 931 possession, as defined in Sec. 1.931-1T(c)(1), the
term United States person has the meaning assigned to it by Sec. 1.957-
3T.
(iii) Special rule for certain nonresident aliens. An individual for
whom an election under section 6013(g) or (h) is in effect shall,
subject to the exceptions contained in paragraph (f)(3)(ii) of this
section, be considered a United States person for purposes of section
6046 and this section.
[[Page 255]]
(f)(4) through (k) [Reserved]. For further guidance, see Sec.
1.6046-1(f)(4) through (k).
(l) Effective date. This section shall apply for taxable years
ending after October 22, 2004.
[T.D. 9194, 70 FR 18946, Apr. 11, 2005]
Sec. 1.6046A-1 Return requirement for United States persons who
acquire or dispose of an interest in a foreign partnership, or
whose proportional interest in
a foreign partnership changes substantially.
(a) Return requirement--(1) General rule. If a United States person
has a reportable event (as defined in paragraph (b)(1) of this section)
during the person's tax year, then, except as provided in paragraph (f)
of this section, the United States person is required to complete and
file Form 8865, ``Return of U.S. Persons With Respect to Certain Foreign
Partnerships,'' containing the information described in paragraph (c) of
this section.
(2) Separate return for each partnership. If a United States person
has a reportable event with respect to an interest in more than one
foreign partnership, the United States person must file a separate Form
8865 for each foreign partnership.
(b) Definitions--(1) Reportable event. There are three categories of
reportable events under section 6046A: acquisitions, dispositions, and
changes in proportional interests.
(i) Acquisitions. A United States person that acquires a foreign
partnership interest has a reportable event if--
(A) The person did not own a ten-percent or greater direct interest
in the partnership and as a result of the acquisition the person owns a
ten-percent or greater direct interest in the partnership. For purposes
of this paragraph (b)(1)(i)(A), an acquisition includes an increase in a
person's direct proportional interest; or
(B) Subject to paragraph (b)(2) of this section, compared to the
person's direct interest when the person last had a reportable event,
after the acquisition the person's direct interest has increased by at
least a ten-percent interest.
(ii) Dispositions. A United States person that disposes of a foreign
partnership interest has a reportable event if--
(A) The person owned a ten-percent or greater direct interest in the
partnership before the disposition and as a result of the disposition
the person owns less than a ten-percent direct interest. For purposes of
this paragraph (b)(1)(ii)(A), a disposition includes a decrease in a
person's direct proportional interest; or
(B) Subject to paragraph (b)(2) of this section, compared to the
person's direct interest when the person last had a reportable event,
after the disposition the person's direct interest has decreased by at
least a ten-percent interest.
(iii) Changes in proportional interests not otherwise reportable as
acquisitions or dispositions under paragraph (b)(1)(i)(A) or
(b)(1)(ii)(A) of this section. A United States person has a reportable
event if, subject to paragraph (b)(2) of this section, compared to the
person's direct proportional interest the last time the person had a
reportable event, the person's direct proportional interest has
increased or decreased by at least the equivalent of a ten-percent
interest.
(2) Special rule for foreign partnership interests owned on December
31, 1999. If a United States person owned a ten-percent or greater
direct interest in a foreign partnership on December 31, 1999, then to
determine whether the person has a reportable event under paragraph
(b)(1)(i)(B), (b)(1)(ii)(B), or (b)(1)(iii) of this section, the
comparison should be made to the person's direct interest on December
31, 1999. Once the person has a reportable event after December 31,
1999, future comparisons should be made by reference to the last
reportable event.
(3) Change in a proportional interest. A partner's proportional
interest in a foreign partnership may change for a number of reasons,
for example, the change may be caused by changes in other partners'
interests resulting from a partner withdrawing from the partnership. A
proportional change may also occur by operation of the partnership
agreement, for example, if the partnership agreement provides that a
partner's interest in profits will change on a set date or when the
partnership
[[Page 256]]
has earned a specified amount of profits and one of those events occurs.
(4) Ten-percent interest. Under section 6046A(d) and this section, a
ten-percent interest in a foreign partnership, as described in section
6038(e)(3)(C) and the regulations thereunder, means an interest equal to
ten percent of the capital interest in such partnership, an interest
equal to ten percent of the profits interest in such partnership, or an
interest to which ten percent of the deductions or losses of such
partnership are allocated.
(5) United States person. United States person means a person
described in section 7701(a)(30).
(6) Foreign partnership. Foreign partnership means any partnership
that is a foreign partnership under sections 7701(a)(2) and (5).
(7) Examples. The rules of paragraph (a) of this section and this
paragraph (b) are illustrated by the following examples:
Example 1. Acquisition of an indirect interest. FP, a foreign
partnership, has two partners, FC1 and FC2, both foreign corporations.
FC1 owns a 40% interest in FP, and FC2 owns a 60% interest in FP. No
United States person owns an interest in FP, either directly, or
constructively under section 6038(e)(3)(C) and section 267(c). On
January 1, 2001, US, a United States person and calendar year taxpayer,
acquires by purchase 100% of FC2's stock. US has acquired an indirect
interest of 60% in FP. See sections 6038(e)(3)(C) and 267(c)(1).
However, US is not required to report the January 1, 2001 indirect
acquisition under section 6046A. US did not own a 10% or greater direct
interest in FP before the acquisition, and US does not own a 10% or
greater direct interest as a result of the acquisition. (US must,
however, comply with the reporting requirements under section 6038
(controlled foreign corporation and controlled foreign partnership
reporting) with respect to FC2 and FP.)
Example 2. Acquisition of direct interests. (i) Assume the same
facts as Example 1. In addition, on June 1, 2001, US purchases a 5%
direct interest in FP from FC1. US did not own a 10% or greater direct
interest in FP before the acquisition. After the acquisition, US does
not own a direct interest of 10% or more. US owns a 10% or greater total
interest (direct and indirect), but only a 5% direct interest.
Therefore, US is not required to report the June 1, 2001, acquisition
under section 6046A.
(ii) On September 1, 2001, US purchases a 7% direct interest in FP
from FC1. The September 1, 2001 acquisition constitutes a reportable
event under paragraph (b)(1)(i)(A) of this section. Before the September
1 acquisition, US did not own a 10% or greater direct interest in FP.
After the September 1 acquisition, US owns a 12% direct interest, and
therefore, as a result of the September 1 acquisition, US now owns a 10%
or greater direct interest in FP. Consequently, US must report its
September 1 acquisition under section 6046A on Form 8865 filed with US's
2001 income tax return.
(iii) On December 1, 2001, US acquires an additional 4% direct
interest in FP from FC1, so that US's total direct interest has
increased from 12% to 16%. This acquisition does not constitute a
reportable event. Compared to US's direct interest when US last had a
reportable event (12% on September 1, 2001), after acquiring the 4%
interest US's direct interest has not increased by at least a 10% direct
interest (i.e., its direct interest increased by only 4%). Therefore, US
does not have to report the December 1, 2001, acquisition under section
6046A. On April 1, 2002, FC2 distributes a 6% direct interest in FP to
US. US now owns a 22% direct interest in FP. Compared to US's direct
interest when US last had a reportable event (12% on September 1, 2001),
after the April 1 acquisition US's direct interest has increased by at
least a 10% interest (12% to 22%). US must report the April 1, 2002
acquisition on a Form 8865 attached to US's 2002 income tax return.
Example 3. Change in proportional interest resulting from withdrawal
of a partner. Assume the same facts as Example 3. In addition, on
January 5, 2003, FC2 withdraws entirely from FP. As a result, the direct
interests of US and FC1 in FP each increase by at least the equivalent
of 10% interests. Compared to US's direct interest the last time US had
a reportable event (22% on April 1, 2002), US's direct interest has
increased by at least the equivalent of a ten percent interest.
Therefore, US has had a reportable event pursuant to paragraph
(b)(1)(iii) of this section, and US must report the change in its
interest resulting from FC2's withdrawal from the partnership on US's
Form 8865 filed with US's 2003 tax year income tax return.
Example 4. Change in proportional interest constituting an
acquisition. FP is a foreign partnership that has no United States
persons as direct or constructive partners. US is a United States person
and a calendar year taxpayer. On January 1, 2001, US purchases an 8%
direct interest in FP. US is not required to report this acquisition. US
did not own a 10% or greater direct interest in FP, and US does not own
a 10% or greater direct interest as a result of the acquisition. On
March 1, 2001, FC, a foreign partner of FP, withdraws from FP, and as
result, US's direct interest in FP increases by a 7% interest. The
increase in US's direct interest is considered an acquisition of an
interest under paragraph (b)(1)(i)(A) of this section. US did not
[[Page 257]]
own a 10% or greater direct interest in FP before FC withdrew, and as a
result of the increase in US's direct interest because of FC's
withdrawal from FP, US now owns a 10% or greater direct interest in FP.
Therefore, US must report under section 6046A the increase in US's
direct interest resulting from the withdrawal of FC from FP on Form 8865
filed with US's tax return for US's 2001 tax year.
(c) Content of return. The Form 8865 that must be filed under
paragraph (a)(1) of this section must contain the following information
in such form and manner and to the extent that Form 8865 and its
instructions prescribe--
(1) The name, address, and taxpayer identification number of the
United States person required to file the return;
(2) Information about other persons (foreign or domestic) whose
interests in the foreign partnership the person reporting under section
6046A is considered to own under section 6038(e)(3)(C) and section
267(c);
(3) Information about all foreign entities that were disregarded as
entities separate from their owners under Sec. Sec. 301.7701-2 and
301.7701-3 of this chapter that were owned by the foreign partnership
during the partnership's tax year ending with or within the tax year of
the person filing Form 8865 pursuant to section 6046A;
(4) For each reportable event, the date of the event, the type of
event (acquisition, disposition, or change in proportional interest),
and the United States person's direct percentage interest in the foreign
partnership immediately before and immediately after the event;
(5) The fair market value of the interest acquired or disposed of;
(6) Information about partnerships (foreign and domestic) in which
the foreign partnership owned a direct interest, or a constructive
interest of ten percent or more under sections 267(c)(1) and (5) and the
regulations thereunder, during the partnership's tax year ending with or
within the tax year of the person filing Form 8865 pursuant to section
6046A; and
(7) Any other information required to be submitted by Form 8865 and
its instructions.
(d) Time and manner for filing returns. The Form 8865 must be filed
with the timely filed (including extensions) income tax return of the
United States person for the tax year in which the reportable event
occurs. If the United States person is not required to file an income
tax return for its tax year in which the reportable event occurs, but is
required to file an information return for that year (for example, Form
1065, ``U.S. Partnership Return of Income,'' or Form 990, ``Return of
Organization Exempt from Income Tax''), the United States person should
attach the Form 8865 to its information return filed for that tax year.
(e) Duplicate returns. If required by the instructions to Form 8865,
a duplicate Form 8865 (including attachments and schedules) must also be
filed.
(f) Persons excepted from filing return--(1) Section 6038B overlap.
If a United States person acquires an interest in a foreign partnership
as a result of a section 721 contribution required to be reported under
section 6038B, and the person properly reports the contribution under
section 6038B, then the United States person is not required to report
the acquisition of the partnership interest under section 6046A(a)
should it constitute a reportable event under paragraph (b)(1) of this
section. The acquisition will still constitute a reportable event for
purposes of making future comparisons pursuant to paragraphs
(b)(1)(i)(B), (b)(1)(ii)(B) and (b)(1)(iii) of this section. A person
that fails to properly report the section 721 contribution under section
6038B and the regulations thereunder and that fails to properly report
the acquisition of the partnership interest under section 6046A may be
subject to the penalties applicable to a failure to comply with the
requirements of section 6038B, as well as the penalties applicable for a
failure to comply with the requirements of section 6046A. See paragraph
(h) of this section for more information about the penalties for failure
to comply with the requirements of section 6046A.
(2) Trusts relating to state and local government employee
retirement plans. The return requirement of section 6046A does not apply
to trusts relating to state and local government employee retirement
plans, unless the instructions to Form 8865 provide otherwise.
[[Page 258]]
(3) Reporting under this section not required of partnerships
excluded from the application of subchapter K. The reporting
requirements of this section will not apply to any United States person
in respect of an eligible partnership as described in Sec. 1.761-2(a)
in which that United States person is a partner, if such partnership has
validly elected to be excluded from all of the provisions of subchapter
K of chapter 1 of the Internal Revenue Code in the manner specified in
Sec. 1.761-2(b)(2)(i), or is deemed to have elected to be excluded from
all of the provisions of subchapter K of chapter 1 of the Internal
Revenue Code in accordance with the provisions of Sec. 1.761-
2(b)(2)(ii).
(4) Exclusion for satellite organizations. The return requirement of
section 6046A does not apply to the International Telecommunications
Satellite Organization (or a successor organization) or the
International Maritime Satellite Organization (or a successor
organization).
(g) Method of reporting. Except as otherwise provided on Form 8865,
or the accompanying instructions, any amounts required to be reported
under section 6046A and this section must be expressed in United States
dollars, with a statement of the exchange rates used. All statements
required on or with Form 8865 pursuant to this section must be in
English.
(h) Penalties for violating section 6046A. For penalties for
violating section 6046A, see sections 6679 and 7203.
(i) Statute of limitations. For exceptions to the limitations on
assessment in the event of a failure to provide information under
section 6046A, see section 6501(c)(8).
(j) Effective date. This section applies to reportable events
occurring after December 31, 1999. No reporting under section 6046A is
required for reportable events occurring on or before December 31, 1999.
[T.D. 8851, 64 FR 72556, Dec. 28, 1999]
Sec. 1.6046-2 Returns as to foreign corporations which are created
or organized, or reorganized, on or after September 15, 1960, and
before January 1, 1963.
(a) Requirement of returns. In the case of any foreign corporation
which is created or organized, or reorganized, on or after September 15,
1960, and before January 1, 1963:
(1) Each United States citizen or resident who was an officer or
director of such corporation at any time within 60 days after such
creation or organization, or reorganization, and
(2) Each United States shareholder of such corporation by or for
whom, at any time within 60 days after such creation or organization, or
reorganization, 5 percent or more in value of such corporation's then
outstanding stock was owned directly or indirectly (including, in the
case of an individual stock owned by members of his family),
shall file a return on Form 959 (Rev. Oct. 1960), United States
Information Return With Respect to the Creation or Organization, or
Reorganization, of a Foreign Corporation.
(b) Information required to be shown on return. The return required
by section 6046, prior to its amendment by section 20(b) of the Revenue
Act of 1962, and this section shall set forth the following information:
(1) The name and address of the person (or persons) filing the
return, and an indication that he is a United States shareholder,
officer, or director;
(2) The name and business address of the foreign corporation;
(3) The name of the country under the laws of which the foreign
corporation was created or organized, or reorganized;
(4) The name and address of the foreign corporation's statutory or
resident agent in the country of incorporation;
(5) The date of the foreign corporation's creation or organization,
or reorganization;
(6) A statement of the manner in which the creation or organization,
or reorganization, of the foreign corporation was effected;
(7) A complete statement of the reasons for, and the purposes sought
to be accomplished by, the creation or organization, or reorganization,
of the foreign corporation;
(8) A statement showing the classes and kinds of assets transferred
to the foreign corporation in connection with its creation or
organization, or reorganization, including a list completely
[[Page 259]]
describing each asset or group of assets, its value, date of transfer,
and the name and address of person (or persons) owning such asset or
group immediately prior to the transfer;
(9) A statement showing the assets transferred and the securities
issued by the foreign corporation in its creation or organization or
reorganization, as well as the name and address of each person to whom
such a transfer or issuance was made;
(10) A statement specifying the amount and type of any indebtedness
due from the foreign corporation to each of its shareholders and the
name of each such shareholder;
(11) The names and addresses of the shareholders of the foreign
corporation at the time of its creation or organization or
reorganization, and the classes of stock and number of shares held by
each;
(12) The names and addresses of subscribers to the stock of the
foreign corporation, and the number of shares subscribed to by each; and
(13) The name and address of the person (or persons) having custody
of the books of account and records of the foreign corporation, and the
location of such books and records if different from such address.
(c) Time and place for filing return. The return required by section
6046, prior to its amendment by section 20(b) of the Revenue Act of
1962, and this section shall be filed with the Internal Revenue Service
Center designated in the instructions of the applicable form. Such
return shall be filed on or before the 90th day after the date such
foreign corporation is created or organized, or reorganized.
[T.D. 6623, 27 FR 11882, Dec. 1, 1962, as amended by T.D. 7322, 39 FR
30932, Aug. 27, 1974]
Sec. 1.6046-3 Returns as to formation or reorganization of foreign
corporations prior to September 15, 1960.
(a) Requirement of returns. Every attorney, accountant, fiduciary,
bank, trust company, financial institution, or other person, who, on or
before September 14, 1960, aids, assists, counsels, or advises in, or
with respect to, the formation, organization, or reorganization of any
foreign corporation shall file an information return on Form 959 (as in
use prior to the October 1960 revision). The return must be filed in
every such case regardless of:
(1) The nature of the counsel or advice given, whether for or
against the formation, organization, or reorganization of the foreign
corporation, or the nature of the aid or assistance rendered, and
(2) The action taken upon the advice or counsel, that is, whether
the foreign corporation is actually formed, organized or reorganized.
(b) Special provisions--(1) Employers. In the case of aid,
assistance, counsel, or advice in, or with respect to, the formation,
organization, or reorganization of a foreign corporation given by a
person in whole or in part through the medium of employees (including,
in the case of a corporation, the officers thereof), the return made by
the employer must set forth in detail the information required by this
section including that which, as an incident to such employment, is
within the possession or knowledge or under the control of such
employees.
(2) Employees. The obligation of an employee (including, in the case
of a corporation, the officers thereof) to file a return with respect to
any aid, assistance, counsel, or advice in or with respect to the
formation, organization, or reorganization of a foreign corporation,
given as an incident to his employment, will be satisfied if a return as
prescribed by this section is duly filed by the employer. Clerks,
stenographers, and other employees rendering aid or assistance solely of
a clerical or mechanical character in or with respect to the formation,
organization, or reorganization of a foreign corporation are not
required to file returns by reason of such services.
(3) Partners. In the case of aid, assistance, counsel, or advice in,
or with respect to, the formation, organization, or reorganization of a
foreign corporation given by one or more members of a partnership in the
course of its business, the obligation of each such individual member to
file a return will be satisfied if a return as prescribed by this
section is duly filed by the partnership executed by all the members of
the firm who gave any such aid, assistance, counsel, or advice. If,
however,
[[Page 260]]
the partnership has been dissolved at the time the return is due,
individual returns must be filed by each member of the former
partnership who gave any such aid, assistance, counsel, or advice.
(4) Return jointly made. If two or more persons aid, assist,
counsel, or advise in, or with respect to, the formation, organization,
or reorganization of a particular foreign corporation, any two or more
of such persons may, in lieu of filing several returns, jointly execute
and file one return.
(5) Separate return for each corporation. If a person aids, assists,
counsels, or advises in, or with respect to, the formation,
organization, or reorganization of more than one foreign corporation, a
separate return must be filed with respect to each foreign corporation.
(c) Information required to be shown on return. The return required
by section 6046, prior to its amendment by section 7(a) of the Act of
September 14, 1960, and this section shall set forth the following
information to the extent the information is within the possession or
knowledge, or under the control, of the person filing the return:
(1) The name and address of the person (or persons) to whom, and the
person (or persons) for whom, or on whose behalf, the aid, assistance,
counsel, or advice was given;
(2) The name and address of the foreign corporation and the country
under the laws of which it was formed, organized, or reorganized;
(3) The month and year when the foreign corporation was formed,
organized, or reorganized;
(4) A statement of the manner in which the formation, organization,
or reorganization of the foreign corporation was effected;
(5) A complete statement of the reasons for, and the purposes sought
to be accomplished by, the formation, organization, or reorganization of
the foreign corporation;
(6) A statement showing the classes and kinds of assets transferred
to the foreign corporation in connection with its formation,
organization, or reorganization, including a detailed list of any stock
or securities included in such assets, and a statement showing the names
and addresses of the persons who were the owners of such assets
immediately prior to the transfer;
(7) The names and addresses of the shareholders of the foreign
corporation at the time of the completion of its formation,
organization, or reorganization, showing the classes of stock and number
of shares held by each and, in the case of Forms 959 filed after
December 31, 1958, the names and addresses of the subscribers to the
stock of the foreign corporation and the number of shares subscribed to
by each;
(8) The name and address of the person (or persons) having custody
of the books of account and records of the foreign corporation; and
(9) Such other information as is required by the return form.
(d) Privileged communications. An attorney-at-law is not required to
file a return with respect to any advice given or information obtained
through the relationship of attorney and client.
(e) Time and place for filing return--(1) Time for filing. Returns
required by section 6046, prior to its amendment by section 7(a) of the
Act of September 14, 1960, and this section shall be filed within 30
days after the first performance of any of the functions referred to in
paragraph (a) of this section. If in a particular case, the aid,
assistance, counsel, or advice given by any person extends over a period
of more than one day, such person, to avoid multiple filing of returns,
shall file a return within 30 days after either of the following events:
(i) The formation, organization, or reorganization of the foreign
corporation, or
(ii) The termination of his aid, assistance, counsel, or advice in,
or with respect to, the formation, organization, or reorganization of
the foreign corporation.
(2) Place for filing. Returns required by section 6046 of the
Internal Revenue Code of 1954 and this section shall be filed with the
Internal Revenue Service Center designated in the instructions of the
applicable form.
(f) Penalties. For criminal penalties for failure to file a return
and filing a
[[Page 261]]
false or fraudulent return, see sections 7203, 7206, and 7207.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6623, 27 FR
11882, Dec. 1, 1962; T.D. 7322, 39 FR 30932, Aug. 27, 1974]
Sec. 1.6047-1 Information to be furnished with regard to employee
retirement plan covering an owner-employee.
(a) Trustees and insurance companies--(1) Requirement of return. (i)
Every trustee of a trust described in section 401(a) and exempt from tax
under section 501(a) which makes payments of amounts described in
subparagraph (2) of this paragraph aggregating $10 or more during any
calendar year to an individual (or his beneficiary) who was covered,
within the meaning of paragraph (a)(2) of Sec. 1.401-10, as an owner-
employee under the plan of which such trust is a part shall make a
return on Forms 1096 and 1099 for such year showing the name and address
of the person to whom paid, the aggregate amount of such payments,
specifically identified as an amount to which this paragraph applies,
and such other information as is required by the forms. A separate Form
1099 shall be filed with respect to each payee. The term ``owner-
employee'' means an owner-employee as defined in section 401(c)(3) and
paragraph (d) of Sec. 1.401-10. Any custodial account which satisfies
the requirements of section 401(f) shall be treated as a qualified trust
and the custodian of such a custodial account must comply with the
requirements of this section as if he were the trustee.
(ii) Every issuer of a contract which is treated as an annuity
contract under sections 401 through 404 purchased by a trust described
in section 401(a) and exempt from tax under section 501(a) or under a
plan described in section 403(a) which makes payments of amounts
described in subparagraph (2) of this paragraph aggregating $10 or more
during any calendar year to an individual (or his beneficiary) who was
covered, within the meaning of paragraph (a)(2) of Sec. 1.401-10, as an
owner-employee under the plan of which such trust is a part or under
which such contract was purchased shall make a return on Forms 1096 and
1099 for such year showing the name and address of the person to whom
paid, the aggregate amount of such payments, specifically identified as
an amount to which this paragraph applies, and such other information as
is required by the form. A separate Form 1099 shall be filed with
respect to each payee.
(2) Amounts subject to this section. The amounts subject to
reporting under subparagraph (1) of this paragraph include all amounts
distributed or made available to which section 402(a) (relating to
employees' trusts) or section 403(a) (relating to employee annuity
plans) applies, whether or not such amounts are includible in gross
income and whether or not attributable to contributions made while the
individual to whom they relate was an owner-employee. However, amounts
subject to reporting do not include any amounts distributed or made
available by the trustee of any trust or the issuer of any contract
under any plan with respect to which he has not received the
notification provided in either subparagraph (3) of this paragraph or
paragraph (b) of this section. Amounts distributed or made available
under the plan include, for example, amounts received by the individual
as loans on contracts purchased under the plan, and payments made to the
individual by reason of the surrender of contracts purchased under the
plan, whether or not prior to their maturity.
(3) Notification by trustee. The trustee of any trust described in
section 401(a) and exempt from tax under section 501(a) who receives
notification from any owner-employee that contributions have been made
to the trust on behalf of that owner-employee as an owner-employee shall
notify in writing the issuer of any contract which is treated as an
annuity contract under sections 401 through 404 purchased by the trust
for the benefit of that owner-employee that such contributions have been
made to such trust. Such notification shall be delivered to such issuer
at the time such contract is purchased or within 90 days after the
notification required by paragraph (b) of this section is received by
the trustee, whichever is later. Only one such notification must be made
with respect to any contract.
(4) Record keeping. Any trustee, insurance company, or other person,
which is referred to in subparagraph (1) of
[[Page 262]]
this paragraph and which is notified under section 6047(b) that
contributions to the trust or under the plan have been made on behalf of
an owner-employee shall maintain a record of such notification until all
funds of the trust or under the plan on behalf of the owner-employee
have been distributed.
(5) Inclusion of other payments. The Form 1099 filed under this
section by any person with respect to payments to another person during
a calendar year may, at the election of the maker, include other
payments made by him to such other person during such year which are
required to be reported on Form 1099.
(6) Time and place for filing. The return required under this
section for any calendar year shall be filed after the close of that
year and on or before February 28 (March 31 if filed electronically) of
the following year with any of the Internal Revenue Service Centers, the
addresses of which are listed in the instructions for Form 1096. For
extensions of time for filing returns under this section, see Sec.
1.6081-1.
(b) Notification by owner-employee. Any owner-employee on behalf of
whom contributions are made to a trust described in section 401(a) and
exempt under section 501(a) or under a plan described in section 403(a)
shall notify in writing:
(1) The trustee of such a trust, or
(2) The issuer of any contract which is treated as an annuity
contract under sections 401 through 404 under such plan,
that such contributions have been made to such trust or plan. Such
notification shall be delivered to such trustee or such issuer during
the first calendar year in which such contributions are made or on or
before February 28 of the year following such year. Only one such
notification must be made with respect to any contract or any trust.
(c) Penalties. For civil penalty for failure to file a return
required by this section, and for criminal penalty for furnishing
fraudulent information under this section, see Sec. Sec. 301.6652-3 and
301.7207-1 respectively.
(d) Permission to submit information required by Form 1099 on
magnetic tape. For rules relating to permission to submit the
information required by Form 1099 on magnetic tape or other media, see
Sec. 1.9101-1.
[T.D. 6677, 28 FR 10147, Sept. 17, 1963, as amended by T.D. 6883, 31 FR
6589, May 3, 1966; T.D. 7551, 43 FR 29292, July 7, 1978; T.D. 8895, 65
FR 50407, Aug. 18, 2000]
Sec. 1.6049-1 Returns of information as to interest paid in calendar
years before 1983 and original issue discount includible in gross
income for calendar
years before 1983.
(a) Requirement of reporting--(1) In general. (i) Every person who
makes payments of interest (as defined in Sec. 1.6049-2) aggregating
$10 or more to any other person during a calendar year before 1983 shall
make an information return on Forms 1096 and 1099 for such calendar year
showing the aggregate amount of such payments, the name and address of
the person to whom paid, the total of such payments for all persons, and
such other information as is required by the forms. In the case of
interest paid during calendar years beginning with 1963 and continuing
until such time as the Commissioner determines that it is feasible to
aggregate payments on two or more accounts, insurance contracts, or
investment certificates and this subdivision is amended accordingly to
provide for reporting on an aggregate basis, the requirement of this
subdivision for the filing of Form 1099 will be met if a person making
payments of interest to another person on two or more such accounts,
insurance contracts, or investment certificates, files a separate Form
1099 with respect to each such account, contract, or certificate on
which $10 or more of interest is paid to such other person during the
calendar year. In the case of evidences of indebtedness described in
section 6049(b)(1)(A), separate Forms 1099 may be filed as provided in
the preceding sentence with respect to holdings in different issues.
Thus, if a bank pays to a person interest totaling $15 on one account
and $20 on a second account, it may file separate Forms 1099 with
respect to the payments of $15 and $20. If the interest on the second
account totaled $5 instead of $20, no return would be required with
respect to the $5.
[[Page 263]]
(ii)(a) Every person which is a corporation that has outstanding any
bond, debenture, note, or certificate or other evidence of indebtedness
(referred to in this section and Sec. 1.6049-2 as an obligation) in
``registered form'' (as defined in paragraph (d) of Sec. 1.6049-2)
issued after May 27, 1969 (other than an obligation issued by a
corporation pursuant to a written commitment which was binding on May
27, 1969, and at all times thereafter) and on or before December 31,
1982, as to which there is during any calendar year before 1983 an
amount of original issue discount (as defined in Sec. 1.6049-2)
aggregating $10 or more includible as interest in the gross income for
such calendar year of any holder (determined, if semiannual record date
reporting is being used under (b)(1) of this subdivision, by treating
each holder as holding the obligation on every day it was outstanding
during the calendar year), shall make an information return on Forms
1096 and 1099-OID for such calendar year showing the following:
(1) The name and address of each record holder for whom such
aggregate amount of original issue discount is $10 or more and, for
calendar years subsequent to 1972, the account, serial, or other
identifying number of each obligation for which a return is being made.
(2) The aggregate amount of original issue discount includible by
each such holder for the period during the calendar year for which the
return is made (or, if the aggregation rules of (b)(2) of this
subdivision are being used, that he held the obligations). If however,
the semiannual record date reporting rules are being used under (b)(1)
of this subdivision, such aggregate amount shall be determined by
treating each such record date holder as if he held each such obligation
on every day it was outstanding during the calendar year. For purposes
of this section, an obligation shall be considered to be outstanding
from the date of original issue (as defined in paragraph (b)(3) of Sec.
1.1232-3). In the case of a time deposit open account arrangement to
which paragraph (e)(5) of Sec. 1.1232-3A applies, for example, the
amount to be shown under this subdivision (2) on the Forms 1096 and
1099-OID is the sum (computed under such paragraph (e)(5)) of the
amounts separately computed for each deposit made pursuant to the
arrangement.
(3) The issue price of the obligation (as defined in paragraph
(b)(2) of Sec. 1.1232-3).
(4) The stated redemption price of the obligation at maturity (as
defined in paragraph (b)(1)(iii) of Sec. 1.1232-3).
(5) The ratable monthly portion of original issue discount with
respect to the obligation as defined in section 1232(a)(3)(A)
(determined without regard to a reduction for a purchase allowance or
whether the holder purchased at a premium).
(6) The name and address of the person filing the form.
(7) Such other information as is required by the form. And,
(8) The sum, for all such holders of the aggregate amounts of such
original issue discount includible for such calendar year for each such
holder.
(b) With respect to any obligation (other than an obligation to
which paragraph (e) or (f) of Sec. 1.1232-3A applies (relating
respectively to deposits in banks and similar financial institutions and
to face-amount certificates)), the issuing corporation (or an agent
acting on its behalf):
(1) Shall be permitted (until this subdivision (1) is amended) to
prepare a Form 1099-OID only for each person who is a holder of record
of the obligation on the semiannual record date (if any) used by the
corporation (or agent) for the payment of stated interest or, if there
is no such date, the semiannual record dates shall be considered to be
June 30, and December 31.
(2) Shall be permitted to aggregate all original issue discount with
respect to 2 or more obligations of the same issue for which the amounts
specified in (a)(2), (a)(3), (a)(4), and (a)(5) of this subdivision are
proportional and, therefore, may file one Form 1099-OID for all such
obligations being aggregated, except that for calendar year 1971 this
aggregation rule shall apply only where such specified amounts are
identical. For an illustration of proportional aggregation, see example
(4) in (d) of this subdivision.
[[Page 264]]
(c) In any case in which any one holder of a particular obligation
for the calendar year held such obligation on more than one record date,
only one Form 1099-OID shall be filed for that year with respect to that
holder and that obligation. This provision applies only in the case in
which any corporation prepares Forms 1099-OID in accordance with the
record date reporting rule of (b)(1) of this subdivision.
(d) The requirements of (a)(3), (a)(4), and (a)(5) of this
subdivision shall not apply to a time deposit open account arrangement
to which paragraph (e)(5) of Sec. 1.1232-3A applies, or to a face-
amount certificate to which paragraph (f) of Sec. 1.1232-3A applies.
(e) The provisions of this subdivision (ii) may be illustrated by
the following examples:
Example (1). On January 1, 1971, a corporation issued a 10-year bond
in registered form which pays stated interest to the holder of record on
June 30 and December 31. The bond has an issue price (as defined in
paragraph (b)(2) of Sec. 1.1232-3) of $7,600, a stated redemption price
(as defined in paragraph (b)(1) of Sec. 1.1232-3) at maturity of
$10,000, and a ratable monthly portion of original issue discount (as
defined in section 1232(a)(3)(A)) of $20. The corporation's books
indicate that A was the holder of record on June 30, 1971, and B was the
holder on December 31, 1971. Under (b)(1) of this subdivision, the
corporation is permitted to file separate Forms 1099-OID for both A and
B showing, on each form, all items required by (a) of this subdivision,
including the total original issue discount of $240 for the entire
calendar year (which includes original issue discount for all holders),
the issue price of $7,600, the stated redemption price at maturity of
$10,000, and the ratable monthly portion of original issue discount of
$20.
Example (2). Assume the facts stated in Example (1), except that A
is recorded on the books of the corporation as holding the bond on June
30 and December 31, 1971. The corporation shall complete and file only
one Form 1099-OID for A.
Example (3). Assume the facts stated in Example (1), except that the
books of the corporation show that A held 2 of the bonds at all times in
1971. The amounts of the items listed in (a)(2), (a)(3), (a)(4), and
(a)(5) of this subdivision are identical for the 2 bonds. Under (b)(2)
of this subdivision, the corporation is permitted to treat the 2 bonds
as one for purposes of completing and filing a Form 1099-OID for 1971
and aggregate the amounts being reported.
Example (4). On January 1, 1972, a corporation issued to C 3 bonds
in registered form of the same issue with stated redemption prices of
$1,000, $5,000, and $10,000. The aggregate amounts of original issue
discount for each year, the issue prices, the stated redemption prices,
and the monthly portions of original issue discount are the same for
each $1,000 of stated redemption price. Thus, all relevant amounts for
any one bond are proportional to such amounts for any other bond.
Therefore, so long as C holds the bonds the corporation shall be
permitted to aggregate on one Form 1099-OID all original issue discount
with respect to such obligations in accordance with (b)(2) of this
subdivision.
Example (5). On June 1, 1971, a corporation issues a 10-year bond to
D, for which the ratable monthly portion of original issue discount is
$10. For 1971, the corporation uses the record date reporting system
permitted by (b)(1) of this subdivision. The corporation's books show
that E held the bond on June 30, 1971, and that F held the bond on
December 31, 1971, the dates on which the corporation pays stated
interest on the bond. The corporation shall file a Form 1099-OID for
both E and F showing on each form the aggregate amount of original issue
discount includible for 1971 or $70 since E and F are each treated as if
each held the bond every day it was outstanding and it was outstanding 7
months in 1971. As to D, the corporation is not required to file a Form
1099-OID since D did not hold the bond on either of the 2 record dates.
(iii) Every person who during a calendar year before 1983 receives
payments of interest as a nominee on behalf of another person
aggregating $10 or more shall make an information return on Forms 1096
and 1087 for such calendar year showing the aggregate amount of such
interest, the name and address of the person on whose behalf received,
the total of such interest received on behalf of all persons, and such
other information as is required by the forms.
(iv) Except with respect to an obligation to which paragraph (e) or
(f) of Sec. 1.1232-3A applies (relating respectively to deposits in
banks and similar financial institutions and to face-amount
certificates), every person who is a nominee on behalf of the actual
owner of an obligation as to which there is original issue discount
aggregating $10 or more includible in the gross income of such owner
during a calendar year before 1983, regardless of whether he receives a
Form 1099-OID with respect to such discount, shall make an information
return on Forms 1096 and 1087-OID for such calendar
[[Page 265]]
year showing in the manner prescribed on such forms the same information
for the actual owner as is required or permitted in subdivision (ii) of
this subparagraph for the record holder.
(v) Notwithstanding the provisions of subdivisions (iii) and (iv) of
this subparagraph, the filing of Form 1087 or Form 1087-OID is not
required if:
(a) The record owner is required to file a fiduciary return on Form
1041 disclosing the name, address, and identifying number of the actual
owner;
(b) The record owner is a nominee of a banking institution or trust
company exercising trust powers, and such banking institution or trust
company is required to file a fiduciary return on Form 1041 disclosing
the name, address, and identifying number of the actual owner; or
(c) The record owner is a banking institution or trust company
exercising trust powers, or a nominee thereof, and the actual owner is
an organization exempt from taxation under section 501(a) for which such
banking institution or trust company files an annual return,
but only if the name, address, and identifying number of the record
owner are included on or with the Form 1041 fiduciary return filed for
the estate or trust or the annual return filed for the tax exempt
organization.
(vi) Every person carrying on the banking business who makes
payments of interest to another person (whether or not aggregating $10
or more) during a calendar year with respect to a certificate of deposit
issued in bearer form (other than such a certificate issued in an amount
of $100,000 or more) shall make an information return on Forms 1096 and
1099-BCD for such calendar year. The preceding sentence applies whether
such payments are made during the term of the certificate or at its
redemption. The information return required by this subdivision for the
calendar year shall show the following:
(a) The name, address, and taxpayer identification number of the
person to whom the interest is paid;
(b) The aggregate amount of interest paid to such person during the
calendar year with respect to the certificate of deposit;
(c) The name, address, and taxpayer identification number of the
person to whom the certificate was originally issued;
(d) The portion of the interest with respect to the certificate
reported under (b) that is attibutable to the current calendar year; and
(e) Such other information as is required by the form.
The application of this subdivision (vi) may be illustrated by the
following examples:
Example (1). On June 1, 1978, X Bank issues a $1,000 bearer
certificate of deposit to A. The certificate of deposit is not
redeemable until May 31, 1979, and no interest is to be paid on the
instrument until its redemption. On September 1, 1978. A transfers the
bearer certificate to B and on May 31, 1979, B presents the certificate
to X for payment and receives the $1,000 principal amount plus all the
accrued interest. Under paragraph (a)(1)(vi) of this section, X is not
required to make an information return for 1978 with respect to the
bearer certificate of deposit because no interest is actually paid to a
holder of the certificate during 1978. X is required to file an
information return for 1979 with respect to the certificate, identifying
B as the payee of the entire amount of the interest and A as the
original purchaser of the certificate. (For rules relating to statements
to be made to recipients of interest payments, see Sec. 1.6049-3.)
Example (2). On July 1, 1978, Y Bank issues a $5,000 bearer
certificate of deposit to C. The certificate of deposit is not
redeemable until June 30, 1981, and no interest is to be paid on the
instrument until its redemption. C holds the certificate for the entire
term and on June 30, 1981, presents it to Y for payment and receives the
$5,000 principal amount plus the accrued interest. Under paragraph
(a)(1)(vi) of this section, Y is not required to file an information
return for calendar years 1978, 1979, or 1980 with respect to this
bearer certificate of deposit because no interest is acutally paid to C
during those calendar years. Y is required to file an information return
for 1981 with respect to the certificate identifying C as the payee of
the entire amount of the interest and as the original purchaser.
(Although Y is not required to file an information return for interest
paid on the certificate until its redemption in 1981, C must report as
income on his tax returns for 1978, 1979, 1980, and 1981 the ratable
portion of such interest includible in income under section 1232.)
(2) Definitions. (i) The term ``person'' when used in this section
does not include the United States, a State, the
[[Page 266]]
District of Columbia, a foreign government, a political subdivision of a
State or of a foreign government, or an international organization.
Therefore, interest paid by or to one of these entities need not be
reported. Similarly, original issue discount in respect of an obligation
issued by or to one of these entities need not be reported.
(ii) For purposes of this section, a person who receives interest
shall be considered to have received it as a nominee if he is not the
actual owner of such interest and if he was required under Sec. 1.6109-
1 to furnish his identifying number to the payer of the interest (or
would have been so required if the total of such interest for the year
had been $10 or more), and such number was (or would have been) required
to be included on an information return filed by the payer with respect
to the interest. However, a person shall not be considered to be a
nominee as to any portion of an interest payment which is actually owned
by another person whose name is also shown on the information return
filed by the payer or nominee with respect to such interest payment.
Thus, in the case of a savings account jointly owned by a husband and
wife, the husband will not be considered as receiving any portion of the
interest on that account as a nominee for his wife if his wife's name is
included on the information return filed by the payer with respect to
the interest.
(iii) For purposes of this section, in the case of a person who
receives a Form 1099-OID, the determination of who is considered a
nominee shall be made in a manner consistent with the principles of
subdivision (ii) of this subparagraph.
(iv) For purposes of this section and Sec. 1.6049-3, the term
``Form 1099-OID'' means the appropriate Form 1099 for original issue
discount prescribed for the calendar year.
(3) Determination of person to whom interest is paid or for whom it
is received. For purposes of applying the provisions of this section,
the person whose identifying number is required to be included by the
payer of interest on an information return with respect to such interest
shall be considered the person to whom the interest is paid. In the case
of interest received by a nominee on behalf of another person, the
person whose identifying number is required to be included on an
information return made by the nominee with respect to such interest
shall be considered the person on whose behalf such interest is received
by the nominee. Thus, in the case of interest made payable to a person
other than the record owner of the obligation with respect to which the
interest is paid, the record owner of the obligation shall be considered
the person to whom the interest is paid for purposes of applying the
reporting requirements of this section, since his identifying number is
required to be included on the information return filed under such
section by the payer of the interest. Similarly, if a stockbroker
receives interest on a bond held in street name for the joint account of
a husband and wife, the interest is considered as received on behalf of
the husband since his identifying number should be shown on the
information return filed by the nominee under this section. Thus, if the
wife has a separate account with the same stockbroker, any interest
received by the stockbroker for her separate account should not be
aggregated with the interest received for the joint account for purposes
of information reporting. For regulations relating to the use of
identifying numbers, see Sec. 1.6109-1.
(4) Determination of person by whom original issue discount is
includible or for whom a Form 1099-OID showing original issue discount
is received. For purposes of applying the provisions of this section,
the determination of the person by whom original issue discount is
includible or for whom a Form 1099-OID is received shall be made in a
manner consistent with the principles of subparagraph (3) of this
paragraph.
(5) Inclusion of other payments. The Form 1099 filed by any person
with respect to payments of interest to another person during a calendar
year prior to 1972 may, at the election of the maker, include payments
other than interest made by him to such other person during such year
which are required to be reported on Form 1099. Similarly, the Form 1087
filed by a nominee with respect to payments of
[[Page 267]]
interest received by him on behalf of any other person during a calendar
year prior to 1972 may include payments of dividends received by him on
behalf of such person during such year which are required to be reported
on Form 1087. However, except as provided in subparagraph (1)(ii)(b) of
this paragraph, a separate Form 1087-OID or 1099-OID shall be filed for
each obligation in respect of which original issue discount is required
to be reported for any calendar year before 1983. In addition, any
person required to report payments on both Forms 1087, 1087-OID, 1099,
and 1099-OID, for any calendar year may use one Form 1096 to summarize
and transmit such forms.
(b) When payment deemed made. For purposes of section 6049, interest
is deemed to have been paid when it is credited or set apart to a person
without any substantial limitation or restriction as to the time or
manner of payment or condition upon which payment is to be made, and is
made available to him so that it may be drawn at any time, and its
receipt brought within his own control and disposition.
(c) Time and place for filing--(1) Payment of interest. The returns
required under this section for any calendar year for the payment of
interest shall be filed after September 30 of such year, but not before
the payer's final payment for the year, and on or before February 28 of
the following year with any of the Internal Revenue Service Centers, the
addresses of which are listed in the instructions for Form 1096. For
extensions of time for filing returns under this section, see Sec.
1.6081-1.
(2) Original issue discount. (i) The returns required under this
section for any calendar year for original issue discount shall be filed
after December 31 of such year and on or before February 28 of the
following year with any of the Internal Revenue Service Centers, the
addresses of which are listed in the instructions for Form 1096. For
extensions of time for filing returns under this section, see Sec.
1.6081-1.
(ii) The time for filing returns for the calendar year 1971 required
under this section for original issue discount in respect of obligations
to which paragraph (e) of Sec. 1.1232-3A applies (relating to deposits
in banks and other similar financial institutions) is extended to April
15, 1972.
(d) Penalty. For penalty for failure to file the statements required
by this section, see Sec. 301.6652-1 of this chapter (Regulations on
Procedure and Administration).
(e) Permission to submit information required by Form 1087 or 1099
on magnetic tape. For rules relating to permission to submit the
information required by Form 1087 or 1099 on magnetic tape or other
media, see Sec. 1.9101-1.
(Secs. 6049 (a), (b), and (d) and 7805 of the Internal Revenue Code of
1954 (96 Stat. 592, 594; 26 U.S.C. 6049 (a), (b), and (d); 68A Stat.
917, 26 U.S.C. 7805), and in sec. 309 of the Tax Equity and Fiscal
Responsibility Act of 1982 (96 Stat. 591)
[T.D. 6628, 27 FR 12800, Dec. 28, 1962, as amended by T.D. 6879, 31 FR
3494, Mar. 8, 1966; T.D. 6883, 31 FR 6589, May 8, 1966; T.D. 7000, 34 FR
996, Jan. 23, 1969, T.D. 7154, 36 FR 25009, Dec. 28, 1971; 37 FR 527,
Jan. 13, 1972; T.D. 7311, 39 FR 11881, Apr. 1, 1974; T.D. 7584, 44 FR
1103, Jan. 4, 1979; T.D. 7881, 48 FR 12968, Mar. 28, 1983]
Sec. 1.6049-2 Interest and original issue discount subject to
reporting in calendar years before 1983.
(a) Interest in general. Except as provided in paragraph (b) of this
section, the term ``interest'' when used in this section and Sec. Sec.
1.6049-1 and 1.6049-3 means:
(1) Interest on evidences of indebtedness issued by a corporation in
``registered form'' (as defined in paragraph (d) of this section). The
phrase ``evidences of indebtedness'' includes bond, debentures, notes,
certificates and other similar instruments regardless of how
denominated.
(2) Interest on deposits (except deposits evidenced by negotiable
time certificates of deposit issued in an amount of $100,000 or more)
paid (or credited) by persons carrying on the banking business. In the
case of a certificate of deposit issued in bearer form, the term
``interest'', as used in the preceding sentence and in paragraph
(a)(1)(vi) of Sec. 1.6049-1, has the same meaning as in Sec. 1.61-7
(regardless of whether taxable to the payee in the year the information
return is made).
(3) Amounts, whether or not designated as interest, paid (or
credited)
[[Page 268]]
by mutual savings banks, savings and loan associations, building and
loan associations, cooperative banks, homestead associations, credit
unions, or similar organizations in respect of deposits, face amount
certificates, investment certificates, or withdrawable or repurchasable
shares. Thus, even though amounts paid or credited by such organizations
with respect to deposits are designated as ``dividends'', such amounts
are included in the definition of interest for purposes of section 6049.
(4) Interest on amounts held by insurance companies under agreements
to pay interest thereon. This includes interest paid by insurance
companies with respect to policy ``dividend'' accumulations (see
sections 61 and 451 and the regulations thereunder for rules as to when
such interest is considered paid), and interest paid with respect to the
proceeds of insurance policies left with the insurer. The so-called
``interest element'' in the case of annuity or installment payments
under life insurance or endowment contracts does not constitute interest
for purposes of this section.
(5) Interest on deposits with stockbrokers, bondbrokers, and other
persons engaged in the business of dealing in securities.
(b) Exceptions. The term ``interest'' when used in section 6049 does
not include:
(1) Interest on obligations described in section 103(a) (1) or (3),
relating to certain governmental obligations.
(2) Any payment by:
(i) A foreign corporation,
(ii) A nonresident alien individual, or
(iii) A partnership composed in whole or in part of nonresident
aliens,
if such corporation, individual, or partnership is not engaged in trade
or business within the United States and does not have an office or
place of business or a fiscal or paying agent in the United States.
(3) Any interest which is subject to withholding under section 1441
or 1442 (relating to withholding of tax on nonresident aliens and
foreign corporations, respectively) by the person making the payment, or
which would be so subject to withholding but for the provisions of a
treaty, or for the fact that under section 861(a)(1) it is not from
sources within the United States, or for the fact that withholding is
not required by reason of paragraph (a) or (f) of Sec. 1.1441-4.
(4) In the case of a nominee, any interest which he receives and
with respect to which he is required to withhold under section 1441 or
1442, or would be so required to withhold but for the provisions of a
treaty, or for the fact that under section 861(a)(1) it is not from
sources within the United States, or for the fact that withholding is
not required by reason of paragraph (a) or (f) of Sec. 1.1441-4.
(5) Any amount on which the person making the payment is required to
deduct and withhold a tax under section 1451 (relating to tax-free
covenant bonds), or would be so required but for section 1451(d)
(relating to benefit of personal exemptions).
(6) Any amount which is subject to reporting as original issue
discount.
(c) Original issue discount--(1) In general. The term ``original
issue discount'' when used in this section and Sec. Sec. 1.6049-1 and
1.6049-3 means original issue discount subject to the ratable inclusion
rules of paragraph (a) of Sec. 1.1232-3A, determined without regard to
any reduction by reason of a purchase allowance under paragraph
(a)(2)(ii) of Sec. 1.1232-3A or a purchase at a premium as defined in
paragraph (d)(2) of Sec. 1.1232-3.
(2) Coordination with interest reporting. In the case of an
obligation issued after May 27, 1969 (other than an obligation issued
pursuant to a written commitment which was binding on May 27, 1969, and
at all times thereafter) and on or before December 31, 1982, original
issue discount which is not subject to the reporting requirements of
paragrah (a)(1)(ii) of Sec. 1.6049-1 is interest within the meaning of
pargraph (a) of this section. Original issue discount which is subject
to the reporting requirements of paragraph (a)(1)(ii) of Sec. 1.6049-1
is not interest within the meaning of paragraph (a) of this section.
(3) Exceptions. Reporting of original issue discount is not required
in respect of an obligation which paragraph (b)(2) of this section
except from interest reporting.
[[Page 269]]
(d) Definition of ``in registered form.'' For purposes of Sec.
1.6049-1 and this section, an evidence of indebtedness is in registered
form if it is registered as to both principal and interest (or, for
purposes of reporting with respect to original issue discount, if it is
registered as to principal) and if its transfer must be effected by the
surrender of the old instrument and either the reissuance by the
corporation of the old instrument to the new holder or the issuance by
the corporation of a new instrument to the new holder.
(Secs. 6049 (a), (b), and (d) and 7805 of the Internal Revenue Code of
1954 (96 Stat. 592, 594; 26 U.S.C. 6049 (a), (b), and (d); 68A Stat.
917, 26 U.S.C. 7805), and in sec. 309 of the Tax Equity and Fiscal
Responsibility Act of 1982 (96 Stat. 591)
[T.D. 6628, 27 FR 12801, Dec. 28, 1962, as amended by T.D. 6908, 31 FR
16774, Dec. 31, 1966; T.D. 6966, 33 FR 11262, Aug. 8, 1968; T.D. 7154,
36 FR 25011, Dec. 28, 1971; T.D. 7584, 44 FR 1104, Jan. 4, 1979; T.D.
7881, 48 FR 12968, Mar. 28, 1983]
Sec. 1.6049-3 Statements to recipients of interest payments and
holders of obligations to which there is attributed original issue
discount in calendar years
before 1983.
(a) Requirement. Every person filing (1) a Form 1099 or 1087 under
section 6049(a)(1) and Sec. 1.6049-1 with respect to payments of
interest or (2) a Form 1099-OID or 1087-OID with respect to original
issue discount includible in gross income, shall furnish to the person
whose identifying number is (or should be) shown on the form a written
statement showing the information required by paragraph (b) of this
section. With respect to interest, no statement is required to be
furnished under section 6049(c) and this section to any person if the
aggregate of the payments to (or received on behalf of) such person
shown on the form would be less than $10. With respect to original issue
discount, no statement is required to be furnished under section 6049(c)
and this section to any person if the aggregate amount of original issue
discount on the statement to such person with respect to the obligation
would be less than $10. References in this section to Form 1099 shall be
construed to include Form 1099-BCD, except that in applying paragraph
(b)(2) of this section no information relating to the person to whom the
certificate of deposit was originally issued shall be disclosed to
another person to whom the payment of interest is made.
(b) Form of statement--(1) In general. The written statement
required to be furnished to a person under paragraph (a) of this section
shall show:
(i) With respect to payments of interest (as defined in Sec.
1.6049-2) aggregating $10 or more to any person during a calendar year
before 1983:
(a) The aggregate amount of payments shown on the Form 1099 or 1087
as having been made to (or received on behalf of) such person and a
legend stating that such amount is being reported to the Internal
Revenue Service, and
(b) The name and address of the person filing the form, and
(ii) With respect to original issue discount (as defined in Sec.
1.6049-2) which would aggregate $10 or more on the statement to the
holder during a calendar year after 1970 and prior to calendar year
1983:
(a) The aggregate amount or original issue discount includible by
(or on behalf of) such person with respect to the obligation, as shown
on Form 1099-OID or Form 1087-OID for such calendar year (determined by
applying the rules of paragraph (a)(1)(ii) of Sec. 1.6049-1 for
purposes of completing either form),
(b) All other items shown on such Form 1099-OID or Form 1087-OID for
such calendar year (so determined), and
(c) A legend stating that such amount and such items are being
reported to the Internal Revenue Service.
(2) Special rule. The requirements of this section for the
furnishing of a statement to any person, including the legend
requirement of this paragraph, may be met by the furnishing to such
person of a copy of the Form 1099, 1099-OID, 1087, or 1087-OID filed
pursuant to Sec. 1.6049-1, or a reasonable facsimile thereof, in
respect of such person. However, in the case of Form 1087-OID or 1099-
OID, a copy of the instructions must also be sent to such person. A
statement shall be considered to be furnished to a person within the
meaning of this section if it is mailed to such person at his last known
address.
[[Page 270]]
(c) Time for furnishing statements--(1) In general--(i) Payment of
interest. Each statement required by this section to be furnished to any
person for a calendar year for the payment of interest shall be
furnished to such person after November 30 of the year and on or before
January 31 of the following year, but no statement may be furnished
before the final interest payment for the calendar year has been paid.
However, the statement may be furnished at any time after April 30 if it
is furnished with the final interest payment for the calendar year.
(ii) Original issue discount. (a) Except as otherwise provided in
this subdivision (ii), each statement required by this section to be
furnished to any person for a calendar year for original issue discount
shall be furnished to such person after December 31 of the year and on
or before January 31 of the following year.
(b) The time for furnishing each statement required by this section
to be furnished to any person for the calendar year 1971 for original
issue discount in respect of obligations to which paragraph (e) of Sec.
1.1232-3A applies (relating to deposits in banks and other similar
financial institutions) is extended to March 15, 1972.
(c) The time for furnishing each statement required by this section
to be furnished by a nominee to any person for the calendar year 1971
for original issue discount is extended to February 28, 1972.
(2) Extensions of time. For good cause shown upon written
application of the person required to furnish statements under this
section, the district director may grant an extension of time not
exceeding 30 days in which to furnish such statements. The application
shall be addressed to the district director with whom the income tax
returns of the applicant are filed and shall contain a full recital of
the reasons for requesting the extension to aid the district director in
determining the period of the extension, if any, which will be granted.
Such a request in the form of a letter to the district director signed
by the applicant will suffice as an application. The application shall
be filed on or before the date prescribed in subparagraph (1) of this
paragraph for furnishing the statements required by this section.
(3) Last day for furnishing statement. For provisions relating to
the time for performance of an act when the last day prescribed for
performance falls on Saturday, Sunday, or a legal holiday, see Sec.
301.7503-1 of this chapter (Regulations on Procedure and
Administration).
(d) Penalty. For provisions relating to the penalty provided for
failure to furnish a statement under this section see Sec. 301.6678-1
of this chapter (Regulations on Procedure and Administration).
(Secs. 6049 (a), (b), and (d) and 7805 of the Internal Revenue Code of
1954 (96 Stat. 592, 594; 26 U.S.C. 6049 (a), (b), and (d); 68A Stat.
917, 26 U.S.C. 7805), and in sec. 309 of the Tax Equity and Fiscal
Responsibility Act of 1982 (96 Stat. 591)
[T.D. 6628, 27 FR 12801, Dec. 28, 1962, as amended by T.D. 7154, 36 FR
25011, Dec. 28, 1971; 37 FR 527, Jan. 13, 1972; T.D. 7584, 44 FR 1104,
Jan. 4, 1979; T.D. 7624, 44 FR 31012, May 30, 1979; T.D. 7881, 48 FR
12968, Mar. 28, 1983]
Sec. 1.6049-4 Return of information as to interest paid and original
issue discount includible in gross income after December 31, 1982.
(a) Requirement of reporting--(1) In general. Except as provided in
paragraph (c) of this section, an information return shall be made by a
payor, as defined in paragraph (a)(2) of this section, of amounts of
interest and original issue discount paid after December 31, 1982. Such
return shall contain the information described in paragraph (b) of this
section.
(2) Payor. For payments made after December 31, 2002, a payor is a
person described in paragraph (a)(2)(i) or (ii) of this section.
(i) Every person who makes a payment of the type and of the amount
subject to reporting under this section (or under an applicable section
under this chapter) to any other person during a calendar year.
(ii) Every person who collects on behalf of another person payments
of the type and of the amount subject to reporting under this section
(or under an applicable section under this chapter), or who otherwise
acts as a middleman (as defined in paragraph (f)(4) of this section)
with respect to such payment.
[[Page 271]]
(b) Information to be reported--(1) Interest payments. Except as
provided in paragraphs (b) (3) and (5) of this section, in the case of
interest other than original issue discount treated as interest under
Sec. 1.6049-5(f), an information return on Form 1099 shall be made for
the calendar year showing the aggregate amount of the payments, the
name, address, and taxpayer identification number of the person to whom
paid, the amount of tax deducted and withheld under section 3406 from
the payments, if any, and such other information as required by the
forms. An information return is generally not required if the amount of
interest paid to a person aggregates less than $10 or if the payment is
made to a person who is an exempt recipient described in paragraph
(c)(1)(ii) of this section, unless the payor backup withholds under
section 3406 on such payment (because, for example, the payee (i.e.,
exempt recipient) has failed to furnish a Form W-9 on request), in which
case the payor must make a return under this section, unless the payor
refunds the amount withheld pursuant to Sec. 31.6413(a)-3 of this
chapter (Employment Tax Regulations). For reporting interest paid to a
Canadian nonresident alien individual, see Sec. 1.6049-8.
(2) Original issue discount. Except as provided in paragraph (b)(3)
and (b)(5) of this section, in the case of original issue discount, an
information return on Forms 1096 and 1099 shall be made for each
calendar year of any holder of an obligation as to which there is
original issue discount includible in gross income aggregating $10 or
more. For calendar years before 1992, semiannual record date reporting
under Sec. 1.6049-1(a)(1)(ii)(b)(1) may be used, and if it is used, the
original issue discount includible in gross income is determined by
treating each holder as holding the obligation on every day it was
outstanding during the calendar year. An information return shall be
made, however, in any case in which an amount of tax is required to be
deducted and withheld under section 3406. In such case, the amount
required to be reported is the amount subject to withholding even if the
amount of original issue discount includible in gross income is less
than $10. With respect to an obligation described in Sec. 1.1232-3A (e)
or (f) (relating respectively to deposits in banks and similar financial
institutions and to face-amount certificates), Sec. 1.6049-
1(a)(1)(ii)(d) and the last sentence of Sec. 1.6049-1(a)(1)(ii)(a)(2)
shall apply. The information return shall show:
(i) The name, address, and taxpayer identification number of each
record holder for whom an amount of original issue discount is
includible in gross income;
(ii) The account, serial, or other identifying number of each
obligation with respect to which a return is being made;
(iii) The aggregate amount of original issue discount includible in
the gross income of each holder for the period during the calendar year
for which the return is made (or, if the aggregation rules of Sec.
1.6049-1(a)(1)(ii)(b)(2) are being used, the aggregate amount or
original issue discount for the period such holder held the
obligations). For calendar years before 1992, semiannual record date
reporting under Sec. 1.6049-1(a)(1)(ii)(b)(1) may be used, and if it is
used, the original issue discount includible in gross income is
determined by treating each holder as holding the obligation on every
day it was outstanding during the calendar year. For purposes of this
section, an obligation shall be considered to be outstanding from the
date of original issue (as defined in Sec. 1.1232-3(b)(3));
(iv) The amount of tax withheld under section 3406, if any;
(v) The name and address of the person filing the return: and
(vi) Such other information as is required by the forms.
Section 1.6049-1(a)(1)(ii)(b)(2) and, for calendar years before
1992, Sec. 1.6049-1(a)(1)(ii)(b)(1), and (c), apply for purposes of
this paragraph.
(3) Returns made by middleman--(i) In general. Except as provided in
paragraph (b)(5) of this section, every person acting as a middleman (as
defined in paragraph (f)(4) of this section) shall make an information
return for the calendar year. In the case of interest payments (other
than original issue discount and other than interest described in Sec.
1.6049-8), the information return shall be made on Form 1099 and
[[Page 272]]
shall show the aggregate amount of the interest, the name, address, and
taxpayer identification number of the person on whose behalf received,
the amount of tax withheld under section 3406, if any, and such other
information as required by the forms. In the case of original issue
discount, the information return shall show the information required to
be shown for the person on whose behalf received, as described in
paragraph (b)(2) of this section. See Sec. 1.6049-5(f) to determine
whether a middleman is required to make an information return with
respect to original issue discount. A middleman shall make an
information return regardless of whether the middleman receives a Form
1099. A middleman shall not be required to make an information return if
the payment of interest aggregates less than $10 or if the payment is
made to an exempt recipient described in paragraph (c)(1)(ii) of this
section, unless the payor backup withholds under section 3406 on such
payment (because, for example, the payee has failed to furnish a Form W-
9 on request), in which case the payor must make a return under this
section, unless the payor refunds the amount withheld pursuant to Sec.
31.6413(a)-3 of this chapter (Employment Tax Regulations).
(ii) Forwarding of interest coupons and original issue discount
obligations. In the case of a middleman who, from within the United
States, forwards an interest coupon or discount obligation on behalf of
a payee for presentation, collection or payment outside the United
States, the middleman shall make an information return on Form 1099 for
the calendar year showing, in the case of an interest coupon, the
information required under paragraph (b)(3)(i) of this section and, in
the case of a discount obligation, information required under paragraph
(b)(2) of this section. For purposes of this paragraph (b)(3)(ii), a
middleman is considered to forward an interest coupon or discount
obligation on behalf of a payee for presentation, collection or payment
outside the United States if the middleman forwards the coupon or
obligations outside the United States on or after the date when the
payee is entitled to be paid or at an earlier date that is within 90
days of such date or if the middleman has actual knowledge that the
coupon or obligation is being forwarded outside the United States for
presentation, collection, or payment outside the United States. However,
the transfer, although subject to information reporting under this
section, is not subject to backup withholding under section 3406.
(iii) Example. The following example illustrates the provisions of
paragraph (b)(3)(ii) of this section:
Example. Individual F, who is entitled to payment on an interest
coupon, instructs an office of Bank M in the United States to forward
the coupon to Bank N for collection by Bank N outside the United States.
Bank M in the United States forwards the interest coupon to Bank N
outside the United States. Bank M is required to make an information
return for the calendar year under paragraph (b)(3)(ii) of this section
showing the aggregate amount of the interest coupon forwarded, the name,
address of the permanent residence, and the taxpayer identification
number, if any, of Individual F and such other information as the form
requires.
(4) Returns made with respect to payments on certificates of deposit
issued in bearer form. Except as provided in paragraph (b)(5) of this
section, every person carrying on the banking business who makes
payments of interest to another person (whether or not aggregating $10
or more) during a calendar year with respect to a certificate of deposit
issued in bearer form shall make an information return on Forms 1096 and
1099. The information return shall show the information required in
Sec. 1.6049-1(a)(1)(vi) (a) through (e) inclusive and a statement as to
the amount of tax withheld under section 3406, if any.
(5) Interest payments to Canadian nonresident alien individuals--(i)
General rule. In the case of interest paid to a Canadian nonresident
alien individual (as described in Sec. 1.6049-8(a)), the payor or
middleman shall make an information return on Form 1042-S for the
calendar year in which the interest is paid. The payor or middleman
shall prepare and transmit Form 1042-S at the time and in the manner
prescribed by section 1461 and the regulations under that section and by
the form and its accompanying instructions. See Sec. 1.6049-6(e)(4) for
furnishing a copy of
[[Page 273]]
the Form 1042-S to the payee. To determine whether an information return
is required for original issue discount, see Sec. Sec. 1.6049-5(f) and
1.6049-8(a).
(ii) Effective date. Paragraph (b)(5)(i) of this section shall be
effective for payments made after December 31, 1996 with respect to a
Form W-8 (Certificate of Foreign Status) furnished to the payor or
middleman after that date.
(c) Information returns not required--(1) Payment to exempt
recipient--(i) In general. No information return is required with
respect to any payment made to an exempt recipient described in
paragraph (c)(1)(ii) of this section, except to the extent otherwise
provided in Sec. 1.6049-5(d)(3) (ii) and (iii). However, if the payor
backup withholds under section 3406 on such payment (because, for
example, the payee has failed to furnish a Form W-9 on request), then
the payor is required to make a return under this section, unless the
payor refunds the amount withheld in accordance with Sec. 31.6413(a)-3
of this chapter (Employment Tax Regulations).
(ii) Exempt recipient defined. The term exempt recipient means any
person described in paragraphs (c)(1)(ii)(A) through (Q) of this
section. An exempt recipient is generally exempt from information
reporting without filing a certificate claiming exempt status unless the
provisions of this paragraph (c)(1)(ii) require a payee to file a
certificate.
A payor may, in any case, require a payee that is a U.S. person not
otherwise required to file a certificate under this paragraph (c)(1)(ii)
to file a certificate in order to qualify as an exempt recipient. See
Sec. 31.3406(h)-3(a)(1)(iii) and (c)(2) of this chapter for the
certificate that a payee that is a U.S. person must provide when a payor
requires the certificate to treat the payee as an exempt recipient under
this paragraph (c)(1)(ii). A payor may treat a payee as an exempt
recipient based upon a properly completed form as described in Sec.
31.3406(h)-3(e)(2) of this chapter, its actual knowledge that the payee
is a person described in this paragraph (c)(1)(ii), or the indicators
described in this paragraph (c)(1)(ii).
(A) Corporation. A corporation, as defined in section 7701(a)(3),
whether domestic or foreign, is an exempt recipient. In addition, for
purposes of this paragraph (c)(1), the term corporation includes a
partnership all of whose members are corporations described in this
paragraph (c)(1), but only if the partnership files with the payor a
certificate stating that each member of the partnership meets one of the
requirements of paragraph (c)(1)(ii)(A) (1) through (4) of this section.
Absent actual knowledge otherwise, a payor may treat a payee as a
corporation (and, therefore, as an exempt recipient) if one of the
requirements of paragraph (c)(1)(ii)(A) (1), (2), (3), or (4), of this
section are met before a payment is made.
(1) The name of the payee contains an unambiguous expression of
corporate status that is Incorporated, Inc., Corporation, Corp., P.C.,
(but not Company or Co.) or contains the term insurance company,
indemnity company, reinsurance company, or assurance company, or its
name indicates that it is an entity listed as a per se corporation under
Sec. 301.7701-2(b)(8)(i) of this chapter.
(2) The payor has on file a corporate resolution or similar document
clearly indicating corporate status. For this purpose, a similar
document includes a copy of Form 8832, filed by the entity to elect
classification as an association under Sec. 301.7701-3(b) of this
chapter.
(3) The payor receives a Form W-9 which includes an EIN and a
statement from the payee that it is a domestic corporation.
(4) The payor receives a withholding certificate described in Sec.
1.1441-1(e)(2)(i), that includes a certification that the person whose
name is on the certificate is a foreign corporation.
(B) Tax exempt organization--(1) In general. Any organization that
is exempt from taxation under section 501(a) is an exempt recipient. A
custodial account under section 403(b)(7) shall be considered an exempt
recipient under this paragraph. A payor may treat an organization as an
exempt recipient under this paragraph (c)(1)(ii)(B) without requiring a
certificate if the organization's name is listed in the compilation by
the Commissioner of organizations for which a deduction for charitable
contributions is
[[Page 274]]
allowed, if the name of the organization contains an unambiguous
indication that it is a tax-exempt organization, or if the organization
is known to the payor to be a tax-exempt organization.
(2) Examples. The application of the provisions of this paragraph
(c)(1)(ii)(B) may be illustrated by the following examples:
Example 1. The following persons maintain accounts at M Bank: N
College, O University, and P Church. M may treat N, O, and P as exempt
recipients even though such persons have not filed an exemption
certificate with M because the names of the organizations contain an
unambiguous indication that they are tax exempt organizations.
Example 2. Q is listed in the current edition of Internal Revenue
Service Publication 78 as an organization for which deductions are
permitted for charitable contributions under section 170(c). Such
listing has not been revoked by an announcement published in the
Internal Revenue Bulletin (see Sec. 601.601(d)(2) of this chapter). A
payor may treat Q as an exempt recipient even though Q has not filed an
exemption certificate with the payor.
Example 3. Employer R maintains a section 403(b)(7) custodial
account with Regulated Investment Company S on behalf of R's employees.
S may treat the account as an exempt recipient even though R or its
employees have not filed an exemption certificate with S.
(C) Individual retirement plan. An individual retirement plan as
defined in section 7701(a)(37) is an exempt recipient. A payor may treat
any such plan of which it is the trustee or custodian as an exempt
recipient under this paragraph (c)(1) without requiring a certificate.
(D) United States. The United States Government and any wholly-owned
agency or instrumentality thereof are exempt recipients. A payor may
treat a person as an exempt recipient under this paragraph (c)(1)
without requiring a certificate if the name of such person reasonably
indicates it is described in this paragraph (c)(1).
(E) State. A State, the District of Columbia, a possession of the
United States, a political subdivision of any of the foregoing, wholly-
owned agency or instrumentality of any one or more of the foregoing, and
a pool or partnership composed exclusively of any of the foregoing are
exempt recipients. A payor may treat a person as an exempt recipient
under this paragraph (c)(1) without requiring a certificate if the name
of such person reasonably indicates it is described in this paragraph
(c)(1) or if such person is known generally in the community to be a
State, the District of Columbia, a possession of the United States or a
political subdivision or a wholly-owned agency or instrumentality of any
one or more of the foregoing (for example, an account held in the name
of ``Town of S'' or ``County of T'' may be treated as held by an exempt
recipient under this paragraph (c)(1)(ii)(E)).
(F) Foreign government. A foreign government, a political
subdivision of a foreign government, and any wholly-owned agency or
instrumentality of either of the foregoing are exempt recipients. A
payor may treat a foreign government or a political subdivision thereof
as an exempt recipient under this paragraph (c)(1) without requiring a
certificate provided that its name reasonably indicates that it is a
foreign government or provided that it is known to the payor to be a
foreign government or a political subdivision thereof (for example, an
account held in the name of the ``Government of V'' may be treated as
held by a foreign government).
(G) International organization. An international organization and
any wholly-owned agency or instrumentality thereof are exempt
recipients. The term international organization shall have the meaning
ascribed to it in section 7701(a)(18). A payor may treat a payee as an
international organization without requiring a certificate if the payee
is designated as an international organization by executive order
(pursuant to 22 U.S.C. 288 through 288(f)).
(H) Foreign central bank of issue. A foreign central bank of issue
is an exempt recipient. A foreign central bank of issue is a bank which
is by law or government sanction the principal authority, other than the
government itself, issuing instruments intended to circulate as
currency. See Sec. 1.895-1(b)(1). A payor may treat a person as a
foreign central bank of issue (and, therefore, as an exempt recipient)
[[Page 275]]
without requiring a certificate provided that such person is known
generally in the financial community as a foreign central bank of issue
or if its name reasonably indicates that it is a foreign central bank of
issue.
(I) Securities or commodities dealer. A dealer in securities,
commodities, or notional principal contracts, that is registered as such
under the laws of the United States or a State or under the laws of a
foreign country is an exempt recipient. A payor may treat a dealer as an
exempt recipient under this paragraph (c)(1) without requiring a
certificate if the person is known generally in the investment community
to be a dealer meeting the requirements set forth in this paragraph
(c)(1) (for example, a registered broker-dealer or a person listed as a
member firm in the most recent publication of members of the National
Association of Securities Dealers, Inc.).
(J) Real estate investment trust. A real estate investment trust, as
defined in section 856 and Sec. 1.856-1, is an exempt recipient. A
payor may treat a person as a real estate investment trust (and,
therefore, as an exempt recipient) without requiring a certificate if
the person is known generally in the investment community as a real
estate investment trust.
(K) Entity registered under the Investment Company Act of 1940. An
entity registered at all times during the taxable year under the
Investment Company Act of 1940, as amended (15 U.S.C. 80a-1), (or during
such portion of the taxable year that it is in existence), is an exempt
recipient. An entity that is created during the taxable year will be
treated as meeting the registration requirement of the preceding
sentence provided that such entity is so registered at all times during
the taxable year for which such entity is in existence. A payor may
treat such an entity as an exempt recipient under this paragraph (c)(1)
without requiring a certificate if the entity is known generally in the
investment community to meet the requirements of the preceding sentence.
(L) Common trust fund. A common trust fund, as defined in section
584(a), is an exempt recipient. A payor may treat the fund as an exempt
recipient without requiring a certificate provided that its name
reasonably indicates that it is a common trust fund or provided that it
is known to the payor to be a common trust fund.
(M) Financial institution. A financial institution such as a bank,
mutual savings bank, savings and loan association, building and loan
association, cooperative bank, homestead association, credit union,
industrial loan association or bank, or other similar organization,
whether organized in the United States or under the laws of a foreign
country is an exempt recipient. A financial institution also includes a
clearing organization defined in Sec. 1.163-5(c)(2)(i)(D)(8) and the
Bank for International Settlements. A payor may treat any person
described in the preceding sentence as an exempt recipient without
requiring a certificate if the person's name (including a foreign name,
such as ``Banco'' or ``Banque'') reasonably indicates the payee is a
financial institution described in the preceding sentence. In the case
of a foreign person, a payor may also treat a person on such list as the
Internal Revenue Service may publish or approve (such as in the Thomson
Bank Directory or a list approved by the Federal Reserve Board).
(N) Trust. A trust which is exempt from tax under section 664(c)
(i.e., a charitable remainder annuity trust or a charitable remainder
unitrust) or is described in section 4947(a)(1) (relating to certain
charitable trusts) is an exempt recipient. A payor which is a trustee of
the trust may treat the trust as an exempt recipient without requiring a
certificate.
(O) Nominees or custodians. A nominee or custodian.
(P) Brokers. A broker as defined in section 6045(c) and Sec.
1.6045-1(a)(1).
(Q) Swap dealers. A dealer in notional principal contracts as
defined in Sec. 1.446-3(c)(4)(iii).
(iii) Exempt recipient no longer exempt. Any person who ceases to be
an exempt recipient shall, no later than 10 days after such cessation,
notify the payor in writing when it ceases to be an exempt recipient
unless it reasonably appears that the person formerly qualifying as an
exempt recipient will not
[[Page 276]]
thereafter receive a reportable payment from the payor. If a payor
treats a person as an exempt recipient by requiring the exempt recipient
to file a certificate claiming exempt status, that person shall revoke
the certificate as provided in the preceding sentence. If the exempt
recipient terminates its relationship with the payor prior to the time
that the notice of change in status is otherwise required, the exempt
recipient is not required to notify the payor. If, however, the person
who formerly qualified as an exempt recipient later reinstates the
relationship with the payor, the person must, prior to receiving a
reportable payment from such relationship, notify the payor that it no
longer qualifies as an exempt recipient in case the payor relies upon
the previous treatment.
(2) Payments by certain middlemen. An information return shall not
be required if:
(i) The record owner is required to file a fiduciary return on Form
1041 disclosing the name, address, and taxpayer identification number of
the actual owner, and furnishes Form K-1 to each actual owner containing
the information required to be shown on the form, including amounts
withheld under section 3406;
(ii) The record owner is a nominee of a banking institution or trust
company exercising trust powers, and such banking institution or trust
company is required to file a fiduciary return on Form 1041 disclosing
the name, address, and identifying number of the actual owner, and
furnishes Form K-1 to each actual owner containing the information
required to be shown on the form, including amounts withheld under
section 3406;
(iii) The record owner is a banking institution or trust company
exercising trust powers, or a nominee thereof, and the actual owner is
an organization exempt from taxation under section 501(a) for which such
banking institution or trust company files an annual return, but only if
the name, address, and taxpayer identification number of the record
owner is included on or with the Form 1041 fiduciary return filed for
the estate or trust or the annual return filed for the tax exempt
organization.
(3) Coordination with reporting rules for widely held fixed
investment trusts under Sec. 1.671-5 of this chapter. See Sec. 1.671-5
for the reporting rules for widely held fixed investment trusts (as
defined under that section).
(d) Special rules--(1) Aggregation of payments. For purposes of
paragraph (b) of this section, until such time as the Commissioner
determines that it is feasible to require aggregation of payments on two
or more accounts, insurance contracts, or investment certificates, and,
until this section is amended accordingly to provide for reporting on an
aggregate basis, the requirement for filing Form 1099 under this section
will be met if a person making payments of interest subject to reporting
files a separate Form 1099 with respect to each account, insurance
contract, or investment certificate. In the case of obligations
described in section 6049(b)(1)(A), separate Forms 1099 may be filed as
provided in the preceding sentence with respect to holdings in different
issues.
(2) Treatment of original issue discount. The amount of original
issue discount subject to reporting under section 6049 shall be the
amount of original issue discount includible in the gross income of any
holder that is treated as paid under Sec. 1.6049-5(f).
(3) Conversion into United States dollars of amounts paid in foreign
currency--(i) Conversion rules. When a payment is made in foreign
currency, the U.S. dollar amount of the payment shall be determined by
converting such foreign currency into U.S. dollars on the date of
payment at the spot rate (as defined in Sec. 1.988-1(d)(1)) or pursuant
to a reasonable spot rate convention. For example, a withholding agent
may use a month-end spot rate or a monthly average spot rate. A spot
rate convention must be used consistently with respect to all non-dollar
amounts withheld and from year to year. Such convention cannot be
changed without the consent of the Commissioner or the Commissioner's
delegate.
(ii) Special rule for Sec. 1.988-5(a) transactions where the payor
on both components of a qualified hedging transaction is the same
person--(A) In general. Interest or original issue discount on a
qualified
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debt instrument that is part of a qualified hedging transaction under
Sec. 1.988-5(a) shall be computed for section 6049 reporting purposes
under the rules described in Sec. 1.988-5(a)(9)(ii) if--
(1) The payor on the qualified debt instrument and the counterparty
to the Sec. 1.988-5(a) hedge are the same person; and
(2) The payee complies with the requirements of Sec. 1.988-5(a) and
so notifies its payor prior to the date required for filing Form 1099 as
required by this section.
(B) Effective date. The provisions of this paragraph (d)(3)(ii)
apply to transactions entered into after December 31, 2000.
(4) Determination of person to whom interest or original issue
discount is paid or for whom it is received. Section 1.6049-1(a)(3) and
(4) shall apply with respect to payments of interest and original issue
discount after December 31, 1982.
(5) Payments by governmental units. In the case of payments made by
any governmental unit or any agency or instrumentality thereof, the
officer or employee having control of the payment of interest or
original issue discount (or the person appropriately designated for
purposes of this section) shall make the returns and statements required
under section 6049.
(6) When payment deemed made--(i) In general. Except as provided in
paragraph (d)(6)(ii) of this section, for purposes of section 6049,
interest is deemed to have been paid when it is credited or set apart to
a person without any substantial limitation or restriction as to the
time or manner of payment or condition upon which payment is to be made,
and is made available to him so that it may be drawn at any time, and
its receipt brought within his own control and disposition.
(ii) Instruments paid on presentment or demand. In the case of a
payment made on an obligation described in paragraph (e)(2) of this
section (relating to transactional reporting), interest is deemed to
have been paid at the time the obligation is presented for payment. For
example, interest represented by a coupon detached from a bond is
considered paid for purposes of section 6049 when the coupon is
presented for payment.
(7) Magnetic media requirement. For rules relating to permission to
submit the information required by Form 1099 on magnetic tape or other
media, see Sec. 1.9101-1. For the requirement to submit the information
required by Form 1099 on magnetic media for payments after December 31,
1983, see section 6011(e) and Sec. 301.6011-2 of this chapter
(Regulations on Procedure and Administration).
(8) Obligations that are not exempt from taxation. When an issuer of
an obligation that is not exempt from taxation receives an envelope or
``shell'', signed by the payee, stating that interest on the obligation
is exempt from taxation under section 103(a) (as described in Sec.
1.6049-5(b)(2), the issuer shall make an information return under
section 6049. The information return shall show the name, address, and
taxpayer identification number of the person who signed the statement
claiming that interest on the obligation is exempt from taxation, the
amount of interest paid, and such other information as is required by
the form. An information return is required regardless of the amount of
interest. The issuer shall also furnish a written statement to such
person showing the information required by Sec. 1.6049-6(b).
(9) Savings bonds--(i) In general. A person who makes payment on a
United States savings bond when the bond is presented for payment shall
report the difference between the amount to be paid and the amount paid
for the bond. The amount subject to reporting shall not be reduced to
take into account:
(A) Amounts previously included in the income of a holder as a
result of an election under section 454 to include annually the increase
in the redemption price of the bond; or
(B) Amounts accrued prior to transfer of the bond where the bond has
been reissued in the name of the person presenting the bond for payment.
With respect to a savings bond that is reissued in another person's
name, the amount subject to reporting when the bond is reissued is the
amount of interest that has accrued. With respect to a savings bond that
is exchanged in a tax-deferred transaction (as described in section
1037), the amount subject to
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reporting is the amount of cash paid to the holder at the time of the
transaction.
(ii) Examples. The application of the provisions of paragraph
(d)(9)(i) of this section may be illustrated by the following examples:
Example (1). On June 10, 1943, A purchases a $50 Series E savings
bond. The amount paid for the savings bond is $37.50. A elects under
section 454 to include the increase in the redemption price of the bond
annually in income. A presents the bond to Bank M to be cashed on July
1, 1983. The amount to be paid on the bond on that date is $204.96. Bank
M is required to make an information return under section 6049 showing
that it paid $167.46 (the difference between $204.96 and $37.50) of
interest, without regard to A's election to include annually the
increase in the redemption price of the bond.
Example (2). On December 1, 1970, B purchases a $500 Series E
savings bond. The amount paid for the bond is $375. On August 1, 1984,
the bond is reissued by the Bureau of Public Debt by deleting B's name
and inserting the name of B's child. At the time of reissue, the
redemption value of the bond is $1,015.80. The accrued interest is
$640.80 (the difference between $1,015.80 and $375). The reissue is a
taxable transaction, and B must include in income the accrued interest
at the time of reissue. The Bureau of Public Debt is required to make an
information return under section 6049 showing that it paid $640.80 of
interest to B.
Example (3). Assume the same facts as in example (2) except that B
exchanges the bond for a Series HH savings bond in the amount of $1,000
issued in B's name. The exchange is tax-deferred under section 1037. The
Bureau of Public Debt stamps a legend on the bond stating that interest
of $625 has been deferred. The amount of $15.80 is paid to B. The Bureau
of the Public Debt must make an informatiion return showing that it paid
$15.80 of interest to B.
Example (4). Assume the same facts as in example (3) except that the
exchange is not a tax-deferred exchange. The Bureau of the Public Debt
must make an information return showing that it paid $640.80 of interest
to B.
(e) Transactional reporting--(1) In general. An information return
required to be made under paragraph (b) of this section may be made on a
transaction-by-transaction basis, rather than on an annual aggregation
basis, if payment described in paragraph (e)(2) of this section is made
by a person described in paragraph (e)(3) of this section.
(2) Payments subject to transactional reporting. An information
return may be made on a transactional basis if payment is made on:
(i) A United States savings bond,
(ii) An interest coupon (but see Sec. 1.6049-5(b) which provides
that no information return is required to be made with respect to an
interest coupon that is exempt from taxation),
(iii) A discount obligation having a maturity at issue of 1 year or
less, including commercial paper and short-term government obligations
defined in section 1232(a)(3), and
(iv) Any obligation similar to those described in subdivisions (i)
through (iii).
The information return with respect to payments on the types of
obligations described in this paragraph shall be made on Form 1099-INT.
A payor may include all interest paid in one transaction on one
information return, irrespective of whether obligations of different
issuers are paid as part of the transaction.
(3) Persons subject to transactional reporting. A person may make a
return on a transactional basis if the person is:
(i) A middleman (as defined in paragraph (f)(4) of this section) who
is required to make an information return under paragraph (b)(3) of this
section with respect to any payment described in paragraph (e)(2) of
this section, or
(ii) A Federal agency making payments on a United States savings
bond.
(4) Transaction defined. For purposes of this paragraph (e), a
transaction means a payment at one time on one or more obligations. For
example, if an individual who is exempt from withholding under section
3406 presents at one time five Series EE bonds on each of which $3 of
interest has accrued, $15 of interest will be paid as part of the
transaction. Accordingly, an information return is required under Sec.
1.6049-4 (a)(2)(iii) because the interest paid in the transaction
exceeds $10. If only three of the savings bonds were presented, however,
no return would be required even if the remaining two bonds were
redeemed the following day. See paragraph (a)(2)(i) of this section for
the requirement that an information
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return be made if any amount of tax is withheld under section 3406.
(5) Information required. The information return for any transaction
under paragraph (e) of this section shall show the following:
(i) The name, address, and taxpayer identification number of the
person to whom the interest is paid;
(ii) The name and address of the person filing the form;
(iii) The amount of interest paid;
(iv) The amount of tax withheld under section 3406, if any; and
(v) Such other information as is required by the form.
(f) Definitions. For purposes of section 6049, this section, and
Sec. Sec. 1.6049-5 and 1.6049-6:
(1) Person. The term person includes any governmental unit,
international organization, and any agency or instrumentality thereof.
Therefore, interest paid by one of these entities must be reported
unless one of the exceptions under section 6049 applies.
(2) Natural person. The term natural person means any individual,
but shall not include a partnership (whether of not composed entirely of
individuals), a trust, or an estate.
(3) Obligation. The term obligation includes bonds, debentures,
notes, certificates, and other evidences of indebtedness regardless of
how denominated.
(4) Middleman--(i) In general. The term middleman means any person.
including a financial institution as described in paragraph
(c)(1)(ii)(M) of this section, a broker as defined in section 6045(c),
or a nominee, who makes payment of interest for, or collects interest on
behalf of, another person, or otherwise acts in a capacity as
intermediary between a payor and a payee. For example, a person (other
than an issuer of an obligation) who makes payment on an interest coupon
of the obligation to another person is a middleman, irrespective of
whether such person purchases the coupon for his own account, accepts
the coupon as agent for the payee, or otherwise deals with the coupon.
The term ``middleman'' also includes a trustee, including a corporate
trustee of a trust where the trust is the payee. See Sec. 1.6049-
4(c)(2) providing that the trustee does not have to make an information
return on Form 1099 to a beneficiary if the trustee is required to file
Form 1041 and furnishes Form K-1 to the beneficiary showing the
information required to be shown on the form, including amounts withheld
under section 3406. A person shall be considered to be a middleman as to
any portion of an interest payment made to such person which portion is
actually owned by another person, whether or not the other person's name
is also shown on the information return filed with respect to such
interest payment, except that a husband or wife will not be considered
as acting in the capacity of a middleman with respect to his or her
spouse. A person who, from within the United States, forwards an
interest coupon or discount obligation on behalf of a payee for
presentation, collection or payment outside the United States is also a
middleman for purposes of this section (but the transfer, although
subject to information reporting under this section, does not make the
payment subject to backup withholding under section 3406).
(ii) Example. The application of the provisions of paragraph (f)(4)
of this section may be illustrated by the following example:
Example. In January, 1984, Broker B purchases on behalf of its
customer, Individual A, and obligation issued by partnership RR in a
public offering on that date. Broker B holds the obligation for A
throughout 1984. Broker B is required to make an information return
showing the amount of original issue discount treated as paid to A under
Sec. 1.6049-5(f).
(g) Time and place for filling a return for the payment of
interest--(1) Annual return. Except as provided in paragraph (g)(2) of
this section, the returns required under this section for any calendar
year for the payment of interest shall be filed after September 30 of
such year, but not before the payor's final payment to the payee for the
year, and on or before February 28 (March 31 if filed electronically) of
the following year. Such returns shall be filed with the appropriate
Internal Revenue Service Center, the address of which is listed in the
instructions for Form 1096. For extensions of time for filing returns
under this section, see Sec. 1.6081-1.
[[Page 280]]
(2) Transactional return. In the case of a return under paragraph
(e) of this section, relating to returns on a transactional basis, such
return shall be filed at any time but in no event later than February 28
(March 31 if filed electronically) of the year following the calendar
year in which the interest was paid. The return shall be filed with the
appropriate Internal Revenue Service Center, the address of which is
listed in the instructions for Form 1096. For extensions of time for
filing returns under this section, see Sec. 1.6081-1.
(3) Cross-reference to penalty. For provisions relating to the
penalty provided for failure to file timely a correct information return
required under section 6049(a) and Sec. 1.6049-4(a)(1), see Sec.
301.6721-1 of this chapter (Procedure and Administration Regulations).
See Sec. 301.6724-1 of this chapter for the waiver of a penalty if the
failure is due to reasonable cause and is not due to willful neglect.
[T.D. 7881, 48 FR 12968, Mar. 28, 1983, as amended by T.D. 8366, 56 FR
49518, Sept. 30, 1991; T.D. 8664, 61 FR 17573, Apr. 22, 1996; T.D. 8734,
62 FR 53480, Oct. 14, 1997; T.D. 8804, 63 FR 72188, Dec. 31, 1998; T.D.
8856, 64 FR 73412, Dec. 30, 1999; T.D. 8881, 65 FR 32207, 32212, May 22,
2000; T.D. 8895, 65 FR 50407, Aug. 18, 2000; T.D. 9010, 67 FR 48759,
July 26, 2002; T.D. 9241, 71 FR 4025, Jan. 24, 2006]
Sec. 1.6049-5 Interest and original issue discount subject to
reporting after December 31, 1982.
(a) Interest subject to reporting requirement. For purposes of
Sec. Sec. 1.6049-4, 1.6049-6 and this section, except as provided in
paragraph (b) of this section, the term ``interest'' means:
(1) Interest on an obligation:
(i) In registered form (as defined in Sec. 5f.103-1(c)), or
(ii) Of a type offered to the public. Principles consistent with
Sec. 5f.163-1 shall be applied to determine whether an obligation is of
a type offered to the public.
(2) Interest on deposits with persons carrying on the banking
business. Such term shall include deposits evidenced by time
certificates of deposit issued in any amount whether negotiable or non-
negotiable. The term ``interest'' includes payments to a mortgage escrow
account and amounts paid with respect to repurchase agreements and
banker's acceptances. Property which the payee receives from the payor
as interest (or in lieu of a cash payment of interest) shall be interest
for purposes of section 6049. The amount subject to reporting is the
fair market value of such property.
(3) Amounts, whether or not designated as interest, paid or credited
by mutual savings banks, savings and loan associations, building and
loan associations, cooperative banks, homestead associations, credit
unions, industrial loan associations or banks, or similar organizations,
in respect of deposits, face amount certificates, investment
certificates, or withdrawable or repurchasable shares. Thus, even though
amounts paid or credited by such organizations with respect to deposits
are designated as ``dividends'', such amounts are included in the
definition of interest for purposes of section 6049. The term
``interest'' includes payments to a mortgage escrow account and amounts
paid with respect to repurchase agreements. Property which the payee
receives from the payor as interest (or in lieu of a cash payment of
interest) is ``interest'' for purposes of section 6049. The fair market
value of such property is the amount subject ot reporting.
(4) Interest on amounts held by insurance companies under an
agreement to pay interest thereon. Any increment in value of ``advance
premiums'', ``prepaid premiums'', or ``premium deposit funds'' which is
applied to the payment of premiums due on insurance policies, or made
available for withdrawal by the policyholder, shall be considered
interest subject to reporting. Interest that an insurance company pays
pursuant to an agreement with the policyholder to a beneficiary because
he payment due has been delayed is interest subject to reporting.
Interest subject to reporting also includes interest paid by insurance
companies with respect to policy ``dividend'' accumulations (see
sections 61 and 451 and the regulations thereunder for rules as to when
such interest is considered paid), and interest paid with respect to the
proceeds of insurance policies left with the insurer. The so-called
``interest element'' in the
[[Page 281]]
case of annuity or installment payments under life insurance or
endowment contracts does not constitute interest for purposes of section
6049.
(5) Interest on deposits with brokers as defined in section 6045(c)
and the regulations thereunder. Any payment made in lieu of interest to
a person whose obligation has been borrowed in connection with a short
sale or other similar transaction is subject to reporting under section
6049. See Sec. 1.6045-2T for reporting requirements with respect to
payments in lieu of tax-exempt interest. See Sec. 1.6045-2 for
reporting requirements with respect to payments in lieu of tax-exempt
interest.
(6) Interest paid on amounts held by investment companies as defined
in section 3 of the Investment Company Act (15 U.S.C. section 80-a) and
on amounts paid on pooled funds or trusts. The interest to be reported
with respect to a widely held fixed investment trust, as defined in
Sec. 1.671-5(b)(22), shall be the interest earned on the assets held by
the trust. See Sec. 1.671-5 for the reporting rules for widely held
fixed investment trusts (as defined under that section).
(b) Interest excluded from reporting requirement. The term interest
or original issue discount (OID) does not include--
(1) Interest on any obligation issued by a natural person as defined
in Sec. 1.6049-4(f)(2), irrespective of whether such interest is
collected on behalf of the holder of the obligation by a middleman.
(2) Interest on any obligation if such interest is exempt from
taxation under section 103(a), relating to certain governmental
obligations, or interest which is exempt from taxation under any other
provision of law without regard to the identity of the holder. The
holder of a tax exempt obligation that is not in registered form must
provide written certification to the payor (other than the issuer of the
obligation) that the obligation is exempt from taxation. A statement
that interest coupons are tax exempt on the envelope or shell commonly
used by financial institutions to process such coupons, signed by the
payee, will be sufficient for this purpose if the envelope is properly
completed (i.e., shows the name, address, and taxpayer identification
number of the payee). A payor may rely on such written certification in
treating such interest as tax exempt for purposes of section 6049. See
Sec. 1.6049-4(d)(8) with respect to the requirement that the issuer of
a taxable obligation shall make an information return if such issuer
receives an envelope which improperly claims that the interest coupons
contained therein are tax exempt.
(3) Interest on amounts held in escrow to guarantee performance on a
contract or to provide security. However, interest on amounts held in
escrow with a person described in paragraph (a)(2) or (3) of this
section is interest subject to reporting under section 6049.
(4) Interest that a governmental unit pays with respect to tax
refunds.
(5) Interest on deposits for security, such as deposits posted with
a public utility company. However, interest on deposits posted for
security with a person described in paragraph (a)(2) or (3) of this
section is interest subject to reporting under section 6049.
(6) Amounts from sources outside the United States (determined under
the provisions of part I, subchapter N, chapter 1 of the Internal
Revenue Code (Code) and the regulations under those provisions) paid
outside the United States by a non-U.S. payor or a non-U.S. middleman
(as defined in paragraph (c)(5) of this section). See paragraph (e) of
this section for circumstances in which a payment is considered to be
made outside the United States.
(7) Portfolio interest, as defined in Sec. 1.871-14(b)(1), paid
with respect to obligations in bearer form described in section
871(h)(2)(A) or 881(c)(2)(A) or with respect to a foreign-targeted
registered obligation described in Sec. 1.871-14(e)(2) for which the
documentation requirements described in Sec. 1.871-14(e)(3) and (4)
have been satisfied (other than by a U.S. middleman (as defined in
paragraph (c)(5) of this section) that, as a custodian or nominee of the
payee, collects the amount for, or on behalf of, the payee, regardless
of whether the middleman is also acting as agent of the payor).
(8) Portfolio interest described in Sec. 1.871-14(c)(1)(ii), paid
with respect to
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obligations in registered form described in section 871(h)(2)(B) or
881(c)(2)(B) that is not described in paragraph (b)(7) of this section.
(9) Any amount paid by an international organization described in
Sec. 1.6049-4(c)(1)(ii)(G) (or its paying, transfer, or other agent
that is not also a payee's agent) with respect to an obligation of which
the international organization is the issuer.
(10)(i) Amounts paid outside the United States (other than by a U.S.
middleman (as defined in paragraph (c)(5) of this section) that, as a
custodian or nominee or other agent of the payee, collects the amount
for, or on behalf of, the payee, regardless of whether the middleman is
also acting as agent of the payor) with respect to an obligation that:
Has a face amount or principal amount of not less than $500,000 (as
determined based on the spot rate on the date of issuance if in foreign
currency); has a maturity (at issue) of 183 days or less; satisfies the
requirements of sections 163(f)(2)(B)(i) and (ii)(I) and the regulations
thereunder (as if the obligation would otherwise be a registration-
required obligation within the meaning of section 163(f)(2)(A))
(however, an original issue discount obligation with a maturity of 183
days or less from the date of issuance is not required to satisfy the
certification requirement of Sec. 1.163-5(c)(2)(i)(D)(3)) and is issued
in accordance with the procedures of Sec. 1.163-5(c)(2)(i)(D); and has
on its face the following statement (or a similar statement having the
same effect):
By accepting this obligation, the holder represents and warrants
that it is not a United States person (other than an exempt recipient
described in section 6049(b)(4) of the Internal Revenue Code and
regulations thereunder) and that it is not acting for or on behalf of a
United States person (other than an exempt recipient described in
section 6049(b)(4) of the Internal Revenue Code and the regulations
thereunder).
(ii) If the obligation is in registered form, it must be registered
in the name of an exempt recipient described in Sec. 1.6049-
4(c)(1)(ii). For purposes of this paragraph (b)(10), a middleman may
treat an obligation as described in section 163(f)(2)(B)(i) and (ii)(I)
and the regulations under that section if the obligation, or coupons
detached therefrom, whichever is presented for payment, contains the
statement described in this paragraph (b)(10). The exemption from
reporting described in this paragraph (b)(10) shall not apply if the
payor has actual knowledge that the payee is a U.S. person who is not an
exempt recipient.
(11) Amounts paid with respect to an account or deposit with a U.S.
or foreign branch of a domestic or foreign corporation or partnership
that is paid with respect to an obligation described in either paragraph
(b)(11)(i) or (ii) of this section, if the branch is engaged in the
commercial banking business; and the interest or OID is paid outside the
United States (other than by a U.S. middleman (as defined in paragraph
(c)(5) of this section) that acts as a custodian, nominee, or other
agent of the payee, and collects the amount for, or on behalf of, the
payee, regardless of whether the middleman is also acting as agent of
the payor). The exemption from reporting described in this paragraph
(b)(11) shall not apply if the payor has actual knowledge that the payee
is a U.S. person who is not an exempt recipient.
(i) An obligation is described in this paragraph (b)(11)(i) if it is
not in registered form (within the meaning of section 163(f) and the
regulations under that section), is described in section 163(f)(2)(B)
and issued in accordance with the procedures of Sec. 1.163-
5(c)(2)(i)(C) or (D), and, in the case of a U.S. branch, is part of a
larger single public offering of securities. For purposes of this
paragraph (b)(11)(i), a middleman may treat an obligation as described
in section 163(f)(2)(B) if the obligation, and any detachable coupons,
contains the statement described in section 163(f)(2)(B)(ii)(II) and the
regulations under that section.
(ii)(A) An obligation is described in this paragraph (b)(11)(ii) if
it produces income described in section 871(i)(2)(A); has a face amount
or principal amount of not less than $500,000 (as determined based on
the spot rate on the date of issuance if in foreign currency); satisfies
the requirements of sections 163(f)(2)(B)(i) and (ii)(I) and the
regulations thereunder (as if the obligation
[[Page 283]]
would otherwise be a registration-required obligation within the meaning
of section 163(f)(2)(A)) and is issued in accordance with the procedures
of Sec. 1.163-5(c)(2)(i) (C) or (D) (however, an original issue
discount obligation with a maturity of 183 days or less from the date of
issuance is not required to satisfy the certification requirement of
Sec. 1.163-5(c)(2)(i)(D)(3)). For purposes of this paragraph
(b)(11)(ii), a middleman may treat an obligation as described in
sections 163(f)(2)(b) (i) and (ii) and the regulations under that
section if the obligation, or any detachable coupon, contains the
statement described in paragraph (b)(11)(ii)(b) of this section.
(B) The obligation must have on its face, and on any detachable
coupons, the following statement (or a similar statement having the same
effect):
By accepting this obligation, the holder represents and warrants
that it is not a United States person (other than an exempt recipient
described in section 6049(b)(4) and regulations under that section) and
that it is not acting for or on behalf of a United States person (other
than an exempt recipient described in section 6049(b)(4) and the
regulations under that section).
(C) If the obligation is in registered form, it must be registered
in the name of an exempt recipient described in Sec. 1.6049-
4(c)(1)(ii).
(12) Payments that a payor can, prior to payment, reliably associate
with documentation upon which it may rely to treat the payment as made
to a foreign beneficial owner in accordance with Sec. 1.1441-
1(e)(1)(ii) or as made to a foreign payee in accordance with paragraph
(d)(1) of this section or presumed to be made to a foreign payee under
paragraph (d)(2) or (3) of this section. However, such payments may be
reportable under Sec. 1.1461-1 (b) and (c). The provisions of Sec.
1.1441-1 shall apply by substituting the term payor for the term
withholding agent and without regard to the fact that the provisions
apply only to amounts subject to withholding under chapter 3 of the
Code. In the event of a conflict between the provisions of Sec. 1.1441-
1 and paragraph (d) of this section in determining the foreign status of
the payee, the provisions of Sec. 1.1441-1 shall govern for payments of
amounts subject to withholding under chapter 3 of the Code and the
provisions of paragraph (d) of this section shall govern in other cases.
This paragraph (b)(12) does not apply to interest paid to a Canadian
nonresident alien individual as provided in Sec. 1.6049-8.
(13) Amounts for the period that the debt obligation with respect to
which the interest arises represents an asset blocked as described in
Sec. 1.1441-2(e)(3). Payment of such amounts, including interest that
is past due and OID on obligations that mature on or before the date
that the assets are no longer blocked, is deemed to occur in accordance
with the rules of Sec. 1.1441-2(e)(3).
(14) Payments made by a foreign intermediary described in Sec.
1.1441-1(e)(3)(i) of amounts that it has received in its capacity as an
intermediary and that are associated with a valid withholding
certificate described in Sec. 1.1441-1(e)(3)(ii) or (iii) and payments
made by a U.S. branch of a foreign bank or of a foreign insurance
company described in Sec. 1.1441-1(b)(2)(iv) (other than a U.S. branch
that is treated as a U.S. person) that are associated with a valid
withholding certificate described in Sec. 1.1441-1(e)(3)(v), which
certificate the intermediary or branch has furnished to the payor or
middleman from whom it has received the payment, unless, and to the
extent, the intermediary or branch knows that the payments are required
to be reported under Sec. 1.6049-4 and were not so reported. For
example, if a foreign intermediary or U.S. branch described in Sec.
1.1441-1(b)(2)(iv) fails to provide information regarding U.S. persons
that are not exempt from reporting under Sec. 1.6049-4(c)(1)(ii) to the
person from whom the intermediary or U.S. branch receives the payment,
the amount paid by the foreign intermediary or U.S. branch to such
person is interest or original issue discount. The exception of this
paragraph (b)(14) shall not apply to a qualified intermediary that
assumes reporting responsibility under chapter 61 of the Internal
Revenue Code.
(15) Amounts of interest as determined under the provisions of Sec.
1.446-3(g)(4) (dealing with interest in the
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case of a significant non-periodic payment with respect to a notional
principal contract). Such amounts are governed by the provisions of
section 6041. See Sec. 1.6041-1(d)(5).
(c) Applicable rules--(1) Documentary evidence for offshore accounts
and for possessions accounts. A payor may rely on documentary evidence
described in this paragraph (c)(1) instead of a beneficial owner
withholding certificate described in Sec. 1.1441-1(e)(2)(i) in the case
of a payment made outside the United States to an offshore account, in
the case of a payment made to a U.S. possessions account or, in the case
of broker proceeds described in Sec. 1.6045-1(c)(2), in the case of a
sale effected outside the United States (as defined in Sec. 1.6045-
1(g)(3)(iii)(A)). For purposes of this paragraph (c)(1), an offshore
account means an account maintained at an office or branch of a U.S. or
foreign bank or other financial institution at any location outside the
United States (i.e., other than in any of the fifty States or the
District of Columbia) and outside of possessions of the United States.
Thus, for example, an account maintained in a foreign country at a
branch of a U.S. bank or of a foreign subsidiary of a U.S. bank is an
offshore account. For purposes of this paragraph (c)(1), a U.S.
possessions account means an account maintained at an office or branch
of a U.S. or foreign bank or other financial institution located within
a possession of the United States. For the definition of a payment made
outside the United States, see paragraph (e) of this section. A payor
may rely on documentary evidence if the payor has established procedures
to obtain, review, and maintain documentary evidence sufficient to
establish the identity of the payee and the status of that person as a
foreign person (including, but not limited to, documentary evidence
described in Sec. 1.1441-6(c)(3) or (4)); and the payor obtains,
reviews, and maintains such documentary evidence in accordance with
those procedures. A payor maintains the documents reviewed by retaining
the original, certified copy, or a photocopy (or microfiche or similar
means of record retention) of the documents reviewed and noting in its
records the date on which and by whom the document was received and
reviewed. Documentary evidence furnished for the payment of an amount
subject to withholding under chapter 3 of the Internal Revenue Code must
contain all of the information that is necessary to complete a Form
1042-S for that payment. A payor may also rely on documentary evidence
associated with a flow-through withholding certificate for payments
treated as made to foreign partners of a nonwithholding foreign
partnership, as defined in Sec. 1.1441-1(c)(28), the foreign
beneficiaries of a foreign simple trust, as defined in Sec. 1.1441-
1(c)(24), or foreign owners of a foreign grantor trust, as defined in
Sec. 1.1441-1(c)(26), even though the partnership or trust account is
maintained in the United States.
(2) Other applicable rules. The provisions of Sec. 1.1441-
1(e)(4)(i) through (ix) (regarding who may sign a certificate, validity
period of certificates, retention of certificates, etc.) shall apply (by
substituting the term payor for the term withholding agent and
disregarding the fact that the provisions under Sec. 1.1441-1(e)(4)
only apply to amounts subject to withholding under chapter 3 of the
Code) to withholding certificates and documentary evidence furnished for
purposes of this section. See Sec. 1.1441-1(b)(2)(vii) for provisions
dealing reliable association of a payment with documentation.
(3) Standards of knowledge. A payor may not rely on a withholding
certificate or documentary evidence described in paragraph (c)(1) or (4)
of this section if it has actual knowledge or reason to know that any
information or certification stated in the certificate or documentary
evidence is unreliable. A payor has reason to know that information or
certifications are unreliable only if the payor would have reason to
know under the provisions of Sec. 1.1441-7(b)(2)(ii) and (3) that the
information and certifications provided on the certificate or in the
documentary evidence are unreliable or, in the case of a Form W-9 (or an
acceptable substitute), it cannot reasonably rely on the documentation
as set forth in Sec. 31.3406(h)-3(e) of this chapter (see the
information and certification described in Sec. 31.3406(h)-3(e)(2)(i)
through (iv) of this chapter that are required in order
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for a payor reasonably to rely on a Form W-9). The provisions of Sec.
1.1441-7(b)(2)(ii) and (3) shall apply for purposes of this paragraph
(c)(3) irrespective of the type of income to which Sec. 1.1441-
7(b)(2)(ii) is otherwise limited. The exemptions from reporting
described in paragraphs (b)(10) and (11) of this section shall not apply
if the payor has actual knowledge that the payee is a U.S. person who is
not an exempt recipient.
(4) Special documentation rules for certain payments. This paragraph
(c)(4) modifies the provisions of paragraph (c)(1) of this section for
payments to offshore accounts maintained at a bank or other financial
institution of amounts that are not subject to withholding under chapter
3 of the Internal Revenue Code, other than amounts described in
paragraph (d)(3)(iii) of this section (dealing with U.S. short-term OID
and U.S. bank deposit interest). Amounts are not subject to withholding
under chapter 3 of the Internal Revenue Code if they are not included in
the definition of amounts subject to withholding under Sec. 1.1441-2(a)
(e.g., deposit interest with foreign branches of U.S. banks, foreign
source income, or broker proceeds).
(i) Special rule when non-renewable documentary evidence is
customary. If it is customary in the country in which a branch or office
of a bank or other financial institution is located to obtain
documentary evidence described in paragraph (c)(1) of this section, but
it is not customary for such documentary evidence to be renewed, then a
payor may, in lieu of obtaining a withholding certificate, request such
documentary evidence for an account maintained at such branch or office.
The bank or other financial institution may rely on such documentary
evidence to treat a person as a foreign person without renewing such
documentary evidence in accordance with paragraph (c)(2) of this section
and Sec. 1.1441-1(e)(4)(ii) if it may rely on the documentary evidence
as sufficient to establish the person's foreign status under Sec.
1.1441-7(b)(7) and (8). If, however, the bank or other financial
institution may, under Sec. 1.1441-7(b)(8) treat a payee as a foreign
person even though it has a residence or mailing address for the payee
in the United States, or has standing instructions to pay amounts from
its account to an address in the United States or an account maintained
in the United States, then the payor shall rely on the documentary
evidence only for a period of three full calendar years after the
calendar year in which the documentary evidence is provided to the payor
or, if earlier, until the payor is aware of a change of circumstances
that affects the validity of the documentation as establishing the
payee's status as a foreign person.
(ii) Statement in lieu of documentary evidence. If under the local
laws, regulations, or practices applicable to a type of account or
transaction it is not customary to obtain documentary evidence described
in paragraph (c)(1) of this section, the bank or other financial
institution may, instead of obtaining a beneficial owner withholding
certificate described in Sec. 1.1441-1(e)(2)(i) or documentary evidence
described in paragraph (c)(1) of this section, establish a payee's
foreign status based on the statement described in this paragraph
(4)(ii) (or such substitute statement as the Internal Revenue Service
may prescribe) made on an account opening form. The statement shall be
valid only if the mailing and residence addresses of the payee are
outside the United States and there are no other indicia of U.S. status.
If reliance is not permitted because there are indicia of U.S. status
then the payor must obtain either documentary evidence described in
paragraph (c)(1) of this section or a Form W-8 described in Sec.
1.1441-1(e)(2)(i) to treat the customer as a foreign payee. In such a
case, the form or documentary evidence must be renewed every three years
in accordance with the renewal procedures set forth in Sec. 1.1441-
1(e)(4)(ii)(A) for as long as indicia of U.S. status continue to be
present. The statement referred to in this paragraph (c)(4)(i) of this
section must appear near the signature line and must read as follows:
By opening this account and signing below, the account owner
represents and warrants that he/she/it is not a U.S. person for purposes
of U.S. Federal income tax and that he/she/it is not acting for, or on
behalf of, a U.S. person. A false statement or misrepresentation of tax
status by a U.S. person could lead
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to penalties under U.S. law. If your tax status changes and you become a
U.S. citizen or a resident, you must notify us within 30 days.
(iii) Continuous validity of declaration of foreign status subject
to due diligence by financial institution. A declaration of foreign
status described in paragraph (c)(4)(ii) of this section does not expire
unless the bank or financial institution becomes aware of circumstances
indicating that the customer may be a U.S. person.
(iv) Exception for existing accounts. The rules of paragraphs
(c)(4)(i) and (iii) of this section shall apply to accounts opened on or
after January 1, 2001. For accounts opened before 2001, a bank or other
financial institution may rely on the rules contained in Sec. Sec.
35a.9999-3(ii) Q&A 34 and 35a.9999-4T Q&A 1 and 5 of this chapter in
effect prior to January 1, 2001 (see 26 CFR Parts 30-39 revised as of
April 1, 2000).
(5) U.S. payor, U.S. middleman, non-U.S. payor, and non-U.S.
middleman. The terms payor and middleman have the meanings ascribed to
them under Sec. 1.6049-4(a). A non-U.S. payor or non-U.S. middleman
means a payor or middleman other than a U.S. payor or U.S. middleman.
The term U.S. payor or U.S. middleman means--
(i) Definition. (A) A person described in section 7701(a)(30)
(including a foreign branch or office of such person);
(B) The government of the United States or the government of any
State or political subdivision thereof (or any agency or instrumentality
of any of the foregoing);
(C) A controlled foreign corporation within the meaning of section
957(a);
(D) A foreign partnership, if at any time during its tax year, one
or more of its partners are U.S. persons (as defined in Sec. 1.1441-
1(c)(2)) who, in the aggregate hold more than 50 percent of the income
or capital interest in the partnership or if, at any time during its tax
year, it is engaged in the conduct of a trade or business in the United
States;
(E) A foreign person 50 percent or more of the gross income of
which, from all sources for the three-year period ending with the close
of its taxable year preceding the collection or payment (or such part of
such period as the person has been in existence), was effectively
connected with the conduct of trade or business within the United
States; or
(F) A U.S. branch of a foreign bank or a foreign insurance company
described in Sec. 1.1441-1(b)(2)(iv).
(ii) Reporting by U.S. payors in U.S. possessions. U.S. payors are
not required to report on Form 1099 income that is from sources within a
possession of the United States and that is exempt from taxation under
section 931, 932, or 933, each of which sections exempts certain income
from sources within a possession of the United States paid to a bona
fide resident of that possession. For purposes of this paragraph
(c)(5)(ii), a U.S. payor may treat the beneficial owner as a bona fide
resident of the possession of the United States from which the income is
sourced if, prior to payment of the income, the U.S. payor can reliably
associate the payment with valid documentation that supports the claim
of residence in the possession of the United States from which the
income is sourced. This paragraph (c)(5)(ii) shall not apply if the U.S.
payor has actual knowledge or reason to know that the documentation is
unreliable or incorrect or that the income does not satisfy the
requirements for exemption under section 931, 932, or 933. For the rules
determining whether income is from sources within a possession of the
United States, see section 937(b) and the regulations thereunder.
(6) Examples. The following examples illustrate the provisions of
paragraphs (b) and (c) of this section:
Example 1. FC is a foreign corporation that is not engaged in a
trade or business in the United States during the current calendar year.
D, an individual who is a resident and citizen of the United States,
holds a registered obligation issued by FC in a public offering.
Interest is paid on the obligation within the United States by DC, a
U.S. corporation that is the designated paying agent of FC. D does not
have an account with DC. Although interest paid on the obligation issued
by FC is foreign source, the interest paid by DC to D is considered to
be interest for purposes of information reporting under section 6049
because it is paid in the United States.
Example 2. The facts are the same as in Example 1 except that D is a
nonresident alien individual who has furnished DC with a
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Form W-8 in accordance with the provisions of Sec. 1.1441-1(e)(1)(ii).
By reason of paragraph (b)(12) of this section, the payment of interest
by DC to D is not considered to be a payment of interest for purposes of
information reporting under section 6049. Therefore, DC is not required
to make an information return under section 6049.
Example 3. The facts are the same as in Example 2 except that the
obligation of FC is held in a custodial account for D by FB, a foreign
branch of a U.S. financial institution. By reason of paragraph (c)(5) of
this section, FB is considered to be a U.S. middleman. Therefore, FB is
required to make an information return unless FB may treat D as a
beneficial owner that is a foreign person in accordance with the
provisions of Sec. 1.1441-1(e)(1)(ii).
Example 4. The facts are the same as in Example 3 except that the FC
obligation is held for D by NC, in a custodial account at NC's foreign
branch. NC is a foreign corporation that is a non-U.S. middleman
described in paragraph (c)(5) of this section. Under paragraph (b)(6) of
this section, the payment by NC to D is not considered to be a payment
of interest for purposes of section 6049. Therefore, NC is not required
to make an information return under section 6049 with respect to the
payment.
(d) Determination of status as U.S. or foreign payee and applicable
presumptions in the absence of documentation--(1) Identifying the payee.
The provisions of Sec. Sec. 1.1441-1(b)(2), 1.1441-5(c)(1), (e)(2) and
(3) shall apply (by applying the term payor instead of the term
withholding agent) to identify the payee for purposes of this section
(and other sections of the regulations under this chapter to which this
paragraph (d)(1) applies), except to the extent provided in this
paragraph (d)(1) in the case of a payment of amounts that are not
subject to withholding under chapter 3 of the Internal Revenue Code.
Amounts are not subject to withholding under chapter 3 of the Code if
they are not included in the definition of amounts subject to
withholding under Sec. 1.1441-2(a) (e.g., deposit interest with foreign
branches of U.S. banks, foreign source income, or broker proceeds). The
exceptions to the application of Sec. 1.1441-1(b)(2) to amounts that
are not subject to withholding under chapter 3 of the Code are as
follows:
(i) The provisions of Sec. 1.1441-1(b)(2)(ii), dealing with
payments to a U.S. agent of a foreign person, shall not apply. Thus, a
payment to a U.S. agent of a foreign person is treated as a payment to a
U.S. payee.
(ii) Payments to U.S. branches of certain banks or insurance
companies described in Sec. 1.1441-1(b)(2)(iv) shall be treated as
payments to a foreign payee, irrespective of the fact that the U.S.
branch may have arranged with the payor to be treated as a U.S. person
for payments of amounts subject to withholding and irrespective of the
fact that the branch is treated as a U.S. payor for purposes of
paragraph (c)(5) of this section.
(2) Presumptions of U.S. or foreign status in the absence of
documentation--(i) In general. Except as otherwise provided in this
paragraph (d)(2)(i), for purposes of this section (and other sections of
regulations under this chapter to which this paragraph (d)(2) applies),
the provisions of Sec. 1.1441-1(b)(3)(i) through (ix) and Sec. 1.1441-
5(d) and (e)(6) shall apply (by applying the term payor instead of the
term withholding agent) to determine the classification (e.g.,
individual, corporation, partnership, trust), status (i.e., a U.S. or a
foreign person), and other relevant characteristics (e.g., beneficial
owner or intermediary) of a payee if a payment cannot be reliably
associated with valid documentation under Sec. 1.1441-1(b)(2)(vii)
irrespective of whether the payments are subject to withholding under
chapter 3 of the Internal Revenue Code. The provisions of Sec. 1.1441-
1(b)(3)(iii)(D) and (vii)(B) shall not apply, however, to payments to
amounts that are not subject to withholding. The rules of Sec. 1.1441-
1(b)(2)(vii) shall apply for purposes of determining when a payment can
reliably be associated with documentation, by applying the term payor
instead of the term withholding agent. For this purpose, the documentary
evidence or statement described in paragraph (c)(4) of this section can
be treated as documentation with which a payment can be associated.
(ii) Grace period in the case of indicia of a foreign payee. When
the conditions of this paragraph (d)(2)(ii) are satisfied, the 30-day
grace period provisions under section 3406(e) shall not apply and the
provisions of this paragraph (d)(2)(ii) shall apply instead. A payor
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that, at any time during the grace period described in this paragraph
(d)(2)(ii), credits an account with payments described in Sec. 1.1441-
6(c)(2) (or credits an account with broker proceeds from securities
described in Sec. 1.1441-6(c)(2)), that are reportable under sections
6042, 6045, 6049, or 6050N may, instead of treating the account as owned
by a U.S. person and applying backup withholding under section 3406, if
applicable, choose to treat the account as owned by a foreign person if,
at the beginning of the grace period, the address that the payor has in
its records for the account holder is in a foreign country, the payor
has been furnished the information contained in a withholding
certificate described in Sec. 1.1441-1(e) (2)(i) or (3)(i) (by way of a
facsimile copy of the certificate or other non-qualified electronic
transmission of the information required to be stated on the
certificate), or the payor holds a withholding certificate that is no
longer reliable other than because the validity period as described in
Sec. 1.1441-1(e)(4)(ii)(A) has expired. In the case of a newly opened
account, the grace period begins on the date that the payor first
credits the account.
In the case of an existing account for which the payor holds a Form W-8
or documentary evidence of foreign status, the grace period begins on
the date that the payor first credits the account after the existing
documentation held with regard to the account can no longer be relied
upon (other than because the validity period described in Sec. 1.1441-
1(e)(4)(ii)(A) has expired). A new account shall be treated as an
existing account if the account holder already holds an account at the
branch location at which the new account is opened. It shall also be
treated as an existing account if an account is held at another branch
location if the institution maintains a coordinated account information
system described in Sec. 1.1441-1(e)(4)(ix). The grace period
terminates on the earlier of the close of the 90th day from the date on
which the grace period begins or the date that the documentation is
provided. The grace period also terminates when the remaining balance in
the account (due to withdrawals or otherwise) is equal to or less than
31 percent of the total amounts credited since the beginning of the
grace period that would be subject to backup withholding if the
provisions of this paragraph (d)(2)(ii) did not apply. At the end of the
grace period, the payor shall treat the amounts credited to the account
during the grace period as paid to a U.S. or foreign payee depending
upon whether documentation has been furnished and the nature of any such
documentation furnished upon which the payor may rely to treat the
account as owned by a U.S. or foreign payee. If the documentation has
not been received on or before the date of expiration of the grace
period, the payor may also apply the presumptions described in this
paragraph (d) to amounts credited to the account after the date on which
the grace period expires (until such time as the payor can reliably
associate the documentation with amounts credited). See Sec.
31.6413(a)-3(a)(1)(iv) of this chapter for treating backup withheld
amounts under section 3406 as erroneously withheld when the
documentation establishing foreign status is furnished prior to the end
of the calendar year in which backup withholding occurs. If the
provisions of this paragraph (d)(2)(ii) apply, the provisions of Sec.
31.3406(d)-3 of this chapter shall not apply. For purposes of this
paragraph (d)(2)(ii), an account holder's reinvestment of gross proceeds
of a sale into other instruments constitutes a withdrawal and a non-
qualified electronic transmission of information on a withholding
certificate is a transmission that is not in accordance with the
provisions of Sec. 1.1441-1(e)(4)(iv). See Sec. 1.1092(d)-1 for a
definition of the term actively traded for purposes of this paragraph
(d)(2)(ii).
(iii) Joint owners. Amounts paid to accounts held jointly for which
a certificate or documentation is required as a condition for being
exempt from reporting under paragraph (b) of this section are presumed
made to U.S. payees who are not exempt recipients if, prior to payment,
the payor cannot reliably associate the payment either with a Form W-9
furnished by one of the joint owners in the manner required in
Sec. Sec. 31.3406(d)-1 through 31.3406(d)-5 of this chapter, or with
documentation
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described in paragraph (b)(12) of this section furnished by each joint
owner upon which it can rely to treat each joint owner as a foreign
payee or foreign beneficial owner. For purposes of applying this
paragraph (d)(2)(iii), the grace period described in paragraph
(d)(2)(ii) of this section shall apply only if each payee qualifies for
such grace period.
(3) Payments to foreign intermediaries or flow-through entities--(i)
Payments of amounts subject to withholding under chapter 3 of the
Internal Revenue Code. In the case of payments of amounts that the payor
may treat as made to a foreign intermediary or flow-through entity in
accordance with Sec. Sec. 1.1441-1(b)(3)(ii)(C) and (b)(3)(v)(A),
1.1441-5(c) or (e) and that are subject to withholding under Sec.
1.1441-2(a), the provisions of Sec. Sec. 1.1441-1(b)(2)(v) and 1.1441-
5(c)(1), (e)(2), and (3) shall apply (by applying the term payor instead
of the term withholding agent) to identify the payee. If a payment of an
amount subject to withholding cannot be reliably associated with valid
documentation from a payee in accordance with Sec. 1.1441-1(b)(2)(vii)
the presumption rules of Sec. 1.1441-1(b)(3)(v) and Sec. 1.1441-5(d)
and (e)(6) shall apply to determine the payee's status for purposes of
this section (and other sections of regulations under this chapter to
which this paragraph (d)(3) applies).
(ii) Payments of amounts not subject to withholding under chapter 3
of the Internal Revenue Code. Except as provided in paragraph
(d)(3)(iii) of this section, amounts that are not subject to withholding
under chapter 3 of the Internal Revenue Code that the payor may treat as
paid to a foreign intermediary or flow-through entity shall be treated
as made to an exempt recipient described in Sec. 1.6049-4(c) except to
the extent that the payor has actual knowledge that any person for whom
the intermediary or flow-through entity is collecting the payment is a
U.S. person who is not an exempt recipient. In the case of such actual
knowledge, the payor shall treat the payment that it knows is allocable
to such U.S. person as a payment to a U.S. payee who is not an exempt
recipient and has actual knowledge of the amount allocable to such a
person.
(iii) Special rule for payments of certain short-term original issue
discount and bank deposit interest--(A) General rule. A payment of U.S.
source deposit interest described in section 871(i)(2)(A) or 881(d)(3)
or interest or original issue discount on the redemption of an
obligation with a maturity from the date of issue of 183 days or less
(short-term OID) described in section 871(g)(1)(B) or 881(e) that the
payor may treat as paid to a foreign intermediary or flow-through entity
in accordance with the provisions of Sec. 1.1441-1(b)(3)(ii)(C),
(v)(A), Sec. 1.1441-5(d) or (e), shall be treated as paid to an
undocumented U.S. payee that is not an exempt recipient under paragraph
Sec. 1.6049-4(c) unless the payor has documentation from the payees of
the payment and the payment is allocated to foreign payees, as a group,
and to each U.S. non-exempt recipient payee. See Sec. 1.1441-
1(e)(3)(iv)(C)(2).
(B) Payee may be an intermediary. If a payment is made to a person
described in Sec. 1.6049-4(c)(1)(ii) that has not provided an
intermediary withholding certificate under Sec. 1.1441-1(e)(3)(i) but
the payor knows or has reason to know that the payee may be an
intermediary, the payor must apply the rules of paragraph (d)(3)(iii)(A)
of this section. A payor has reason to know that such a person may be an
intermediary if that person has provided documentation as an
intermediary for another account with the same payor.
(iv) Short-term deposits and repurchase transactions. The provisions
of paragraph (d)(3)(ii) of this section and not paragraph (d)(3)(iii) of
this section shall apply to deposits with banks and other financial
institutions that remain on deposit for a period of two weeks or less,
to amounts of original issue discount arising from a sale and repurchase
transaction that is completed within a period of two weeks or less, or
to amounts described in paragraphs (b)(7), (10) and (11) of this section
(relating to certain obligations issued in bearer form).
(4) Examples. The rules of paragraphs (d)(1) through (3) of this
section are illustrated by the following examples:
Example 1. (i) Facts. USP is a U.S. payor as defined in paragraph
(c)(5) of this section. USP pays interest from sources within the United
States to an account maintained in
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the United States by X. The interest is not deposit interest described
in sections 871(i)(2)(A) or 881(d). USP does not have a withholding
certificate from X as defined in Sec. 1.1441-1(c)(16). Moreover, USP
cannot treat X as an exempt recipient, as defined in Sec. 1.6049-
4(c)(1)(ii), without documentation and there is no indication that X is
an individual, trust, or estate.
(ii) Analysis. The U.S. source interest is an amount subject to
withholding as defined in Sec. 1.1441-2(a). Under paragraph (d)(1) of
this section, USP must apply the provisions of Sec. Sec. 1.1441-1(b)(2)
and 1.1441-5(c) and (e) to determine the payee of the interest. Under
Sec. 1.1441-1(b)(2)(i), X, the person to whom the payment is made, is
considered to be the payee, unless X is determined to be a flow-through
entity, in which case the rules of Sec. 1.1441-5 apply to determine the
payee. Under paragraph (d)(2)(i) of this section, the rules of Sec.
1.1441-1(b)(3)(ii) apply to determine the classification of a payee as
an individual, trust, estate, corporation, or partnership. Under Sec.
1.1441-1(b)(3)(ii)(B), X is presumed to be a partnership, since X does
not appear to be an individual, trust or estate, and X cannot be
presumed to be an exempt recipient in the absence of documentation.
Paragraph (d)(2)(i) of this section requires USP to apply the provisions
of Sec. Sec. 1.1441-1(b)(3)(iii) and 1.1441-5(d) to determine whether X
is presumed to be a U.S. or foreign partnership. Under Sec. Sec.
1.1441-1(b)(3)(iii) and 1.1441-5(d)(2), X is presumed to be a U.S.
partnership in absence of any indicia of foreign partnership status. The
U.S. source interest paid to X is reportable under section 6049 on Form
1099 and the interest is subject to backup withholding under section
3406 because X has not provided its TIN on a valid Form W-9.
Example 2. (i) Facts. The facts are the same as in Example 1, except
that the interest paid by USP is from sources outside the United States.
(ii) Analysis. Interest from sources outside the United States is
not an amount subject to withholding, as defined in Sec. 1.1441-2(a).
Under paragraph (d)(1) of this section, USP must apply the provisions of
Sec. Sec. 1.1441-1(b)(2) and 1.1441-5(c) and (e) to determine the
payee. Under Sec. 1.1441-1(b)(2)(i), X, the person to whom the payment
is made, is considered to be the payee, unless X is determined to be a
flow-through entity, in which case the rules of Sec. 1.1441-5(c) or (e)
apply to determine the payee. Under paragraph (d)(2)(i) of this section,
the rules of Sec. 1.1441-1(b)(3)(ii) apply to determine the
classification of a payee as an individual, trust, estate, corporation,
or partnership. These rules apply irrespective of whether the payment is
an amount subject to withholding. Under Sec. 1.1441-1(b)(3)(ii)(B), X
is presumed to be a partnership, since X does not appear to be an
individual, trust or estate, and X cannot be presumed to be an exempt
recipient in the absence of documentation. Paragraph (d)(2)(i) of this
section requires USP to apply the provisions of Sec. Sec. 1.1441-
1(b)(3)(iii) and 1.1441-5(d) to determine whether, X is presumed to be a
U.S. or foreign partnership. Under Sec. Sec. 1.1441-1(b)(3)(iii) and
1.1441-5(d)(2), X is presumed to be a U.S. partnership in absence of any
indicia of foreign partnership status. The foreign source interest is a
payment subject to reporting on Form 1099 under Sec. 1.6049-5(a).
Further, because X is a non-exempt recipient that has failed to provide
its TIN on a valid Form W-9, the foreign source interest is subject to
backup withholding under section 3406.
Example 3. (i) Facts. USP is a U.S. payor as defined in paragraph
(c)(5) of this section. USP makes a payment of U.S. source interest
outside the United States to an offshore account of X. See paragraphs
(c)(1) for a definition of offshore account and (e) for a payment
outside the United States. USP does not have a withholding certificate
from X as defined in Sec. 1.1441-1(c)(16) nor does it have documentary
evidence as described in Sec. 1.1441-1(e)(1)(ii)(A)(2) and 1.6049-
5(c)(1).
(ii) Analysis. The interest is an amount subject to withholding as
defined in Sec. 1.1441-2(a). Under paragraph (d)(1) of this section,
USP must apply the provisions of Sec. 1.1441-1(b)(2) and Sec. 1.1441-
5(c) and (e) to determine the payee. Under Sec. 1.1441-1(b)(2)(i), X,
the person to whom the payment is made, is considered to be the payee,
unless X is determined to be a flow-through entity, in which case the
rules of Sec. 1.1441-5(c) or (e) apply to determine the payee. Under
paragraph (d)(2)(i) of this section, the rules of Sec. 1.1441-
1(b)(3)(ii) apply to determine the classification of a payee as an
individual, trust, estate, corporation, or partnership. Under Sec.
1.1441-1(b)(3)(ii)(B), X is presumed to be a partnership, since X does
not appear to be an individual, trust or estate, and X cannot be
presumed to be an exempt recipient in the absence of documentation.
Paragraph (d)(2)(i) of this section requires USP to apply the provisions
of Sec. Sec. 1.1441-1(b)(3)(iii) and 1.1441-5(d) to determine whether,
X is presumed to be a U.S. or foreign partnership. Under Sec. Sec.
1.1441-1(b)(3)(iii)(D) and 1.1441-5(d)(2), X is presumed to be a foreign
partnership. Therefore, under paragraph (d)(1) of this section and Sec.
1.1441-5(c)(1)(i)(E), the payees of the interest are presumed to be the
partners of X. Under Sec. 1.1441-5(d)(3), the partners are presumed to
be undocumented foreign persons. Therefore, USP must withhold 30 percent
of the interest payment under Sec. 1.1441-1(b)(1) and report the
payment on Form 1042-S in accordance with Sec. 1.1461-1(c).
Example 4. (i) Facts. The facts are the same as in Example 3, except
that the interest is paid by F, a non-U.S. payor.
(ii) Analysis. The analysis and result are the same as in Example 3.
F is a withholding agent under Sec. 1.1441-7 and its status as a non-
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U.S. payor under paragraph (c)(5) of this section is irrelevant.
Example 5. (i) Facts. USP is a U.S. payor as defined in paragraph
(c)(5) of this section. USP makes a payment outside the United States of
interest from sources outside the United States to an offshore account
of X. USP does not have a withholding certificate from X as defined in
Sec. 1.1441-1(c)(16) nor does it have documentary evidence as described
in Sec. Sec. 1.1441-1(e)(1)(ii)(A)(2) and 1.6049-5(c)(1). USP does not
have actual knowledge of an employer identification number for X. X does
not appear to be an individual, trust, or estate and cannot be treated
as an exempt recipient, as defined in Sec. 1.6049-4(c)(1)(ii) in the
absence of documentation.
(ii) Analysis. The interest is not an amount subject to withholding
as defined in Sec. 1.1441-2(a). Under paragraph (d)(1) of this section,
USP must apply the rules of Sec. Sec. 1.1441-1(b)(2) and 1.1441-5(c)
and (e) to determine the payee of the interest. Under Sec. 1.1441-
1(b)(2)(i), X, the person to whom the payment is made, is considered to
be the payee, unless X is determined to be a flow-through entity, in
which case the rules of Sec. 1.1441-5(c) or (e) apply to determine the
payee. Under paragraph (d)(2)(i) of this section, Sec. 1.1441-
1(b)(3)(ii) applies to determine X's classification as an individual,
trust, estate, corporation or partnership. Under Sec. 1.1441-
1(b)(3)(ii)(B), X is treated as a partnership, since it does not appear
to be an individual, trust, or estate and cannot be treated as an exempt
recipient without documentation. Paragraph (d)(2)(i) of this section
requires USP to apply the provisions of Sec. Sec. 1.1441-1(b)(3)(iii)
and 1.1441-5(d) to determine whether, X is presumed to be a U.S. or
foreign partnership. Paragraph (d)(2)(i) also states that the
presumptions of foreign status for payments made to offshore accounts
contained in Sec. Sec. 1.1441-1(b)(3)(iii)(D) and 1.1441-5(d)(2) do not
apply to amounts that are not subject to withholding. Therefore, under
Sec. Sec. 1.1441-1(b)(3)(iii) and 1.1441-5(d)(2), X is presumed to be a
U.S. partnership because it does not have actual knowledge that X's
employer identification number begins with the digits ``98.'' Therefore,
USP must treat X as a U.S. person that is not an exempt recipient and
report the payment on Form 1099 under section 6049. Under Sec.
31.3406(g)-1(e) of this chapter, however, USP is not required to backup
withhold on the payment unless it has actual knowledge that X is a U.S.
person that is not an exempt recipient.
Example 6. (i) Facts. The facts are the same as in Example 5, except
that the interest is paid by F, a non-U.S. payor, as defined under
paragraph (c)(5) of this section.
(ii) Analysis. The analysis is the same as under Example 5. However,
because F is a non-U.S. payor paying foreign source interest outside the
United States, paragraph (b)(6) of this section exempts the payment from
reporting under section 6049.
Example 7. (i) Facts. USP, a U.S. payor as defined in paragraph
(c)(5) of this section, makes a payment of U.S. source interest to NQI,
a foreign corporation and a nonqualified intermediary as defined in
Sec. 1.1441-1(c)(14). The interest is not deposit interest as defined
in sections 871(i)(2)(A) and 881(d). The interest is paid inside the
United States to an account maintained in the United States. NQI has
provided USP with a nonqualified intermediary withholding certificate,
as described in Sec. 1.1441-1(e)(3)(iii), but has not attached any
documentation from the persons on whose behalf it acts or a withholding
statement as described in Sec. 1.1441-1(e)(3)(iv).
(ii) Analysis. U.S. source interest is an amount subject to
withholding under Sec. 1.1441-2(a). USP may treat the payment as made
to a foreign intermediary under Sec. 1.1441-1(b)(3)(v)(A) because USP
has received a nonqualified intermediary withholding certificate from
NQI. Under paragraph (d)(3)(i) of this section, USP must apply Sec.
1.1441-1(b)(2)(v) to determine the payees of the payment. Under Sec.
1.1441-1(b)(2)(v)(A), USP must treat the persons on whose behalf NQI is
acting as the payees. Paragraph (d)(3)(i) of this section also requires
USP to apply the presumption rules of Sec. 1.1441-1(b)(3)(v) if it
cannot reliably associate the payment with valid documentation from a
payee. See Sec. 1.1441-1(b)(2)(vii). Under Sec. 1.1441-1(b)(3)(v)(B),
the interest is treated as paid to an unknown foreign payee because it
cannot be reliably associated with documentation under Sec. 1.1441-
1(b)(2)(vii). Therefore, the payment is not subject to reporting on Form
1099 under paragraph (b)(12) of this section because the payment is
presumed made to a foreign person. The payment is subject to
withholding, however, under Sec. 1.1441-1(b) at a rate of 30 percent
and is subject to reporting on Form 1042-S under Sec. 1.1461-1(c).
Example 8. (i) Facts. The facts are the same as in Example 7, except
that the interest is paid outside the United States, as defined in
paragraph (e) of this section to an offshore account, as defined in
paragraph (c)(1) of this section.
(ii) Analysis. The analysis and results are the same as in Example
7. The rules of Sec. 1.1441-1(b)(3)(v) apply irrespective of where the
account is maintained or the payment made.
Example 9. (i) Facts. The facts are the same as in Example 8, except
that the interest is paid by F, a non-U.S. payor, as defined in
paragraph (c)(5) of this section.
(ii) Analysis. The analysis and results are the same as in Example
7.
Example 10. (i) USP, a U.S. payor as defined in paragraph (c)(5) of
this section, makes a payment of foreign source interest to NQI, a
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foreign corporation and a nonqualified intermediary as defined in Sec.
1.1441-1(c)(14). NQI has provided USP with a nonqualified intermediary
withholding certificate, as described in Sec. 1.1441-1(e)(3)(iii), but
has not attached any documentation from the persons on whose behalf it
acts or a withholding statement as described in Sec. 1.1441-
1(e)(3)(iv).
(ii) Analysis. Foreign source interest is not an amount subject to
withholding under chapter 3 of the Internal Revenue Code. See Sec.
1.1441-2(a). Under paragraph (d)(3)(ii)(A) of this section, amounts that
are not subject to withholding under chapter 3 of the Internal Revenue
Code that a payor may treat as paid to a foreign intermediary are
treated as made to an exempt recipient described in Sec. 1.6049-4(c).
Therefore, the foreign source interest is not subject to reporting on
Form 1099.
Example 11. (i) Facts. USP is a U.S. payor as defined in paragraph
(c)(5) of this section. USP pays U.S. source original issue discount
from the redemption of an obligation described in section 871(g)(1)(B)
to NQI, a foreign corporation that is a nonqualified intermediary as
defined in Sec. 1.1441-1(c)(14). The redemption proceeds are paid to an
account NQI has with USP in the United States. NQI provides a
nonqualified intermediary withholding certificate as described in Sec.
1.1441-1(e)(3)(iii) but does not attach any payee documentation or a
withholding statement described in Sec. 1.1441-1(e)(3)(iv).
(ii) Analysis. Under paragraph (d)(3)(ii)(A) of this section, USP
must treat the payment as made to an undocumented U.S. payee that is not
an exempt recipient and report the payment on Form 1099. Further,
because the payment is made inside the United States, the exception to
backup withholding for offshore accounts contained in Sec. 31.3406(g)-
1(e) of this chapter does not apply and the payment is subject to backup
withholding.
Example 12. (i) Facts. P, a payor, makes a payment to NQI of U.S.
source interest on debt obligations issued prior to July 18, 1984.
Therefore, the interest does not qualify as portfolio interest under
section 871(h) or 881(d). NQI is a nonqualified foreign intermediary, as
defined in Sec. 1.1441-1(c)(14), and has furnished P a valid
nonqualified intermediary withholding certificate described in Sec.
1.1441-1(e)(3)(iii) to which it has attached a valid Form W-9 for A, and
two valid beneficial owner Forms W-8, one for B and one for C. A is not
an exempt recipient under Sec. 1.6049-4(c). NQI furnishes a withholding
statement, described in Sec. 1.1441-1(e)(3)(iv), in which it allocates
20 percent of the U.S. source interest to A, but does not allocate the
remaining 80 percent of the interest between B and C. B's withholding
certificate indicates that B is a foreign pension fund, exempt from U.S.
tax under the U.S. income tax treaty with Country T. C's withholding
certificate indicates that C is a foreign corporation not entitled to a
reduced rate of withholding.
(ii) Analysis. Under paragraph (d)(3)(i) of this section, P applies
the rules of Sec. 1.1441-1(b)(2)(v) to determine the payees of the
interest. Under that section, the payees are the persons on whose behalf
NQI acts--A, B and C. Because P can reliably associate 20 percent of the
payment with valid documentation provided by A, P must treat 20 percent
of the interest as paid to A, a U.S. person not exempt from reporting,
and report the payment on Form 1099. P cannot reliably associate the
remaining 80 percent of the payment with valid documentation under Sec.
1.1441-1(b)(2)(vii) and, therefore, under paragraph (d)(3)(i) of this
section must apply the presumption rules of Sec. 1.1441-1(b)(3)(v).
Under that section, the interest is presumed paid to an unknown foreign
payee. Under paragraph (b)(12) of this section, P is not required to
report the interest presumed paid to a foreign person on Form 1099.
Under Sec. 1.1441-1(b), 80 percent of the interest is subject to 30
percent withholding, however, and the interest is reportable on Form
1042-S under Sec. 1.1461-1(c).
Example 13. (i) Facts. The facts are the same as in Example 12,
except that P can reliably associate 30 percent of the payment of
interest to B, but cannot reliably associate the remaining 70 percent
with A or C.
(ii) Analysis. Under paragraph (d)(3)(i) of this section, P applies
the rules of Sec. 1.1441-1(b)(2)(v) to determine the payees of the
interest. Under that section, the payees are the persons on whose behalf
NQI acts--A, B and C. Because P can reliably associate 30 percent of the
payment with B, a foreign pensions fund exempt from withholding under an
income tax treaty, P may treat that payment as paid to B and not subject
to reporting on Form 1099 under paragraph (b)(12) of this section. P
cannot reliably associate the remaining 70 percent of the payment with
valid documentation under Sec. 1.1441-1(b)(2)(vii) and, therefore,
under paragraph (d)(3)(i) of this section must apply the presumption
rules of Sec. 1.1441-1(b)(3)(v). Under that section, the interest is
presumed paid to an unknown foreign payee. Under paragraph (b)(12) of
this section, P is not required to report the interest presumed paid to
a foreign person on Form 1099. Under Sec. 1.1441-1(b), 80 percent of
the interest is subject to 30 percent withholding, however, and the
interest is reportable on Form 1042-S under Sec. 1.1461-1(c).
Example 14. (i) Facts. The facts are the same as in Example 12,
except that P also makes a payment of foreign source interest to NQI.
(ii) Analysis. Under paragraph (d)(3)(ii)(A), P may treat the
foreign source interest as paid to an exempt recipient as defined in
Sec. 1.6049-4(c) and not subject to reporting on
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Form 1099 even though some or all of the foreign source interest may in
fact be owned by A, the U.S. person that is not exempt from reporting.
(e) Determination of whether amounts are considered paid outside the
United States--(1) In general. For purposes of section 6049 and this
section, an amount is considered to be paid by a payor or middleman
outside the United States if the payor or middleman completes the acts
necessary to effect payment outside the United States. See paragraphs
(e)(2), (3), and (4) of this section for further clarification of where
amounts are considered paid. A payment shall not be considered to be
made within the United States for purposes of section 6049 merely by
reason of the fact that it is made on a draft drawn on a United States
bank account or by a wire or other electronic transfer from a United
States account. However, without regard to the location of the account
from which the amount is drawn, an amount that is described in paragraph
(e)(1) (i) or (ii) of this section and paid by transfer to an account
maintained by the payee in the United States or by mail to a United
States address is not considered to be paid outside the United States.
(i) An amount is described in this paragraph (e)(1)(i) if it is paid
by an issuer or the paying agent of the issuer and the obligation is
either--
(A) Issued by a U.S. payor, as defined in paragraph (c)(5) of this
section;
(B) Registered under the Securities Act of 1933 (15 U.S.C. 77a); or
(C) Listed on an exchange that is registered as a national
securities exchange in the United States or included in an interdealer
quotation system in the United States.
(ii) An amount is described in this paragraph (e)(1)(ii) if it is
paid by a U.S. middleman (as defined in paragraph (c)(5) of this
section) that, as a custodian, nominee, or other agent of a payee,
collects the amount for or on behalf of the payee.
(2) Amounts paid with respect to deposits or accounts with banks and
other financial institutions. Notwithstanding paragraph (e)(1) of this
section, an amount paid by a bank or other financial institution with
respect to a deposit or with respect to an account with the institution
is considered paid at the branch or office at which the amount is
credited unless the amount is collected by the financial institution as
the agent of the payee. However, an amount will not be considered to be
paid at the branch or office where the amount is considered to be
credited unless the branch or office is a permanent place of business
that is regularly maintained, occupied, and used to carry on a banking
or similar financial business; the business is conducted by at least one
employee of the branch or office who is regularly in attendance at such
place of business during normal business hours; and the branch or office
receives deposits and engages in one or more of the other activities
described in Sec. 1.864-4(c)(5)(i). In addition, an amount paid by a
bank or other financial institution with respect to a deposit or an
account with the institution is not considered paid at a branch or
office outside the United States if the customer has transmitted
instructions to an agent, branch, or office of the institution from
inside the United States by mail, telephone, electronic transmission, or
otherwise concerning the deposit or account (unless the transmission
from the United States has taken place in isolated and infrequent
circumstances).
(3) Coupon bonds and discount obligations in bearer form.
Notwithstanding paragraph (e)(1) of this section, an amount paid with
respect to a bond with coupons attached (including a certificate of
deposit with detachable interest coupons) or a discount obligation that
is not in registered form (within the meaning of section 163(f) and the
regulations thereunder) is considered to be paid where the coupon or the
discount obligation is presented to the payor or its paying agent for
payment. However, without regard to where the coupon or discount
obligation is presented for payment, an amount paid with respect to
either a bond with coupons attached or a discount obligation by transfer
to an account maintained by the payee in the United States or by mail to
the United States is considered paid in the United States if the payment
is described in paragraphs (e)(3) (i) and (ii) of this section.
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(i) The amount is paid by an issuer or the paying agent of the
issuer and the obligation is either--
(A) Issued by a U.S. payor, as defined in paragraph (c)(5) of this
section;
(B) Registered under the Securities Act of 1933 (15 U.S.C. 77a); or
(C) Listed on an exchange that is registered as a national
securities exchange in the United States or included in an interdealer
quotation system in the United States.
(ii) The amount is paid by a U.S. middleman (as defined in paragraph
(c)(5) of this section) that, as a custodian, nominee, or other agent of
payee, collects the amount for or on behalf of the payee.
(4) Foreign-targeted registered obligations. Notwithstanding
paragraph (e)(1) of this section, where the payor is the issuer or the
issuer's agent, an amount is considered paid outside the United States
with respect to a foreign-targeted registered obligation, as described
in Sec. 1.871-14(e)(2), if either the amount is paid by transfer to an
account maintained by the registered owner outside the United States, or
by mail to an address of the registered owner outside the United States,
or by credit to an international account. For purposes of this paragraph
(e)(4), the term international account means the book-entry account of a
financial institution (within the meaning of section 871(h)(4)(B)) or of
an international financial organization with the Federal Reserve Bank of
New York for which the Federal Reserve Bank of New York maintains
records that specifically identify an international financial
organization or a financial institution (within the meaning of section
871(h)(4)(B)) as either a non-United States person or a foreign branch
of a United States person as registered owner. An international
financial organization is a central bank or monetary authority of a
foreign government or a public international organization of which the
United States is a member to the extent that such central bank,
authority, or organization holds obligations solely for its own account
and is exempt from tax under section 892 or 895.
(5) Examples. The application of the provisions of this paragraph
(e) are illustrated by the following examples:
Example 1. FC is a foreign corporation that is not a U.S. payor or
U.S. middleman, as defined in paragraph (c)(5) of this section. A holds
FC coupon bonds that are not in registered form under section 163(f) and
the regulations thereunder, that were issued by FC in a public offering
outside the United States, that are not registered under the Securities
Act of 1933 (15 U.S.C. 77a), and that are neither listed on an exchange
that is registered as a national securities exchange in the United
States nor included in an interdealer quotation system. DC, a U.S.
corporation that is engaged in a commercial banking business, is the
designated fiscal agent for FC. FB, a foreign branch of DC, is the
designated paying agent with respect to the bonds issued by FC. A does
not have an account with FB. A presents a coupon from a FC bond for
payment to FB at its office outside the United States. FB pays A with a
check drawn against a bank account maintained in the United States. For
purposes of section 6049, the place of payment of interest on the FC
bond by FB to A is considered to be outside the United States under
paragraph (e)(3) of this section.
Example 2. The facts are the same as in Example 1 except that A
presents the coupon to FB at its office outside the United States with
instructions to transfer funds in payment to a bank account maintained
by A in the United States. FB transfers the funds in accordance with A's
instructions. Even though the amount is credited to an account in the
United States, the place of payment of interest on the FC bonds is
considered to be outside the United States under paragraph (e)(3) of
this section because the coupon is presented for payment outside the
United States; because FC is a foreign person that is not a U.S. payor
or U.S. middleman, as defined in paragraph (d)(1) of this section;
because FB is not acting as A's agent; and because the obligation is not
registered under the Securities Act of 1933 (15 U.S.C. 77a), listed on a
securities exchange that is registered as a national securities exchange
in the United States, or included in an interdealer quotation system.
Example 3. FC is a foreign corporation that is not a U.S. payor or
U.S. middleman, as defined in paragraph (d)(1) of this section. B, a
United States citizen, holds a bond issued by FC in registered form
under section 163(f) and the regulations thereunder and registered under
the Securities Act of 1933 (15 U.S.C. 77a). The bond is not a foreign-
targeted registered obligation as defined in Sec. 1.871-14(e)(2). DB, a
United States branch of a foreign corporation engaged in the commercial
banking business, is the registrar of the bonds issued by FC. DB
supplies FC with
[[Page 295]]
a list of the holders of the FC bonds. Interest on the FC bonds is paid
to B and other bondholders by checks prepared by FC at its principal
office outside the United States, and B's check is mailed from there to
his designated address in the United States. The bond is described in
paragraph (e)(1)(i)(B) of this section. The place of payment to B by FC
of the interest on the FC bonds is considered to be inside the United
States under paragraph (e)(1) of this section.
Example 4. The facts are the same as in Example 3 except that the
checks are prepared and mailed in the United States by DC, a U.S.
corporation engaged in the commercial banking business that is the
designated paying agent with respect to the bonds issued by FC, and B's
check is mailed to his designated address outside the United States. For
purposes of section 6049, the place of payment by DC of the interest on
the FC bonds is considered to be within the United States under
paragraph (e)(1) of this section.
Example 5. Individual C deposits funds in an account with FB, a
foreign country X branch of DB, a U.S. corporation engaged in the
commercial banking business. FB maintains an office and employees in
foreign country X, accepts deposits, and conducts one or more of the
other activities listed in Sec. 1.864-4(c)(5)(i). The terms of C's
deposit provide that it will be payable in six months with accrued
interest. On the day that the interest is credited to C's account with
FB, C telephones DB from inside the United States and asks DB to direct
FB to transfer the funds in his account with FB to an account C
maintains in the United States with DB. Transmissions from the United
States concerning this account have taken place in isolated and
infrequent circumstances. Under paragraph (e)(2) of this section, FB is
considered to have paid the interest on C's deposit outside the United
States.
Example 6. The facts are the same as in Example 5 except that C has
placed his deposit with FB for an indefinite period of time. Interest
will be credited to C's account daily. C has instructed FB to wire the
interest at 90-day intervals to C's account with DB within the United
States. FB is considered to have paid the interest credited to A's
account within the United States under paragraph (e)(2) of this section
because the regular crediting of the account disqualifies the
transmission from being isolated or infrequent.
Example 7. DC, a U.S. corporation engaged in the commercial banking
business, maintains FB, a branch in foreign country X. FB has an office
and employees in foreign country X, accepts deposits, and engages in one
or more of the other activities listed in Sec. 1.864-4(c)(5)(i). D, a
United States citizen, purchases a certificate of deposit issued in 1980
by FB. The certificate of deposit has a maturity of 20 years and has
detachable interest coupons payable at six-month intervals. D presents
some of the coupons at the U.S. office of DC and receives payment in
cash. Because the coupon is presented to DC for payment within the
United States, DC is considered to have made the payment within the
United States under paragraph (e)(3) of this section.
Example 8. FB is recognized by both foreign country X and by the
Federal Reserve Bank as a foreign country X branch of DC, a U.S.
corporation engaged in the commercial banking business. A local foreign
country X bank serves as FB's resident agent in Country X. FB maintains
no physical office or employees in foreign country X. All the records,
accounts, and transactions of FB are handled at the United States office
of DC. E deposits funds in an amount maintained with FB. Interest earned
on the deposit is periodically credited to E's account with FB by
employees of DC. For purposes of section 6049, the place of payment of
the interest on E's deposit with FB is considered to be within the
United States by reason of paragraphs (e)(1) and (2) of this section.
Example 9. DC is a U.S. corporation. A holds bonds that were issued
by DC in registered form under section 163(f) and the regulations
thereunder and that are foreign-targeted registered obligations as
defined in Sec. 1.871-14(e)(2). DB, a commercial banking business, is
the registrar of bonds issued by DC. Interest on the DC bonds is paid to
A and other bondholders by check prepared by DB at its principal office
inside the United States and mailed from there to A's address outside
the United States. The check is drawn on a United States account
maintained by DC with DB within the United States. The place of payment
to A by DB of the interest on the DC bonds is considered to be outside
the United States under paragraph (e)(4) of this section.
(f) Original issue discount treated as payment of interest. In
determining whether an obligation is one which was issued at a discount
and the amount of discount which is includible in income of the holder,
a payor (other than the issuer of the obligation) may rely on the
Internal Revenue Service's publication of publicly traded original issue
discount obligations. In the case of an obligation as to which there is
during any calendar year an amount of original issue discount includible
in the gross income of any holder (as determined under sections 1232 and
1232A and the regulations thereunder), the issuer of the obligation or a
middleman (as defined in Sec. 1.6049-4(f)(4)) shall be treated as
having paid to such holder during such calendar year an amount
[[Page 296]]
of interest equal to the amount of original issue discount so includible
without regard to any reduction by reason of a purchase allowance under
sections 1232(a)(2)(C)(ii), 1232A (a)(6) or (b)(4) or a purchase at a
premium under 1232A(c)(4)(A) or paragraph (d)(2) of Sec. 1.1232-3.
Thus, the determination of the amount of original issue discount
includible in the gross income of any holder with respect to any
obligation shall be determined as if any holder of the obligation were
the original holder. In the case of (1) an obligation to which section
1232A does not apply (for example, a short-term government obligation as
defined in section 1232(a)(3)) and (2) an obligation issued on or before
December 31, 1982, in bearer form, the amount of original issue discount
includible in gross income shall be treated as if paid in the calendar
year in which the date of maturity occurs or in which the date of
redemption occurs if redemption occurs before maturity. The amount
subject to reporting on an obligation issued in bearer form with a
maturity at the date of issue of more than 1 year (a long term
obligation) is the amount of original issue discount includible in the
gross income of the holder during the calendar year of maturity or
redemption if redemption occurs before maturity. The amount of original
issue discount subject to reporting on a long term obligation shall not
be reduced to reflect any purchase allowance. Discount on short term
government obligations as defined in section 1232(a)(3), such as
Treasury bills, and discount on other obligations with a maturity at the
date of issue of not more than 1 year (a short term obligation),
including commercial paper, when paid at maturity or redemption if
redemption occurs before maturity, shall constitute a payment of
interest for purposes of section 6049. In general, the amount subject to
reporting on short term obligations is the difference between the stated
redemption price at maturity and the original issue price. The procedure
set forth in section 3455(b)(2)(B) and Sec. 31.3455(b)-1(b)(3) for
establishing the price at which a holder purchased an obligation
subsequent to the date of original issue shall apply for purposes of
section 6049. Original issue discount on an obligation (including an
obligation with a maturity of not more than 6 months from the date of
original issue) held by a nonresident alien individual or foreign
corporation is interest described in paragraph (b)(1)(vi) (A) or (B) of
this section and, therefore is not interest subject to reporting under
section 6049 unless it is described in Sec. 1.6049-8(a) (relating to
bank deposit interest paid to a Canadian nonresident alien individual).
(g) Effective date--(1) General rule. The provisions of paragraphs
(b)(6) through (15), (c), (d), and (e) of this section apply to payments
made after December 31, 2000.
(2) Transition rules. The validity of a withholding certificate
(namely, Form W-8 or other form upon which the payor is permitted to
rely to hold the payee as a foreign person) that was valid on January 1,
1998, under the regulations in effect prior to January 1, 2001 (see 26
CFR parts 1 and 35a, revised April 1, 1999) and expired, or will expire,
at any time during 1998, is extended until December 31, 1998. The
validity of a withholding certificate that is valid on or after January
1, 1999, remains valid until its validity expires under the regulations
in effect prior to January 1, 2001 (see 26 CFR parts 1 and 35a, revised
April 1, 1999) but in no event shall such a withholding certificate
remain valid after December 31, 2000. The rule in this paragraph (g)(2),
however, does not apply to extend the validity period of a withholding
certificate that expires solely by reason of changes in the
circumstances of the person whose name is on the certificate.
Notwithstanding the first three sentences of this paragraph (g)(2), a
payor may choose not to take advantage of the transition rule in this
paragraph (g)(2) with respect to one or more withholding certificates
valid under the regulations in effect prior to January 1, 2001 (see 26
CFR parts 1 and 35a, revised April 1, 1999) and, therefore, may require
withholding certificates conforming to the requirements described in
this section (new withholding certificates). For purposes of this
section, a new withholding certificate is deemed to satisfy the
documentation requirement under the regulations in effect prior to
January 1, 2001 (see 26 CFR parts 1 and 35a, revised
[[Page 297]]
April 1, 1999). Further, a new withholding certificate remains valid for
the period specified in Sec. 1.1441-1(e)(4)(ii), regardless of when the
certificate is obtained.
[T.D. 7881, 48 FR 12972, Mar. 28, 1983, as amended by T.D. 7987, 49 FR
42719, Oct. 24, 1984; T.D. 8029, 50 FR 23680, June 5, 1985; T.D. 8664,
61 FR 17573, Apr. 22, 1996; T.D. 8734, 62 FR 53483, Oct. 14, 1997; T.D.
8804, 63 FR 72186, 72188, Dec. 31, 1998; T.D. 8856, 64 FR 73411, 73412,
Dec. 30, 1999; T.D. 8881, 65 FR 32207, May 22, 2000; 66 FR 18189, Apr.
6, 2001; T.D. 9241, 71 FR 4025, Jan. 24, 2006; T.D. 9253, 71 FR 13007,
Mar. 14, 2006]
Sec. 1.6049-5T Reporting by brokers of interest and original issue
discount on and after January 1, 1986 (temporary).
For purposes of Sec. 1.6049-5 (c), relating to original issue
discount treated as interest subject to reporting, on and after January
1, 1986, a payor who is a broker or middleman holding as a nominee--
(a) A bank certificate of deposit (without regard to whether the
broker or middleman sold the certificate of deposit to the owner), or
(b) Any other original issue discount debt instrument that is
specified by the Commissioner,
must determine whether that obligation is one that was issued at a
discount and the amount of discount that is includible in the income of
the owner. However, before January 1, 1987, reporting is required only
with respect to certificates of deposit (or any such other obligations)
held by a broker or middleman as a nominee on or after June 1, 1986,
that were sold by the broker or middleman (whether for the broker's
account or as an agent of the issuer) to the owner. The preceding two
sentences do not apply to certificates of deposit (or any such other
obligations) held on or after January 1, 1986, but disposed of before
June 1, 1986; reporting requirements with respect to such certificates
of deposit (or any other such obligations) shall be determined under the
provisions of Sec. 1.6049-5 (c) as in effect immediately prior to
publication of this Sec. 1.6049-5T.
[T.D. 8109, 51 FR 45106, Dec. 17, 1986]
Sec. 1.6049-6 Statements to recipients of interest payments and
holders of obligations for attributed original issue discount.
(a) Requirement of furnishing statement to recipient. Every person
filing a Form 1099 under section 6049(a) and Sec. 1.6049-4(e) shall
furnish to the person whose identifying number is required to be shown
on the form a written statement showing the information required by
paragraph (b) of this section. With respect to interest other than
interest reported on a transactional basis under Sec. 1.6049-4(e), no
statement is required to be furnished under section 6049(c) and this
section if the aggregate of the payments for the calendar year is less
than $10, unless such payment is subject to the tax imposed under
section 3406. In the case of any payment that is subject to withholding
under section 3406, a statement shall be furnished irrespective of the
amount of the payment. With respect to payments which are reported on a
transactional basis, no statement is required to be furnished under
section 6049(c) and this section to a person if the payment of interest
to (or received on behalf of) such person for the transaction is less
than $10 unless the payment is subject to withholding under section
3406. Again, in the case of any payment that is subject to withholding
under section 3406, a statement shall be furnished irrespective of the
amount of the payment.
(b) Form of statement. The written statement required to be
furnished to a person under paragraph (a) of this section shall show the
following information:
(1) With respect to payments of interest (other than original issue
discount) to any person during a calendar year, the statement shall
show:
(i) The aggregate amount of payments shown on Form 1099 as having
been made to (or received on behalf of) such person;
(ii) The amount of tax withheld under section 3406, if any;
(iii) The name and address of the person filing the form; and
(iv) A legend stating that such amount is being reported to the
Internal Revenue Service.
(2) With respect to original issue discount includible in the gross
income of
[[Page 298]]
a holder of an obligation during a calendar year, the statement shall
show:
(i) The aggregate amount of original issue discount includible in
the gross income by (or on behalf of) such person for the calendar year
with respect to the obligation (determined by applying the rules of
paragraph (b)(2) of Sec. 1.6049-4);
(ii) The amount of tax withheld under section 3406, if any;
(iii) The account, serial, or other identifying number of each
obligation with respect to which a return is being made;
(iv) All other items shown on Form 1099 for such calendar year; and
(v) A legend stating that such amount and such items are being
reported to the Internal Revenue Service.
(c) Time for furnishing statements. Each statement required by this
section to be furnished to any person for a calendar year with respect
to a payment of interest (other than interest where a middleman or a
Federal agency makes a return on a transactional basis (as described in
paragraph (e) of Sec. 1.6049-4)) shall be furnished to such person
after April 30 of the year of payment and on or before January 31 of the
following year, but no statement may be furnished before the final
interest payment for the calendar year. If a middleman or a Federal
agency makes a return on a transactional basis, the statement shall be
furnished at, or any time subsequent to, the time of payment, but in no
event later than January 31 of the year following the calendar year of
payment.
(d) Special rule. The requirements of this section for the
furnishing of a statement to any person, including the legend
requirement of paragraph (b)(1)(iv) and (2)(v) of this section, may be
met by the furnishing to such person a copy of the Form 1099 filed
pursuant to Sec. 1.6049-4, or an acceptable substitute, in respect of
such person. However, in the case of Form 1099 with respect to original
issue discount on obligations subject to section 1232A, a copy of the
instructions must also be sent to such person. A statement shall be
considered to be furnished to a person within the meaning of this
section if it is mailed to such person at his last known address.
(e) Statements to recipients--(1) Requirement. A person required to
make an information return under section 6049(a) and Sec. 1.6049-4 must
furnish a statement to each recipient whose identifying number is
required to be shown on the related information return for interest or
original issue discount paid or accrued.
(2) Form, manner, and time for providing statements to recipients.
The statement required by paragraph (e)(1) of this section must be
either the official Form 1099 prescribed by the Internal Revenue Service
for the respective calendar year or an acceptable substitute statement.
The rules under Sec. 1.6042-4 (relating to statements with respect to
dividends) apply comparably in determining the form of an acceptable
substitute statement permitted by this paragraph (e). Those rules also
apply for purposes of determining the manner of and time for providing
the Form 1099 or its acceptable substitute to a recipient under
paragraph (e)(1) of this section. However, with respect to original
issue discount, the Form 1099 or acceptable substitute statement
required by paragraph (e)(1) of this section must show the aggregate
amount of original issue discount includible in the gross income by the
recipient for the calendar year with respect to the obligation
(determined by applying the rules of Sec. 1.6049-4(b)(2)), and the
amount, serial number, or other identifying number of each obligation
with respect to which a return is being made. With respect to interest
or original issue discount, the Form 1099 or acceptable substitute
statement required by paragraph (e)(1) of this section must be furnished
to the recipient on or before January 31 of the year following the
calendar year for which the return under section 6049(a)(1) was required
to be made.
(3) Cross-reference to penalty. For provisions relating to the
penalty provided for failure to furnish timely a correct payee statement
required under section 6049(c) and Sec. 1.6049-6(a), see Sec.
301.6722-1 of this chapter (Procedure and Administration Regulations).
See Sec. 301.6724-1 of this chapter for the waiver of a penalty if the
failure is due to reasonable cause and is not due to willful neglect.
[[Page 299]]
(4) Special rule for amounts described in Sec. 1.6049-8(a) paid
after December 31, 1996. In the case of amounts described in Sec.
1.6049-8(a) (relating to payments of interest to Canadian nonresident
alien individuals) paid after December 31, 1996, any person who makes a
Form 1042-S under section 6049(a) and Sec. 1.6049-4(b)(5) shall furnish
a statement to the recipient. The statement shall include a copy of the
Form 1042-S required to be prepared pursuant to Sec. 1.6049-4(b)(5) and
a statement to the effect that the information on the form is being
furnished to the United States Internal Revenue Service and may be
furnished to Canada.
(5) Effective date. This paragraph (e) is effective for payee
statements due after December 31, 1995, without regard to extensions.
For the substantially similar statement mailing requirements that apply
with respect to forms required to be filed after October 22, 1986, and
before January 1, 1996, see Rev. Proc. 84-70 (1984-2 C.B. 716) (or
successor revenue procedures). See Sec. 601.601(d)(2) of this chapter.
[T.D. 7881, 48 FR 12976, Mar. 28, 1983, as amended by T.D. 8637, 60 FR
66111, Dec. 21, 1995; 61 FR 11307, Mar. 20, 1996; T.D. 8664, 61 FR
17574, Apr. 22, 1996; T.D. 8664, 61 FR 40993, Aug. 7, 1996; T.D. 8734,
62 FR 53491, Oct. 14, 1997]
Sec. 1.6049-7 Returns of information with respect to REMIC regular
interests and collateralized debt obligations.
(a) Definition of interest--(1) In general. For purposes of section
6049(a), for taxable years beginning after December 31, 1986, the term
interest includes:
(i) Interest actually paid with respect to a collateralized debt
obligation (as defined in paragraph (d)(2) of this section),
(ii) Interest accrued with respect to a REMIC regular interest (as
defined in section 860G(a)(1)), or
(iii) Original issue discount accrued with respect to a REMIC
regular interest or a collateralized debt obligation.
(2) Interest deemed paid. For purposes of this section and in
determining who must make an information return under section 6049(a),
interest as defined in paragraphs (a)(1) (ii) and (iii) of this section
is deemed paid when includible in gross income under section 860B (b) or
section 1272.
(b) Information required to be reported to the Internal Revenue
Service--(1) Requirement of filing Form 8811 by REMICs and other
issuers--(i) In general. Except in the case of a REMIC all of whose
regular interests are owned by one other REMIC, every REMIC and every
issuer of a collateralized debt obligation (as defined in paragraph
(d)(2) of this section) must make an information return on Form 8811,
Information Return for Real Estate Mortgage Investment Conduits (REMICs)
and Issuers of Collateralized Debt Obligations. Form 8811 must be filed
in the time and manner prescribed in paragraph (b)(1)(iii) of this
section. The submission of Form 8811 to the Internal Revenue Service
does not satisfy the election requirement specified in Sec. 1.860D-
1T(d) and does not require election of REMIC status.
(ii) Information required to be reported. The following information
must be reported to the Internal Revenue Service on Form 8811--
(A) The name, address, and employer identification number of the
REMIC or the issuer of a collateralized debt obligation (as defined in
paragraph (d)(2) of this section);
(B) The name, title, and either the address or the address and
telephone number of the official or representative of the REMIC or the
issuer of a collateralized debt obligation who will provide to any
person specified in paragraph (e)(4) of this section the interest and
original issue discount information specified in paragraph (e)(2) of
this section;
(C) The startup day (as defined in section 860G(a)(9)) of the REMIC
or the issue date (as defined in section 1275(a)(2)) of the
collateralized debt obligation;
(D) The Committee on Uniform Security Identification Procedure
(CUSIP) number, aocount number, serial number, or other identifying
number or information, of each class of REMIC regular interest or
collateralized debt obligation;
(E) The name, title, address, and telephone number of the official
or representative of the REMIC or the issuer of a collateralized debt
obligation
[[Page 300]]
whom the Internal Revenue Service may contact, and
(F) Any other information required by Form 8811.
(iii) Time and manner of filing of information return--
(A) Manner of filing. Form 8811 must be filed with the Internal
Revenue Service at the address specified on the form. The information
specified in paragraph (b(1)(ii) of this section must be provided on
Form 8811 regardless of whether other information returns are filed by
use of electronic media.
(B) Time for filing. Form 8811 must be filed by each REMIC or issuer
of a collateralized debt obligation on or before the later of July 31,
1989, or the 30th day after--
(1) the startup day (as defined in section 860G(a)(9)) in the case
of a REMIC, or
(2) the issue date (as defined in section 1275(a)(2)) in the case of
a collateralized debt obligation.
Further, each REMIC or issuer of a collateralized debt obligation must
file a new Form 8811 on or before the 30th day after any change in the
information previously provided on Form 8811.
(2) Requirement of reporting by REMICs, issuers, and nominees--(i)
In general. Every person described in paragraph (b)(2)(ii) of this
section who pays to another person $10 or more of interest (as defined
in paragraph (a) of this section) during any calendar year must file an
information return on Form 1099, unless the interest is paid to a person
specified in paragraph (c) of this section.
(ii) Person required to make reports. The persons required to make
an information return under section 6049(a) and this section are--
(A) REMICs or issuers of collateralized debt obligations (as defined
in paragraph (d)(2) of this section), and
(B) Any broker who holds as a nominee or middleman who holds as a
nominee any REMIC regular interest or any collateralized debt
obligation.
(iii) Information to be reported--(A) REMIC regular interests and
collateralized debt obligations not issued with original issue discount.
An information return on Form 1099 must be made for each holder of a
REMIC regular interest or collateralized debt obligation not issued with
original issue discount, but only if the holder has been paid interest
(as defined in paragraph (a) of this section) of $10 or more for the
calendar year. The information return must show--
(1) The name, address, and taxpayer identification number of the
record holder,
(2) The CUSIP number, account number, serial number, or other
identifying number or information, of each REMIC regular interest or
collateralized debt obligation, with respect to which a return is being
made,
(3) The aggregate amount of interest paid or deemed paid to the
record holder for the period during the calendar year for which the
return is made,
(4) The name, address, and taxpayer identification number of the
person required to file this return, and
(5) Any other information required by the form.
(B) REMIC regular interests and collateralized debt obligations
issued with original issue discount. An information return on Form 1099
must be made for each holder of a REMIC regular interest or a
collateralized debt obligation issued with original issue discount, but
only if the holder has been paid interest (as defined in paragraph (a)
of this section) of $10 or more for the calendar year. The information
return must show--
(1) The name, address, and taxpayer identification number of the
record holder,
(2) The CUSIP number, account number, serial number, or other
identifying number or information, of each REMIC regular interest or
collateralized debt obligation, with respect to which a return is being
made,
(3) The aggregate amount of original issue discount deemed paid to
the record holder for the period during the calendar year for which the
return is made,
(4) The aggregate amount of interest, other than original issue
discount, paid or deemed paid to the record holder for the period during
the calendar year for which the return is made,
(5) The name, address, and taxpayer identification number of the
person required to file this return, and
[[Page 301]]
(6) Any other information required by the form.
(C) Cross-reference. See Sec. 1.67-3T(f)(3)(ii) for additional
information required to be included on an information return on Form
1099 with respect to certain holders of regular interests in REMICs
described in Sec. 1.67-3T(a)(2)(ii).
(iv) Time and place for filing a return with respect to amounts
includible as interest. The returns required under this paragraph (b)(2)
for any calendar year must be filed after September 30 of that year, but
not before the payor's final payment to the payee for the year, and on
or before February 28 (March 31 if filed electronically) of the
following year. These returns must be filed with the appropriate
Internal Revenue Service Center, the address of which is listed in the
instructions for Form 1099. For extensions of time for filing returns
under this section, see Sec. 1.6081-1. For magnetic media filing
requirements, see Sec. 301.6011-2 of this chapter.
(c) Information returns not required. An information return is not
required under section 6049(a) and this section with respect to payments
of interest on a REMIC regular interest or collateralized debt
obligation, if the holder of the REMIC regular interest or the
collateralized debt obligation is--
(1) An organization exempt from taxation under section 501(a) or an
individual retirement plan;
(2) The United States or a State, the District of Columbia, a
possession of the United States, or a political subdivision or a wholly-
owned agency or instrumentality of any one or more of the foregoing;
(3) A foreign government, a political subdivision thereof, or an
international organization;
(4) A foreign central bank of issue (as defined in Sec. 1.895-
1(b)(1)) or the Bank for International Settlements;
(5) A trust described in section 4947(a)(1) (relating to certain
charitable trusts);
(6) For calendar quarters and calendar years after 1988, a broker
(as defined in section 6045(c) and Sec. 1.6045-1(a)(1));
(7) For calendar quarters and calendar years after 1988, a person
who holds the REMIC regular interest or collateralized debt obligation
as a middleman (as defined in Sec. 1.6049-4(f)(4));
(8) For calendar quarters and calendar years after 1988, a
corporation (as defined in section 7701(a)(3)), whether domestic or
foreign;
(9) For calendar quarters and calendar years after 1988, a dealer in
securities or commodities required to register as such under the laws of
the United States or a State;
(10) For calendar quarters and calendar years after 1988, a real
estate investment trust (as defined in section 856);
(11) For calendar quarters and calendar years after 1988, an entity
registered at all times during the taxable year under the Investment
Company Act of 1940;
(12) For calendar quarters and calendar years after 1988, a common
trust fund (as defined in section 584 (a));
(13) For calendar quarters and calendar years after 1988, a
financial institution such as a mutual savings bank, savings and loan
association, building and loan association, cooperative bank, homestead
association, credit union, industrial loan association or bank, or other
similar organization;
(14) For calendar quarters and calendar years after 1988, any trust
which is exempt from tax under section 664(c) (i.e., a charitable
remainder annuity trust or a charitable remainder unitrust); and
(15) For calendar quarters and calendar years after 1988, a REMIC.
(d) Special provisions and definitions--(1) Incorporation of
referenced rules. The special rules of Sec. 1.6049-4(d) are
incorporated in this section, as applicable, except that Sec. 1.6049-
4(d)(2) does not apply to any REMIC regular interest or any other debt
instrument to which section 1272(a)(6) applies. Further, Sec. 1.6049-
5(c) does not apply to any REMIC regular interest or any other debt
instrument to which section 1272(a)(6) applies.
(2) Collateralized debt obligation. For purposes of this section,
the term ``collateralized debt obligation'' means any debt instrument
(except a tax-exempt obligation) described in section
[[Page 302]]
1272(a)(6)(C)(ii) that is issued after December 31, 1986.
(e) Requirement of furnishing information to certain nominees,
corporations, and other specified persons--(1) In general. For calendar
quarters and calendar years after 1988, each REMIC or issuer of a
collateralized debt obligation (as defined in paragraph (d)(2) of this
section) must provide the information specified in paragraph (e)(2) of
this section in the time and manner prescribed in paragraph (e)(3) of
this section to any persons specified in paragraph (e)(4) of this
section who request the information.
(2) Information required to be reported. For each class of REMIC
regular interest or collateralized debt obligation and for each calendar
quarter specified by the person requesting the information, the REMIC or
issuer of a collateralized debt obligation must provide the following
information--
(i) The name, address and Employer Identification Number of the
REMIC or issuer of a collateralized debt obligation;
(ii) The CUSIP number, account number, serial number, or other
identifying number or information, of each specified class of REMIC
regular interest or collateralized debt obligation and, for calendar
quarters and calendar years after 1991, whether the information being
reported is with respect to a REMIC regular interest or a collateralized
debt obligation;
(iii) Interest paid on a collateralized debt obligation in the
specified class for each calendar quarter, and the aggregate amount for
the calendar year if the request is made for the last quarter of the
calendar year;
(iv) Interest accrued on a REMIC regular interest in the specified
class for each accrual period any day of which is in the specified
calendar quarter, and the aggregate amount for the calendar year if the
request is made for the last quarter of the calendar year;
(v) Original issue discount accrued on a collateralized debt
obligation or REMIC regular interest in the specified class for each
accrual period any day of which is in that calendar quarter, and the
aggregate amount for the calendar year if the request is made for the
last quarter of the calendar year;
(vi) The daily portion of original issue discount per $1,000 of
original principal amount (or for calendar quarters prior to 1992, per
other specified unit) as determined under section 1272(a)(6) and the
regulations thereunder for each accrual period any day of which is in
the specified calendar quarter;
(vii) The length of the accrual period;
(viii) The adjusted issue price (as defined in section
1275(a)(4)(B)(ii)) of the REMIC regular interest or the collateralized
debt obligation at the beginning of each accrual period any day of which
is in the specified calendar quarter;
(ix) The information required by paragraph (f)(3) of this section;
(x) Information required to compute the accrual of market discount
including, for calendar years after 1989, the information required by
paragraphs (f)(2)(i)(G) or (f)(2)(ii)(K) of this section; and
(xi) For calendar quarters and calendar years after 1991, if the
REMIC is a single class REMIC (as described in Sec. 1.67-3T
(a)(2)(ii)(B)), the information described in Sec. 1.67-3T (f)(1) and
(f)(3)(ii) (A) and (B).
(3) Time and manner for providing information--(i) Manner of
providing information. The information specified in paragraph (e)(2) of
this section may be provided as follows--
(A) By telephone;
(B) By written statement sent by first class mail to the address
provided by the requesting party;
(C) By causing it to be printed in a publication generally read by
and available to persons specified in paragraph (e)(4) and by notifying
the requesting persons in writing or by telephone of the publication in
which it will appear, the date of its appearance, and, if possible, the
page upon which it appears; or
(D) By any other method agreed to by the parties. If the information
is published, then the publication should also specify the date and, if
possible, the page on which corrections, if any, will be printed.
(ii) Time for furnishing the information. Each REMIC or issuer of a
[[Page 303]]
collateralized debt obligation must furnish the information specified in
paragraph (e)(2) of this section on or before the later of--
(A) The 30th day after the close of the calendar quarter for which
the information was requested, or
(B) The day that is two weeks after the receipt of the request.
(4) Persons entitled to request information. The following persons
may request the information specified in paragraph (e)(2) of this
section with respect to a specified class of REMIC regular interests or
collateralized debt obligations from a REMIC or issuer of a
collateralized debt obligation in the manner prescribed in paragraph
(e)(5) of this section--
(i) Any broker who holds on its own behalf or as a nominee any REMIC
regular interest or collateralized debt obligation in the specified
class,
(ii) Any middleman who is required to make an information return
under section 6049 (a) and paragraph (b)(2) of this section and who
holds as a nominee any REMIC regular interest or collateralized debt
obligation in the specified class,
(iii) Any corporation or non-calendar year taxpayer who holds a
REMIC regular interest or collateralized debt obligation in the
specified class directly, rather than through a nominee,
(iv) Any other person specified in paragraphs (c)(9) through (15) of
this section who holds a REMIC regular interest or collateralized debt
obligation in the specified class directly, rather than through a
nominee, or
(v) A representative or agent for a person specified in paragraphs
(e)(4)(i), (ii), (iii) or (iv) of this section.
(5) Manner of requesting information from the REMIC. A requesting
person specified in paragraph (e)(4) of this section should obtain
Internal Revenue Service Publication 938, Real Estate Mortgage
Investment Conduit (REMIC) and Collateralized Debt Obligation Reporting
Information (or other guidance published by the Internal Revenue
Service). This publication contains a directory of REMICs and issuers of
collateralized debt obligations. The requesting person can locate the
REMIC or issuer from whom information is needed and request the
information from the official or representative of the REMIC or issuer
in the manner specified in the publication. The publication will specify
either an address or an address and telephone number. If the publication
provides only an address, the request must be made in writing and mailed
to the specified address. Further, the request must specify the calendar
quarters (e.g., all calendar quarters in 1989) and the classes of REMIC
regular interests or collateralized debt obligations for which
information is needed.
(f) Requirement of furnishing statement to recipient--(1) In
general. Every person filing a Form 1099 under section 6049 (a) and this
section must furnish to the holder (the person whose identifying number
is required to be shown on the form) a written statement showing the
information required by paragraph (f)(2) of this section. The written
statement provided by a REMIC must also contain the information
specified in paragraph (f)(3) of this section.
(2) Form of statement--(i) REMIC regular interests and
collateralized debt obligations not issued with original issue discount.
For a REMIC regular interest or collateralized debt obligation issued
without original issue discount, the written statement must specify for
the calendar year the following information--
(A) The aggregate amount shown on Form 1099 to be included in income
by that person for the calendar year;
(B) The name, address, and taxpayer identification number of the
person required to furnish this statement;
(C) The name, address, and taxpayer identification number of the
person who must include the amount of interest in gross income;
(D) A legend, including a statement that the amount is being
reported to the Internal Revenue Service, that conforms to the legend on
Form 1099, Copy B, For Recipient;
(E) The CUSIP number, account number, serial number, or other
identifying number or information, of each REMIC regular interest or
collateralized debt obligation, with respect to which a return is being
made;
(F) All other items shown on Form 1099 for the calendar year; and
[[Page 304]]
(G) Information necessary to compute accrual of market discount. For
calendar years after 1989, this requirement is satisfied by furnishing
to the holder for each accrual period during the year a fraction
computed in the manner described in either paragraph (f)(2)(i)(G)(1) or
(f)(2)(i)(G)(2) of this section. For calendar years after December 31,
1991, the REMIC or the issuer of the collateralized debt obligation must
be consistent in the method used to compute this fraction.
(1) The numerator of the fraction equals the interest, other than
original issue discount, allocable to the accrual period. The
denominator of the fraction equals the interest, other than original
issue discount, allocable to the accrual period plus the remaining
interest, other than original issue discount, as of the end of that
accrual period. The interest allocable to each accrual period and the
remaining interest are calculated by taking into account events which
have occurred before the close of the accrual period and the prepayment
assumption, if any, determined as of the startup day (as defined in
section 860G(a)(9)) of the REMIC or the issue date (as defined in
section 1275(a)(2)) of the collateralized debt obligaiton that would be
made in computing original issue discount if the debt instrument had
been issued with original issue discount.
(2) If the REMIC regular interest or the collateralized debt
obligation has de minimis original issue discount (as defined in section
1273(a)(3) and any regulations thereunder), then, at the option of the
REMIC or the issuer of the collateralized debt obligation, the fraction
may be computed in the manner specified in paragraph (f)(2)(ii)(K) of
this section taking into account the de minimis original issue discount.
(ii) REMIC regular interests and collateralized debt obligations
issued with original issue discount. For a REMIC regular interest or
collateralized debt obligation issued with original issue discount, the
written statement must specify for the calendar year the following
information--
(A) The aggregate amount of original issue discount includible in
the gross income of the holder for the calendar year with respect to the
REMIC regular interest or the collateralized debt obligation;
(B) The aggregate amount of interest, other than original issue
discount, includible in the gross income of the holder for the calendar
year with respect to the REMIC regular interest or the collateralized
debt obligation;
(C) The name, address, and taxpayer identification number of the
person required to file this form;
(D) The name, address, and taxpayer identification number of the
person who must include the amount of interest specified in paragraphs
(f)(2)(ii) (A) and (B) of this section in gross income;
(E) For calendar years after 1987, the daily portion of original
issue discount per $l,000 of original principal amount (or for calendar
years prior to 1992, per other specified unit) as determined under
section 1272(a)(6) and the regulations thereunder for each accrual
period any day of which is in that calendar year;
(F) For calendar years after 1987, the length of the accrual period;
(G) All other items shown on Form 1099 for the calendar year;
(H) A legend, including a statement that the information required
under paragraphs (f)(2)(ii) (A), (B), (C), (D) and (G) of this section
is being reported to the Internal Revenue Service, that conforms to the
legend on Form 1099, Copy B, For Recipient;
(I) For calendar years after 1987, the adjusted issue price (as
defined in section 1275(a)(4)(B)(ii)) of the REMIC regular interest or
the collateralized debt obligation at the beginning of each accrual
period with respect to which interest income is required to be reported
on Form 1099 for the calendar year;
(J) The CUSIP number, account number, serial number, or other
identifying number or information, of each class of REMIC regular
interest or collateralized debt obligation, with respect to which a
return is being made; and
(K) Information necessary to compute accrual of market discount. For
calendar years after 1989, this information includes:
(1) For each accrual period in the calendar year, a fraction, the
numerator of which equals the original issue discount allocable to that
accrual period,
[[Page 305]]
and the denominator of which equals the original issue discount
allocable to that accrual period plus the remaining original issue
discount as of the end of that accrual period, and
(2) [Reserved]
The original issue discount allocable to each accrual period and the
remaining original issue discount are calculated by taking into account
events which have occurred before the close of the accrual period and
the prepayment assumption determined as of the startup day (as defined
in section 860G (a)(9)) of the REMIC or the issue date (as defined in
section 1275 (a)(2)) of the collateralized debt obligation.
(3) Information with respect to REMIC assets--(i) 95 percent asset
test. For calendar years after 1988, the written statement provided by a
REMIC must also contain the following information for each calendar
quarter--
(A) The percentage of REMIC assets that are qualifying real property
loans under section 593,
(B) The percentage of REMIC assets that are assets described in
section 7701 (a)(19), and
(C) The percentage of REMIC assets that are real estate assets
defined in section 856 (c)(6)(B), computed by reference to the average
adjusted basis (as defined in section 1011) of the REMIC assets during
the calendar quarter (as described in Sec. 1.860F-4 (e)(1)(iii)). If
for any calendar quarter the percentage of REMIC assets represented by a
category is at least 95 percent, then the statement need only specify
that the percentage for that category, for that calendar quarter, was at
least 95 percent.
(ii) Additional information required if the 95 percent test not met.
If, for any calendar quarter after 1988, less than 95 percent of the
assets of the REMIC are real estate assets defined in section 856
(c)(6)(B), then, for that calendar quarter, the REMIC's written
statement must also provide to any real estate investment trust (REIT)
that holds a regular interest the following information--
(A) The percentage of REMIC assets described in section 856
(c)(5)(A), computed by reference to the average adjusted basis of the
REMIC assets during the calendar quarter (as described in Sec. 1.860F-4
(e)(1)(iii)),
(B) The percentage of REMIC gross income (other than gross income
from prohibited transactions defined in section 860F (a)(2)) described
in section 856 (c)(3)(A) through (E), computed as of the close of the
calendar quarter, and
(C) The percentage of REMIC gross income (other than gross income
from prohibited transactions defined in section 860F (a)(2)) described
in section 856 (c)(3)(F), computed as of the close of the calendar
quarter. For purposes of this paragraph (f)(3)(ii)(C), the term
``foreclosure property'' contained in section 856 (c)(3)(F) shall have
the meaning specified in section 860G (a)(8).
In determining whether a REIT satisfies the limitations of section
856 (c)(2), all REMIC gross income is deemed to be derived from a source
specified in section 856 (c)(2).
(iii) Calendar years 1988 and 1989. For calendar years 1988 and
1989, the percentage of assets required in paragraphs (f)(3)(i) and (ii)
of this section may be computed by reference to the average fair market
value of the assets of the REMIC during the calendar quarter (as
described in Sec. 1.860F-4 (e)(1)(iii)), instead of by reference to the
average adjusted basis of the assets of the REMIC during the calendar
quarter.
(4) Cross-reference. See Sec. 1.67-3T (f)(2)(ii) for additional
information that may be separately stated on the statement required by
this paragraph (f) with respect to certain holders of regular interests
in REMICs described in Sec. 1.67-3T (a)(2)(ii).
(5) Time for furnishing statements--(i) For calendar quarters and
calendar years after 1988. For calendar quarters and calendar years
after 1988, each statement required under this paragraph (f) to be
furnished to any person for a calendar year with respect to amounts
includible as interest must be furnished to that person after April 30
of that year and on or before March 15 of the following year, but not
before the final interest payment (if any) for the calendar year.
(ii) For calendar quarters and calendar years prior to 1989--(A) In
general. For calendar quarters and calendar years
[[Page 306]]
prior to 1989, each statement required under this paragraph (f) to be
furnished to any person for a calendar year with respect to amounts
includible as interest must be furnished to that person after April 30
of that year and on or before January 31 of the following year, but not
before the final interest payment (if any) for the calendar year.
(B) Nominee reporting. For calendar quarters and calendar years
prior to 1989, each statement required under this paragraph (f) to be
furnished by a nominee must be furnished to the actual owner of a REMIC
regular interest or a collateralized debt obligation to which section
1272 (a)(6) applies on or before the later of--
(1) The 30th day after the nominee receives such information, or
(2) January 31 of the year following the calendar year to which the
statement relates.
(6) Special rules--(i) Copy of Form 1099 permissible. The
requirements of this paragraph (f) for the furnishing of a statement to
any person, including the legend requirement of paragraphs (f)(2)(i)(D)
and (f)(2)(ii)(H) of this section, may be met by furnishing to that
person--
(A) A copy of the Form 1099 filed pursuant to paragraph (b)(2) of
this section in respect of that person, plus a separate statement
(mailed with the Form 1099) that contains the information described in
paragraphs (f)(2)(i)(E) and (G), (f)(2)(ii)(E), (F), (I), and (K),
(f)(3), and (f)(4) of this section, if applicable, or
(B) A substitute form that contains all the information required
under this paragraph (f) and that complies with any current revenue
procedure concerning the reproduction of paper substitutes of Forms 1099
and the furnishing of substitute statements to forms recipients. The
inclusion on the substitute form of the information specified in this
paragraph (f) that is not required by the official Forms 1099 will not
cause the substitute form to fail to meet any requirements that limit
the information that may be provided with a substitute form.
(ii) Statement furnished by mail. A statement mailed to the last
known address of any person shall be considered to be furnished to that
person within the meaning of this section.
(7) Requirement that nominees furnish information to corporations
and certain other specified persons--(i) In general. For calendar
quarters and calendar years after 1988, every broker or middleman must
provide in writing or by telephone the information specified in
paragraph (e)(2) of this section to--
(A) A corporation,
(B) A non-calendar year taxpayer, or
(C) Any other person specified in paragraphs (c)(9) through (15) of
this section
who requests the information and for whom the broker or middleman holds
as a nominee a REMIC regular interest or a collateralized debt
obligation. A corporation, non-calendar year taxpayer, or any other
person specified in paragraphs (c)(9) through (15) of this section may
request the information in writing or by telephone for any REMIC regular
interest or collateralized debt obligation for calendar quarters any day
of which the person held the interest or obligation.
(ii) Time for furnishing information. The statement required in
paragraph (f)(7)(i) of this section must be furnished on or before the
later of--
(A) The 45th day after receipt of the request,
(B) The 45th day after the close of the calendar quarter for which
the information was requested, or
(C) If the request is made for the last calendar quarter in a year,
March 15 of the year following the calendar quarter for which the
information was requested.
[T.D. 8366, 56 FR 49518, Sept. 30, 1991; 57 FR 5054, Feb. 12, 1992, as
amended by T.D. 8431, 57 FR 40322, Sept. 3, 1992; 57 FR 46243, Oct. 7,
1992; T.D. 8734, 62 FR 53491, Oct. 14, 1997; T.D. 8888, 65 FR 37702,
June 16, 2000; T.D. 8895, 65 FR 50407, Aug. 18, 2000]
Sec. 1.6049-7T Market discount fraction reported with other financial
information with respect to REMICs and collateralized debt obligations
(temporary).
For purposes of Sec. 1.6049-7(f)(2)(i)(G)(1) relating to the market
discount fraction to be reported with other financial information with
respect to REMICs
[[Page 307]]
and other collateralized debt obligations, if the REMIC regular interest
or the collateralized debt obligation has de minimis original issue
discount (as defined in section 1273(a)(3) and any regulations
thereunder), then, at the option of the REMIC or the issuer of the
collateralized debt obligation, a fraction computed in the manner
specified in paragraph (f)(2)(ii)(K) of this section taking into account
the de minimis original issue discount may be reported instead of the
fraction specified in Sec. 1.6049-7(f)(2)(i)(G)(1)(i). The REMIC or the
issuer of the collateralized debt obligation, however, must be
consistent in the method used to compute this fraction.
[T.D. 8366, 56 FR 49518, Sept. 30, 1991]
Sec. 1.6049-8 Interest and original issue discount paid to residents
of Canada.
(a) Interest subject to reporting requirement. For purposes of
Sec. Sec. 1.6049-4, 1.6049-6 and this section and except as provided in
paragraph (b) of this section, the term interest means interest paid to
a Canadian nonresident alien individual after December 31, 1996, where
the interest is described in section 871(i)(2)(A) with respect to a
deposit maintained at an office within the United States. For purposes
of the regulations under section 6049, a Canadian nonresident alien
individual is an individual who resides in Canada and is not a United
States citizen. The payor or middleman may rely upon the permanent
residence address (as defined in section 1441 and the regulations under
that section) as stated on the Form W-8 (described in section 6049 and
the regulations under that section) in order to determine whether the
payment is made to a Canadian nonresident alien individual. The payor or
middleman may rely upon the permanent residence address (as defined in
Sec. 1.1441-1(e)(2)(ii)) as stated on the Form W-8 described in Sec.
1.1441-1(e)(2)(i) in order to determine whether the payment is made to a
Canadian nonresident alien individual. If the permanent residence
address stated on the certificate is in Canada, or if the payor has
actual knowledge of the individual's residence address in Canada, the
payor must presume that the individual resides in Canada. Amounts
described in this paragraph (a) are not subject to backup withholding
under section 3406. See Sec. 31.3406(g)-1(d) of this chapter.
(b) Interest excluded from reporting requirement. The term interest
does not include an amount that is paid by the issuer or its agent
outside the United States with respect to an obligation that is
described in paragraph (b) (1) or (2) of this section.
(1)(i) The obligation is not in registered form (within the meaning
of section 163(f) and the regulations thereunder); is part of a larger
single public offering of securities; and is described in section
163(f)(2)(B).
(ii) Unless it has actual knowledge to the contrary, a middleman may
treat an obligation as if it is described in section 163(f)(2)(B) if the
obligation or coupon therefrom, whichever is presented for payment,
contains the statement described in section 163(f)(2)(B)(ii)(II) and the
regulations thereunder.
(2)(i) The obligation has a face or principal amount of not less
than $500,000, and satisfies the requirements described in paragraphs
(b)(2)(i) (A), (B), and (C) of this section.
(A) The obligation satisfies the requirements of sections
163(f)(2)(B) (i) and (ii)(I) and the regulations thereunder (as if it
were a registration-required obligation within the meaning of section
163(f)(2)(A)) and is issued in accordance with the procedures of Sec.
1.163-5(c)(2)(i)(D)).
(B) If the obligation is in registered form, it is registered in the
name of an exempt recipient described in Sec. 1.6049-4(c)(1)(ii).
(C) The obligation has on its face and on any detachable coupons the
following statement (or a similar statement having the same effect):
``By accepting this obligation or coupon, the holder represents and
warrants that it is not a United States person (other than an exempt
recipient described in the regulations under section 6049(b)(4) of the
Internal Revenue Code and the regulations thereunder) and that it is not
acting for or on behalf of a United States person (other than an exempt
recipient described in the regulations under section 6049(b)(4) of the
Internal
[[Page 308]]
Revenue Code and the regulations thereunder).''
(ii) Unless the middleman has actual knowledge to the contrary, it
may treat an obligation as satisfying the requirements of sections
163(f)(2)(B) (i) and (ii)(I) and the regulations thereunder if the
obligation or a coupon therefrom, whichever is presented for payment,
contains the statement in paragraph (b)(2)(i)(C) of this section.
[T.D. 8664, 61 FR 17574, Apr. 22, 1996, as amended by T.D. 8734, 62 FR
53491, Oct. 14, 1997]
Sec. 1.6050A-1 Reporting requirements of certain fishing boat operators.
(a) Requirement of reporting. The operator of a boat on which one or
more individuals during a calendar year performed services described in
Sec. 31.3121(b)(20)-1(a) shall make an information return on Form 1099-
MISC for that calendar year. The return shall include the following
information:
(1) The name and taxpayer identification number of each individual
performing the services;
(2) The percentage of each individual's share of the catch of fish
or other forms of aquatic life (hereinafter ``fish'');
(3) The percentage of the operator's share of the catch of fish;
(4) If the individual receives all or part of his share of the catch
in kind, the type and weight of the share and, if it can be ascertained,
the fair market value of his share;
(5) If the individual receives a share of the proceeds of the catch,
the dollar amount received; and
(6) Any other information that is required by the form.
For purposes of this section, the term, ``boat operator'' means an
employer (as defined in Sec. 31.3121(d)-2) of an employee whose
services are excepted from employment by section 3121(b)(20) and Sec.
31.3121(b)(20)-1. The boat operator may make separate returns on Form
1099-MISC for each crew member for each voyage, or he may aggregate the
information required by this paragraph for an individual for all or any
part of a return period in which the type of catch (if required) and the
percentage due the crew member remain the same.
(b) Time and place for filing. Returns required to be made under
this section on Form 1099-MISC shall be filed with the Internal Revenue
Service Center, designated in the instructions for Form 1099-MISC, on or
before February 28 (March 31 if filed electronically) of the year
following the calendar year in which the relevant services were
performed.
(c) Requirement of and time for furnishing statement--(1)
requirement of furnishing statement. Every person filing a Form 1099-
MISC under this section shall furnish to the individual whose
identifying number is (or should be) shown on the form a written
statement showing the information required by paragraph (a) of this
section. The requirement of the preceding sentence may be met by
furnishing to the individual copy B of Form 1099-MISC or a reasonable
facsimile of Form 1099-MISC that was filed pursuant to this section.
(2) Time for furnishing statement. Each statement required by this
paragraph to be furnished to any individual for a calendar year shall be
furnished on or before January 31 of the year following the calendar
year for which the return was made.
(d) Cross-reference to penalties. For provisions relating to the
penalty provided for failure to file timely a correct information return
required under section 6050A(a) and Sec. 1.6050A-1(a), see Sec.
301.6721-1 of this chapter (Procedure and Administration Regulations).
For provisions relating to the penalty provided for failure to furnish
timely a correct payee statement required under section 6050A(b) and
Sec. 1.6050A-1(c), see Sec. 301.6722-1 of this chapter. See Sec.
301.6724-1 of this chapter for the waiver of a penalty if the failure is
due to reasonable cause and is not due to willful neglect.
[T.D. 7716, 45 FR 57123, Aug. 27, 1980, as amended by T.D. 8734, 62 FR
53492, Oct. 14, 1997; T.D. 8895, 65 FR 50407, Aug. 18, 2000]
Sec. 1.6050B-1 Information returns by person making unemployment
compensation payments.
For taxable years beginning after December 31, 1978, every person
who makes payments of unemployment compensation (as defined in section
85
[[Page 309]]
(c)) aggregating $10 or more to any individual during any calendar year
shall file a Form 1099UC in accordance with the instructions to such
form.
[T.D. 7705, 45 FR 46070, July 9, 1980]
Sec. 1.6050D-1 Information returns relating to energy grants and
financing.
(a) Requirement of reporting. Every person who administers a
Federal, State, or local program a principal purpose of which is to
provide subsidized energy financing (as defined in section 23(c)(10)(C)
and the regulations thereunder) or grants for projects designed to
conserve or produce energy shall make an information return for each
calendar year beginning after December 31, 1983. However, the preceding
sentence shall not apply if none of the financing and grants provided
under such program during the calendar year relate either to
expenditures described in section 23(c)(1) or (2), relating to the
residential energy credit, made by a taxpayer before January 1, 1986,
with respect to a dwelling unit or to section 38 property (as defined in
section 48 and the regulations thereunder). That return shall be made on
Form 6497 or, in the case of taxable gants, on Form 1099-G. (The latter
form is prescribed pursuant to section 6041 as well as section 6050D.)
The return shall include the following information:
(1) The name, address, and taxpayer identification number of each
taxpayer receiving financing or a grant made under such program during
the calendar year with respect to either section 38 property or in the
case of financing or a grant for energy conservation expenditures or
renewable energy source expenditures made by the taxpayer before January
1, 1986, a dwelling unit that is located in the United States;
(2) The aggregate amount of financing and grants received by the
taxpayer under the program during the calendar year,
(3) In the case of returns for financing or nontaxable grants, the
name of the program under which the financing or grants are made; and
(4) Any other information that is required by the form.
For purposes of this section, the term ``person'' means the officer or
employee having control of the program, or the person appropriately
designated for purposes of section 6050D and this section.
(b) Time and place for filing. Returns required to be made under
this section shall be filed with the Internal Revenue Service Center
designated in the instructions for Form 6497 or 1099-G on or before the
last day of February (March 31 if filed electronically) of the year
following the calendar year for which the return is made.
(Secs. 6050D and 7805, Internal Revenue Code of 1954 (94 Stat. 259, 26
U.S.C. 6050D; 68A Stat. 917, 26 U.S.C. 7805))
[T.D. 8018, 50 FR 12532, Mar. 29, 1985, as amended by T.D. 8146, 52 FR
26673, July 16, 1987; T.D. 8895, 65 FR 50407, Aug. 18, 2000]
Sec. 1.6050E-1 Reporting of State and local income tax refunds.
(a) Applicability. Section 6050E and this section apply to any
refund officer who, with respect to an individual, makes payments of
refunds of State or local income taxes or allows credits or offsets with
respect to such taxes aggregating $10 or more for such individual in any
calendar year.
(b) Definitions. For purposes of this section--
(1) The term refund officer means the officer or employee of a State
or local taxing jurisdiction having control of payments of refunds or
the allowance of credits or offsets, or the person approporiately
designated for purposes of this section.
(2) The term State shall include the District of Columbia but shall
not include the Commonwealth of Puerto Rico or any possession of the
United States.
(3) The term individual shall not include an estate or trust.
(4) The term credit or offset means an overpayment of tax which, in
lieu of being refunded to the taxpayer, is:
(i) Applied against an existing liability of the taxpayer,
(ii) Available for application against a future liability of the
taxpayer, or
(iii) Otherwise used or available for use for the taxpayer's
benefit.
(c) Requirement of reporting. Every refund officer described in
paragraph (a)
[[Page 310]]
of this section shall make an information return in accordance with this
section for each calendar year. An information return must be made even
if the refund officer is not required to furnish a statement to the
applicable taxpayer under paragraph (k)(2) of this section.
(d) Prescribed Form. Except as otherwise provided in paragraph (i)
of this section, the information return required by paragraph (c) of
this section shall be made on Forms 1096 and 1099.
(e) Refunds involving different taxable years. In the case of
refunds paid or credits or offsets allowed during a calendar year with
respect to two or more taxable years of an individual, a separate Form
1099 shall be filed with respect to each taxable year of the individual.
Thus, if during calendar year 1983 a refund officer pays to an
individual a refund of $15 with respect to that individual's taxable
year ending in 1982 and $20 with respect to that individual's taxable
year ending in 1981, a separate Form 1099 shall be filed for each of the
two payments. If, instead, the refund with respect to the individual's
taxable year ending in 1982 were $5 instead of $15, no return would be
required for the payment of $5.
(f) Information required. The information required to be reported on
Forms 1096 and 1099 includes the aggregate amount of refunds, credits,
and offsets made or allowed during the calendar year with respect to the
taxable year of the individual covered by the return; the name, address
and taxpayer identification number of the individual with respect to
whom such payment, credit, or offset was made or allowed; the taxable
year covered by the return; and such other information as may be
required by the forms. In addition, the nature of the tax is required to
be indicated on the Form 1099 in any case where the refund, credit or
offset is made or allowed with respect to a payment attributable to an
income tax that applies exclusively to income from a trade or business
and is not a tax of general application.
(g) When credit or offset deemed allowed. For purposes of a return
of information under this section, a credit or offset is deemed to be
allowed when the liability to pay or credit such amount is admitted by
the State or local taxing jurisdiction. Thus, if an amount with respect
to a taxpayer's 1982 taxable year is credited in 1983 to reduce the
liability of the taxpayer to make estimated tax payments in 1983, it is
reportable as a credit allowed in 1983. It is not reportable in the
taxable year that gives rise to the refund, credit or offset.
(h) Time and place for filing. The returns required under this
section for any calendar year shall be filed after September 30 of that
calendar year, but not before the refund officer's final payment (or
allowance of credit or offset) for the year, and on or before February
28 (March 31 if filed electronically) of the following year. Returns
shall be filed with the appropriate Internal Revenue Service Center, the
addresses of which are listed in the instructions for Forms 1099. For
extensions of time for filing returns under this section, see Sec.
1.6081-1.
(i) Use of magnetic media and substitute forms--(1) Magnetic media.
A refund officer may be required to file the Forms 1099 required by this
section on magnetic media or machine-readable paper forms. See section
6011(e) and applicable regulations and revenue procedures thereunder. If
a refund officer is not required to file the Forms 1099 required by this
section on magnetic media, the refund officer may request permission
under applicable regulations and revenue procedures to submit the
information required by this section on magnetic media.
(2) Substitute forms. A refund officer may prepare and use a form
which contains provisions identical with those of Form 1096 if the
refund officer complies with all revenue procedures relating to
substitute Form 1096 in effect at that time. In addition, if a refund
officer is not required to file the Forms 1099 required by this section
on magnetic media or machine-readable paper forms, the refund officer
may prepare and use a form which contains provisions identical with
those of Form 1099 if the refund officer complies with all revenue
procedures relating to substitute Form 1099 in effect at that time.
[[Page 311]]
(j) Voluntary information exchange agreements. The requirements of
reporting information to the Internal Revenue Service under this section
may be satisfied for any calendar year by submission of the information
required under paragraph (f) of this section in accordance with the
terms of a voluntary information exchange agreement between the State
and the United States in effect during such year.
(k) Requirement of furnishing statements to recipients--(1) In
general. Except as provided in paragraph (k)(2) of this section, every
refund officer required to make a return of information under this
section shall furnish to the individual whose identifying number is
required to be shown on the return a written statement showing the
aggregate amount shown on the information return of refunds, credits and
offsets made or allowed to such individual with respect to each taxable
year of the individual, the name of the State or local taxing
jurisdiction paying such refund or allowing such credits or offsets, the
taxable year giving rise to the refund, credit or offset and a legend
stating that such amount is being reported to the Internal Revenue
Service. The requirement of this paragraph may be met by furnishing to
the individual a copy of the Form 1099 filed with respect to that
individual provided that the form bears a legend stating that such
amount is being reported to the Internal Revenue Service. For purposes
of this paragraph, a statement shall be considered to be furnished to an
individual if it is mailed to the individual at the individual's last
known address.
(2) Exception for nonitemizers. A refund officer need not furnish a
statement to an individual under paragraph (k)(1) of this section if the
refund officer verifies that the individual did not claim itemized
deductions for Federal income tax purposes for the taxable year giving
rise to the refund, credit, or offset. This exception shall not apply,
however, if the refund, credit, or offset is made or allowed with
respect to a payment attributable to an income tax that applies
exclusively to income from a trade or business and is not a tax of
general application. For purposes of this paragraph (k)(2), verification
shall be made solely from--
(i) The State or local income tax return, or
(ii) Information obtained through a voluntary information exchange
agreement with the United States for the applicable taxable year.
(3) Verification from the State or local income tax return. A refund
officer shall verify from the State or local income tax return that an
individual did not claim itemized deductions for Federal income tax
purposes for the applicable taxable year only if--
(i)(A) An individual who itemized deductions for Federal income tax
purposes either must attach a copy of Schedule A of the individual's
Federal income tax return to the State or local income tax return or
must transcribe information from Schedule A of the individual's Federal
income tax return on the State or local income tax return;
(B) The information contained on or transcribed from the Schedule A
is required for the purpose of computing liability for the State or
local income tax; and
(C) The omission of a copy of the Schedule A, or of the information
required to be transcribed from the Schedule A, is consistent with the
taxpayer's computation of tax on the State or local income tax return;
or
(ii) Individuals are required to transcribe information from their
Federal income tax return (other than from Schedule A) on the State or
local income tax return for the purpose of computing liability for the
State or local income tax and the information can be used to determine
conclusively whether the taxpayer itemized deductions for Federal income
tax purposes.
(4) Example. The provisions of paragraph (k)(3)(ii) of this section
may be illustrated by the following example:
Example. State X asks for transcription of the following information
on its 1983 income tax return from the taxpayer's 1983 Federal income
tax return: Adjusted gross income; taxable income; and number of
exemptions claimed. The amount of adjusted gross income and the number
of exemptions claimed on the Federal income tax return are taken into
account in computing the liability for income tax under the laws of
State X. The amount of taxable income transcribed from
[[Page 312]]
the Federal return, however, does not enter into the computation of
liability for income tax under the laws of State X. Thus, this amount
may not be taken into account by the refund officer of State X for
purposes of verifying whether a taxpayer itemized deductions for Federal
income tax purposes. Since the refund officer of State X will not be
able to determine conclusively from the amount of adjusted gross income
and the number of exemptions transcribed from the Federal return whether
a taxpayer itemized deductions for Federal income tax purposes, the
transcribed information does not meet the requirements of paragraph
(k)(3)(ii) of this section.
(l) Time for furnishing statements--(1) General rule. The statement
required under paragraph (k) of this section shall be furnished after
December 31 of the year in which the refund is paid or credit or offset
is allowed, and on or before January 31 of the following year.
(2) Extensions of time. For good cause shown upon written
application of the refund officer, the service center director may grant
an extension of time not exceeding 30 days in which to furnish
statements under this paragraph. The application shall be addressed to
the Service Center with which the Forms 1099 required under this section
are required to be filed and shall contain a concise statement of the
reasons for requesting the extension to aid the service center director
in determining the period of the extension, if any, which will be
granted. The application shall state at the top of the first page that
it is made under this section and shall be signed by the refund officer.
In general, the application shall be filed after September 30 of the
year in which the refund is paid or credit or offset is allowed, and
before January 15 of the following year.
(m) Effective date. This section applies to payments of refunds and
credits and offsets allowed after December 31, 1982.
[T.D. 8052, 50 FR 37349, Sept. 13, 1985, as amended by T.D. 8895, 65 FR
50408, Aug. 18, 2000]
Sec. 1.6050H-0 Table of contents.
This section lists the major captions that appear in Sec. Sec.
1.6050H-1 and 1.6050H-2.
Sec. 1.6050H-1 Information reporting of mortgage interest received in a
trade or business from an individual.
(a) Information reporting requirement.
(1) Overview.
(2) Reporting requirement.
(3) Optional reporting.
(b) Qualified mortgage.
(1) In general.
(2) Mortgage.
(i) In general.
(ii) Transitional rule for certain obligations existing on December
31, 1984.
(iii) Transitional rule for certain obligations existing on December
31, 1987.
(3) Payor of record.
(4) Lender of record.
(c) Interest recipient.
(1) Trade or business requirement.
(2) Interest received or collected on behalf of another person.
(i) General rule.
(ii) Exception.
(3) Interest received in the form of points.
(i) In general.
(ii) If designation agreement is in effect.
(4) Governmental unit.
(5) Examples.
(d) Additional rules.
(1) Reporting by foreign person.
(2) Reporting with respect to nonresident alien individual.
(i) In general.
(ii) Nonresident alien individual status.
(3) Reporting by cooperative housing corporations.
(e) Amount of interest received on mortgage for calendar year.
(1) In general.
(2) Calendar year.
(i) In general.
(ii) De minimis rule.
(iii) Applicability to points.
(3) Certain interest not received on mortgage.
(i) Interest received from seller on payor of record's mortgage.
(ii) Interest received from governmental unit.
(4) Interest calculated under Rule of 78s method of accounting.
(f) Points treated as interest.
(1) General rule.
(2) Limitations.
(3) Special rule.
(i) Amounts paid directly by payor of record.
(ii) Examples.
(4) Construction loans.
(i) In general.
(ii) Limitation on refinancing of construction loans.
(5) Amounts paid to mortgage brokers.
(6) Effect on deduction of points.
(g) Effective date.
(1) In general.
[[Page 313]]
(2) Points.
Sec. 1.6050H-2 Time, form, and manner of reporting interest received on
qualified mortgage.
(a) Requirement to file return.
(1) Form of return.
(2) Information included on return.
(3) Reimbursements of interest on a qualified mortgage.
(4) Time and place for filing return.
(5) Use of magnetic media.
(b) Requirement to furnish statement.
(1) In general.
(2) Information included on statement.
(3) Statement furnished pursuant to Federal mortgage program.
(4) Copy of Form 1098 to payor of record.
(5) Furnishing statement with other information reports.
(6) Time and place for furnishing statement.
(c) Notice requirement for use of Rule of 78s method of accounting.
(1) In general.
(2) Time and manner.
(d) Reporting under designation agreement.
(1) In general.
(2) Qualified person.
(3) Designation agreement.
(4) Penalties.
(e) Penalty provisions.
(1) Returns and statements the due date for which (determined
without regard for extensions) is after December 31, 1987, and before
December 31, 1989.
(i) Failure to file return or to furnish statement.
(ii) Failure to furnish TIN.
(iii) Failure to include correct information.
(2) Returns and statements the due date for which (determined
without regard for extensions) is after December 31, 1989.
(i) Failure to file return or to furnish statement.
(ii) Failure to furnish TIN.
(iii) Failure to include correct information.
(f) Requirement to request and to obtain TIN.
(1) In general.
(2) Manner of requesting TIN.
(g) Effective date.
(1) In general.
(2) Points.
[T.D. 8571, 59 FR 63250, Dec. 8, 1994]
Sec. 1.6050H-1 Information reporting of mortgage interest received
in a trade or business from an individual.
(a) Information reporting requirement--(1) Overview. The information
reporting requirements of section 6050H, this section, and Sec.
1.6050H-2 apply to an interest recipient who receives at least $600 of
interest on a qualified mortgage for a calendar year or who makes a
reimbursement of interest described in Sec. 1.6050H-2(a)(2)(iv).
Paragraph (b) of this section defines qualified mortgage. Paragraph (c)
of this section defines interest recipient. Paragraph (d) of this
section contains additional rules relating to the reporting requirement
for foreign persons, cooperative housing corporations, and nonresident
alien individuals. Paragraph (e) of this section contains rules for
determining the amount of interest received on a mortgage for a calendar
year. Paragraph (f) of this section provides rules for determining when
prepaid interest in the form of points is taken into account as interest
for purposes of section 6050H, this section, and Sec. 1.6050H-2.
(2) Reporting requirement. Except as otherwise provided in this
section and Sec. 1.6050H-2, an interest recipient that either receives
at least $600 of interest on a qualified mortgage for a calendar year or
makes reimbursements of interest described in Sec. 1.6050H-2(a)(2)(iv)
must, with respect to that interest--
(i) File an information return with the Internal Revenue Service;
and
(ii) Furnish a statement to the payor of record on the mortgage.
(3) Optional reporting. An interest recipient may, but is not
required to, report its receipt of less than $600 of interest on a
qualified mortgage for a calendar year. Similarly, an interest recipient
also may report reimbursements of interest on a qualified mortgage even
if the reimbursements are not required to be reported by Sec. 1.6050H-
2(a)(2)(iv). An interest recipient that chooses, but is not required, to
file a return as provided in this section and Sec. 1.6050H-2(a) or to
furnish a statement as provided in this section and Sec. 1.6050H-2(b)
is subject to the requirements of this section and Sec. 1.6050H-2.
(b) Qualified mortgage--(1) In general. A mortgage is a qualified
mortgage if the payor of record on the mortgage is an individual,
including an individual acting in a capacity as a sole proprietor of a
business. A mortgage is not a qualified mortgage if the payor of
[[Page 314]]
record on the mortgage is not an individual (such as a trust, estate,
partnership, association, company, or corporation), even though an
individual is a co-borrower on the mortgage and all the trustees,
beneficiaries, partners, members, or shareholders of the payor of record
are individuals.
(2) Mortgage--(i) In general. Except as otherwise provided in
paragraphs (b)(2)(ii) and (b)(2)(iii) of this section, an obligation is
a mortgage if real property (regardless of where located) secures all or
part of the obligation. An interest recipient must determine whether
real property secures an obligation at the time the obligation is
created or, if security is added or removed at a later time, at that
later time. Real property includes a manufactured home as defined in
section 25(e)(10). An obligation includes a line of credit or a credit
card obligation. For purposes of this section and Sec. 1.6050H-2, a
borrower incurs a line of credit or credit card obligation when the
borrower first has the right to borrow against the line of credit or
credit card, whether the borrower actually borrows an amount at that
time. An obligation will not fail to be treated as a mortgage solely
because, under an applicable State or local homestead law or other
debtor protection law in effect on August 16, 1986, the security
interest is ineffective or the enforceability of the security interest
is restricted.
(ii) Transitional rule for certain obligations existing on December
31, 1984--(A) In general. An obligation that existed on December 31,
1984, is not a mortgage if, at the time the payor of record incurred the
obligation, the interest recipient reasonably classified the obligation
as other than a mortgage, real property loan, real estate loan, or other
similar type of obligation. A reasonable classification of an obligation
must be consistent with industry practices and determined according to
the purpose of the obligation, the property securing the obligation, and
any other reasonable factor. For purposes of this paragraph
(b)(2)(ii)(A), an obligation was not reasonably classified as other than
a mortgage, real property loan, real estate loan, or other similar type
of obligation if, at the time the payor of record incurred the
obligation, more than one-half of the obligations in the particular
class in which the obligation was classified were secured primarily by
real property.
(B) Examples. The following examples illustrate the rules of
paragraph (b)(2)(ii)(A) of this section:
Example (1). B offers an unsecured line of credit and a line of
credit secured by real property. B separately markets the two credit
lines, and they are governed by different terms and conditions. For
accounting purposes, B classifies the two types of loans as a single
class. For purposes of paragraph (b)(2)(ii)(A) of this section, the two
types of loans are different classes of obligations.
Example (2). B operates a program to make loans to small businesses.
Depending on the amount of the loan and the credit history of the
borrower, B may or may not require security for the loan. If B requires
security, it may consist of real or personal property. For accounting
purposes, B classifies all of the loans within this program as a single
class. For purposes of paragraph (b)(2)(ii)(A) of this section, all of
the loans within this program may be classified as belonging to a single
class.
(iii) Transitional rule for certain obligations existing on December
31, 1987. An obligation that was incurred after December 31, 1984, and
that existed on December 31, 1987, is not a mortgage if the obligation
is not primarily secured by real property.
(3) Payor of record. A payor of record on a mortgage is the person
carried on the books and records of the interest recipient as the
principal borrower on the mortgage. If the books and records of the
interest recipient do not indicate which borrower is the principal
borrower, the interest recipient must designate a borrower as the
principal borrower.
(4) Lender of record. The lender of record is the person who, at the
time the loan is made, is named as the lender on the loan documents and
whose right to receive payment from the payor of record is secured by
the payor of record's principal residence. An intention by the lender of
record to sell or otherwise transfer the loan to a third party
subsequent to the close of the transaction will not affect the
determination of who is the lender of record.
(c) Interest recipient--(1) Trade or business requirement. Except as
provided in
[[Page 315]]
paragraph (c)(4) of this section, an interest recipient is a person that
is engaged in a trade or business (whether or not the trade or business
of lending money) and that, in the course of the trade or business,
either receives interest on a mortgage or makes a reimbursement of
interest on a qualified mortgage described in Sec. 1.6050H-2(a)(3). For
purposes of this paragraph (c)(1), if a person holds a mortgage which
was originated or acquired in the course of a trade or business, the
interest on the mortgage is considered to be received in the course of
that trade or business. For example, if real estate developer A lends
money to individual B to enable B to purchase a house in a subdivision
owned and developed by A, and B gives a mortgage to A for the loan, A is
an interest recipient for interest received on the mortgage.
Alternatively, if C, a person engaged in the trade or business of being
a physician, lends money to individual D to enable D to purchase C's
home, and D gives a mortgage to C for the loan, C is not an interest
recipient for interest received on the mortgage, because C will not
receive the interest in the course of the trade or business of being a
physician.
(2) Interest received or collected on behalf of another person--(i)
General rule. Except as otherwise provided in paragraph (c)(2)(ii) or
(3) of this section, a person that, in the course of its trade or
business, receives or collects interest on a mortgage on behalf of
another person (e.g., the lender of record) is the interest recipient
(the initial recipient) for the mortgage. In this case, the reporting
requirement of paragraph (a) of this section does not apply to the
transfer of interest from the initial recipient to the person for which
the initial recipient receives or collects the interest. For example, if
financial institution A collects interest on behalf of financial
institution B, A is the initial recipient for the mortgage and is
subject to the reporting requirements of section 6050H, and B is not
required to report the interest received on the mortgage from A.
(ii) Exception--(A) Scope of exception. Paragraph (c)(2)(i) of this
section does not apply for any period for which--
(1) An initial recipient does not possess the information needed to
comply with the reporting requirement of paragraph (a) of this section;
and
(2) The person for which the interest is received or collected would
receive the interest in the course of its trade or business if the
interest were paid directly to that person. For purposes of this
paragraph (c)(2)(ii)(A)(2), if interest is received or collected on
behalf of a person other than an individual, that person is presumed to
receive interest in a trade or business.
(B) Application of exception. If the exception provided by this
paragraph (c)(2)(ii) applies, the person for which the interest is
received or collected is the interest recipient with respect to interest
received or collected on the mortgage during the period described in
this paragraph (c)(2)(ii).
(3) Interest received in the form of points. For purposes of this
section and Sec. 1.6050H-2, in the case of prepaid interest received in
the form of points (as defined in paragraph (f) of this section):
(i) In general. Except as provided in paragraph (c)(3)(ii) of this
section, only the lender of record or a qualified person (as defined in
Sec. 1.6050H-2(d)(2)) is treated as receiving the points. The lender of
record or qualified person is treated as receiving all points paid
directly by the payor of record in connection with the purchase of the
principal residence.
(ii) If designation agreement is in effect. If a designation
agreement is executed pursuant to Sec. 1.6050H-2(d) with respect to
points, only the designated party under the agreement is treated as
receiving points with respect to any mortgage to which the agreement
applies. The designated party is treated as receiving all points with
respect to any mortgage to which the agreement applies.
(4) Governmental unit. A governmental unit or an agency or
instrumentality of a governmental unit that receives interest on a
mortgage is an interest recipient without regard to the requirement of
paragraph (c)(1) of
[[Page 316]]
this section that the interest be received in the course of a trade or
business. A governmental unit or an agency or instrumentality of a
governmental unit that is an interest recipient must designate an
officer or employee to satisfy the reporting requirements of paragraph
(a) of this section.
(5) Examples. The following examples illustrate the rules of
paragraph (c) of this section:
Example (1). Financial institution F collects mortgage interest on
behalf of financial institution G and deposits the amount collected into
G's account held with F. F possesses the information needed to comply
with the reporting requirement of paragraph (a) of this section. F is
the interest recipient for the mortgage. G is not required to report.
Example (2). The facts are the same as in example (1), except that F
does not possess the information needed to comply with the reporting
requirement. G, the person for which F collects the interest, is the
interest recipient for the mortgage. F is not required to report.
Example (3). S, an individual, sells real property to another
individual, P, and takes back a mortgage from P to finance the sale. S
does not receive the interest in the course of a trade or business. B, a
bank, collects P's payments of principal and interest on behalf of S and
deposits that amount into an account held at the bank in S's name. B
does not possess the information needed to comply with the reporting
requirement of paragraph (a) of this section. B is the interest
recipient for P's mortgage without regard to paragraph (c)(2)(ii) of
this section, because S would not receive the interest in the course of
a trade or business. S is not required to report.
Example (4). X collects mortgage interest on behalf of Y, who would
receive the interest in the course of a trade or business. X possesses
the information needed to comply with the reporting requirement of
paragraph (a) of this section. On July 1, 1988, Z assumes X's interest
collection responsibilities. Z does not possess the information needed
to comply with the reporting requirement of paragraph (a) of this
section. X is the interest recipient for interest received from January
1, 1988, through June 30, 1988. Because Z does not possess the requisite
information and Y would receive the interest in the course of a trade or
business, Y is the interest recipient for interest received from July 1,
1988, through December 31, 1988.
Example (5). On December 1, Borrower obtains from Lender funds with
which to purchase an existing structure to be used as Borrower's
principal residence. In connection with the mortgage, Lender charges
Borrower $300 as points. Borrower pays this amount to Lender at closing
using unborrowed funds. In addition, Lender receives from Borrower with
respect to the mortgage $300 as interest (as determined under paragraph
(e) of this section) other than points. Because Lender has received at
least $600 in interest, including points, with respect to Borrower's
mortgage during the calendar year, Lender must report the payments in
accordance with paragraph (a) of this section and Sec. 1.6050H-2. Under
those sections, Lender must separately state on the information return
and the statement to Borrower the $300 received as interest (other than
points) and the $300 received as points.
(d) Additional rules--(1) Reporting by foreign person. An interest
recipient that is not a United States person (as defined in section
7701(a)(30)) must report interest received on a qualified mortgage only
if it receives the interest--
(i) At a location in the United States, or
(ii) At a location outside the United States if the interest
recipient is--
(A) A controlled foreign corporation (within the meaning of section
957(a)), or
(B) A person, 50 percent or more of the gross income of which, from
all sources for the three-year period ending with the close of the
taxable year preceding the receipt of interest (or for such part of the
period as the person was in existence), was effectively connected with
the conduct of a trade or business within the United States.
(2) Reporting with respect to nonresident alien individual--(i) In
general. The reporting requirement of paragraph (a) of this section does
not apply if--
(A) The payor of record is a nonresident alien individual, and
(B) Real property located in the United States does not secure the
mortgage.
(ii) Nonresident alien individual status. For purposes of paragraph
(d)(2)(i)(A) of this section, an interest recipient must apply the
following documentary evidence rules to determine whether a payor of
record is a nonresident alien individual:
(A) If interest is paid outside the United States, the interest
recipient must satisfy the documentary evidence standard provided in
Sec. 1.6049-5(c) with respect to the payor of record; and
[[Page 317]]
(B) If interest is paid within the United States, the interest
recipient must secure from the payor of record a Form W-8 or a
substantially similar statement signed by the payor under penalty of
perjury as described in Sec. 1.1441-1(e)(1).
For purposes of this paragraph (d)(2)(ii), the place of payment is the
place where the payor of record completes the acts necessary to effect
payment. An amount paid by transfer to an account maintained by an
interest recipient in the United States or by mail to a United States
address is considered to be paid within the United States.
(3) Reporting by cooperative housing corporations. For purposes of
this section and Sec. 1.6050H-2, an amount received by a cooperative
housing corporation from an individual tenant-stockholder that
represents the tenant-stockholder's proportionate share of interest
described in section 216(a)(2) is interest received on a qualified
mortgage in the course of the cooperative housing corporation's trade or
business. A cooperative housing corporation is an interest recipient
with respect to each tenant-stockholder's proportionate share of
interest and must report $600 or more of interest received from an
individual tenant-stockholder. The terms ``cooperative housing
corporation,'' ``tenant-stockholder,'' and ``tenant-stockholder's
proportionate share'' are defined in section 216 and the regulations
thereunder.
(e) Amount of interest received on mortgage for calendar year--(1)
In general. For purposes of this section and Sec. 1.6050H-2, interest
includes mortgage prepayment penalties and late charges other than late
charges for a specific mortgage service. Interest also includes prepaid
interest in the form of points (as defined in paragraph (f) of this
section). Whether an interest recipient receives $600 or more of
interest on a mortgage for a calendar year is determined on a mortgage-
by-mortgage basis. An interest recipient need not aggregate interest
received on all of the mortgages of a payor of record held by the
interest recipient to determine whether the $600 threshold is met.
Therefore, an interest recipient need not report interest of less than
$600 received on a mortgage, even though it receives a total of $600 or
more of interest on all of the mortgages of the payor of record for a
calendar year.
(2) Calendar year--(i) In general. Except as otherwise provided in
paragraph (e)(2)(ii) or (iii) of this section, the calendar year for
which interest is received is the later of the calendar year in which
the interest is received or the calendar year in which the interest
properly accrues.
(ii) De minimis rule. An interest recipient may treat interest
received during the current calendar year which properly accrues by
January 15 of the subsequent calendar year as interest received for the
current calendar year. For example, if an interest recipient receives a
monthly interest payment on December 31, 1988, which includes interest
accruing for the period December 5, 1988, to January 5, 1989, the
interest recipient may treat the entire interest payment as received for
1988. If a portion of an interest payment received in a current calendar
year accrues after January 15 of the subsequent calendar year, an
interest recipient must report as interest received for the current
calendar year only the portion that properly accrues by the end of the
current calendar year. For example, if an interest recipient receives a
monthly payment that includes interest accruing for the period December
20, 1988, through January 20, 1989, the interest recipient may not
report as interest received for 1988 any interest accruing after
December 31, 1988. The interest recipient must report the interest
accruing after December 31, 1988, as received for calendar year 1989.
(iii) Applicability to points. Paragraphs (e)(2)(i) and (ii) of this
section do not apply to prepaid interest in the form of points (as
defined in paragraph (f) of this section). Points (as defined in
paragraph (f) of this section) must be reported in the calendar year in
which they are received.
(3) Certain interest not received on mortgage--(i) Interest received
from seller on payor of record's mortgage. Interest received from a
seller or a person related to a seller within the meaning of section
267(b) or section 707(b)(1) on a
[[Page 318]]
payor of record's mortgage is not interest received on a mortgage. For
example, interest is not received on a mortgage if a real estate
developer deposits an amount in escrow with an interest recipient and
advises it to draw on the account to pay interest on a payor of record's
mortgage (e.g., a buy-down mortgage). Similarly, interest is not
received on a mortgage if an interest recipient receives a lump sum from
a real estatge developer for interest on a payor of record's mortgage.
(ii) Interest received from governmental unit. Interest received
from a governmental unit or an agency or instrumentality of a
governmental unit is not interest received on a mortgage. For example,
interest is not received on a mortgage if received as a housing
assistance payment from the Department of Housing and Urban Development
on a mortgage insured under section 235 of the National Housing Act (12
U.S.C. 1701-1715z (1982 & Supp. 1983)). Except as otherwise provided in
paragraph (e) (1) and (2) of this section, interest received on a
mortgage is only the excess of interest received on the mortgage over
interest received from a governmental unit or an agency or
instrumentality of a governmental unit.
(4) Interest calculated under Rule of 78s method of accounting. An
interest recipient permitted by Revenue Procedure 83-40, 1983-1, C.B.
774 (or other revenue procedure) to use the Rule of 78s method of
accounting to calculate interest earned on a transaction may report as
interest received on a mortgage interest earned on the transaction as
calculated under the Rule of 78s method of accounting only if the
interest recipient satisfies the notice requirement of Sec. 1.6050H-
2(c).
(f) Points treated as interest--(1) General rule. Subject to the
limitations of paragraph (f)(2) of this section, an amount is deemed to
be points paid in respect of indebtedness incurred in connection with
the purchase of the payor of record's principal residence (points) for
purposes of this section and Sec. 1.6050H-2 to the extent that the
amount--
(i) Is clearly designated on the Uniform Settlement Statement
prescribed under the Real Estate Settlement Procedures Act of 1974, 12
U.S.C. 2601 et seq., (e.g., the Form HUD-1) as points incurred in
connection with the indebtedness, for example as loan origination fees
(including amounts so designated on Veterans Affairs (VA) and Federal
Housing Administration (FHA) loans), loan discount, discount points, or
points;
(ii) Is computed as a percentage of the stated principal amount of
the indebtedness incurred by the payor of record;
(iii) Conforms to an established practice of charging points in the
area in which the loan is issued and does not exceed the amount
generally charged in the area;
(iv) Is paid in connection with the acquisition by the payor of
record of a residence that is the principal residence of the payor of
record and that secures the loan. For this purpose, the lender of record
may rely on a signed written statement of the payor of record that
states whether the proceeds of the loan are for the purchase of the
mortgagor's principal residence; and
(v) Is paid directly by the payor of record.
(2) Limitations. An amount is not points for purposes of this
section to the extent that the amount is--
(i) Paid in connection with indebtedness incurred for the
improvement of a principal residence;
(ii) Paid in connection with indebtedness incurred to purchase or
improve a residence that is not the payor of record's principal
residence, such as a second home, vacation property, investment
property, or trade or business property;
(iii) Paid in connection with a home equity loan or a line of
credit, even though the loan is secured by the payor of record's
principal residence;
(iv) Paid in connection with a refinancing loan (except as provided
by paragraph (f)(4) of this section), including a loan incurred to
refinance indebtedness owed by the borrower under the terms of a land
contract, a contract for deed, or similar forms of seller financing;
(v) Paid in lieu of amounts that ordinarily are stated separately on
the Form HUD-1, such as appraisal fees, inspection fees, title fees,
attorney fees, and property taxes; or
[[Page 319]]
(vi) Paid in connection with the acquisition of a principal
residence, to the extent that the amount is allocable to indebtedness in
excess of the aggregate amount that may be treated as acquisition
indebtedness under section 163(h)(3)(B)(ii).
(3) Special rule--(i) Amounts paid directly by payor of record. For
purposes of this section, an amount is considered paid directly by the
payor of record if it is--
(A) Provided by the payor of record from funds that have not been
borrowed from the lender of record for this purpose as part of the
overall transaction. The amount provided may include amounts designated
as down payments, escrow deposits, earnest money applied at the closing,
and other funds actually paid over by the payor of record at or before
the time of closing; or
(B) Paid as points (within the meaning of this paragraph (f)) on
behalf of the payor of record by the seller. For this purpose, an amount
paid as points to an interest recipient by the seller on behalf of the
payor of record is treated as paid to the payor of record and then paid
directly by the payor of record to the interest recipient.
(ii) Examples. The provisions of this paragraph (f) are illustrated
by the following examples:
Example 1. Financed payment of points. Buyer purchases a principal
residence for $100,000. There is a total of $7,000 in closing costs
(exclusive of down payment) charged in connection with the sale. Of this
amount, $3,000 is charged as points (within the meaning of paragraph (f)
of this section). At closing, Buyer makes a down payment of $20,000 and
provides unborrowed funds in the amount of $4,000 for the payment of
various closing costs other than points. Buyer finances payment of the
points by increasing the principal amount of the loan by $3,000. Seller
makes no payments on Buyer's behalf. Because Buyer has provided at
closing funds that have not been borrowed from the lender of record for
this purpose in an amount at least equal to the amount charged as points
in the transaction, the lender of record (or a qualified person) must
report $3,000 as points in accordance with this section and Sec.
1.6050H-2.
Example 2. Seller-paid points. Buyer purchases a principal residence
for $100,000. There is a total of $7,000 in closing costs (exclusive of
down payment) charged in connection with the sale. Of this amount,
$3,000 is charged as points (within the meaning of this paragraph (f)).
Seller agrees to pay all closing costs on behalf of Buyer, including the
amount charged as points. Accordingly, the amount paid by Seller as
points is treated as paid directly by Buyer, and the lender of record
(or a qualified person) must report the $3,000 as points in accordance
with this section and Sec. 1.6050H-2.
(4) Construction loans--(i) In general. An amount paid in connection
with indebtedness incurred to construct a residence, or to refinance
indebtedness incurred to construct a residence, is deemed to be points
for purposes of this section to the extent the amount--
(A) Is clearly designated on the loan documents as points incurred
in connection with the indebtedness, for example, as loan origination
fees, loan discount, discount points, or points;
(B) Is computed as a percentage of the stated principal amount of
the indebtedness incurred by the payor of record;
(C) Conforms to an established practice of charging points in the
area in which the loan is issued and does not exceed the amount
generally charged in the area;
(D) Is paid in connection with indebtedness incurred by the payor of
record to construct (or to refinance construction of) a residence that
is to be used, when completed, as the principal residence of the payor
of record;
(E) Is paid directly by the payor of record; and
(F) Is not allocable to indebtedness in excess of the aggregate
amount that may be treated as acquisition indebtedness under section
163(h)(3)(B)(ii).
(ii) Limitation on refinancing of construction loans. Amounts paid
in connection with refinancing indebtedness incurred to construct a
residence are not treated as points to the extent they are allocable to
indebtedness that exceeds the indebtedness incurred to construct the
residence.
(5) Amounts paid to mortgage brokers. Amounts received directly or
indirectly by a mortgage broker are treated as points under this
paragraph (f) to the same extent the amounts would be so treated if they
were paid to and retained by the lender of record, and must be reported
by the lender of record in accordance with this section and Sec.
1.6050H-2.
[[Page 320]]
(6) Effect on deduction of points. This section and Sec. 1.6050H-2
address only the information reporting requirements of section 6050H and
do not affect a payor of record's deduction for any amount in accordance
with applicable provisions of the Internal Revenue Code.
(g) Effective date--(1) In general. Except as provided in paragraph
(g)(2) of this section, this section is effective for mortgage interest
received after December 31, 1987. Section 1.6050H-1T contains rules for
reporting mortgage interest received after December 31, 1984, and before
January 1, 1988.
(2) Points. The reporting requirements of this section do not apply
to prepaid interest received in the form of points before January 1,
1995. In addition, the inclusion of points in the determination of
interest under paragraph (e)(1) of this section applies only to
transactions occurring after December 31, 1994.
[T.D. 8191, 53 FR 12002, Apr. 12, 1988, as amended by T.D. 8571, 59 FR
63251, Dec. 8, 1994; T.D. 8734, 62 FR 53492, Oct. 14, 1997]
Sec. 1.6050H-1T Information reporting of mortgage interest received
in a trade or business from individuals after 1985 and before 1988
(temporary).
The following questions and answers relate to the requirement of
reporting mortgage interest under section 6050H of the Internal Revenue
Code of 1954, as added by section 145 of the Tax Reform Act of 1984
(Pub. L. 98-369, 98 Stat. 685):
Requirement of Reporting
In general
Q-1: What does section 6050H provide with respect to the reporting
of mortgage interest?
A-1: In general, section 6050H provides that an information return
must be made by any person who is engaged in a trade or business and
who, in the course of such trade or business, receives from any
individual $600 or more of interest on any mortgage in a calender year.
For purposes of this section--
(a) Any person who is engaged in a trade or business and who, in the
course of such trade or business, receives interest on any mortgage is
referred to as an ``interest recipient''; and
(b) Any individual who pays interest on any mortgage is referred to
as a ``payor''.
Interest Subject to Reporting
Q-2: Does the reporting requirement apply to all interest received
by an interest recipient?
A-2: No. The reporting requirement applies only to interest received
from a payor on a mortgage (as defined in A-4 and A-5 of this section).
The reporting requirement does not apply to interest received from a
trust, estate, partnership, association, company, or corporation.
Q-3: Does the reporting requirement apply to any amount of mortgage
interest received from a payor?
A-3: No. The reporting requirement applies only if $600 or more of
interest is received from a payor on any mortgage in a calendar year.
The $600 threshold is determined on an obligation by obligation basis.
Therefore, if the interest received from a payor on an obligation is
less than $600, reporting with respect to that interest is not required
even if the total interest received from the payor on all obligations
held by the interest recipient exceeds $600 in a calendar year.
Q-4: What is a mortgage, for purposes of this section and section
6050H, with respect to obligations in existence on December 31, 1984?
A-4: An obligation in existence on December 31, 1984, that is
secured primarily by real property (regardless of whether the property
is located inside or outside the United States) is a mortgage unless, at
the time the obligation was incurred, the interest recipient reasonably
classified such obligation as other than a mortgage, real property loan,
real estate loan, or other similar type of obligation. (See A-12 of this
section for rules relating to interest received by foreign persons.) For
example, if an obligation incurred in 1980 was secured primarily by real
property, but the interest recipient reasonably classified the
obligation as a commercial loan because the proceeds were used to
finance the payor's trade or business, the obligation is not considered
a mortgage for purposes of this section and section 6050H. If, however,
a majority of the obligations in a particular class are primarily
secured by real property, it is not reasonable to classify such
obligations as other than mortgages, real property loans, real estate
loans, or other similar types of obligations; such obligations are,
therefore, mortgages for purposes of section 6050H and this section. For
purposes of this definition, real property includes stock in a
cooperative housing corporation. A mortgage does not include a credit
card obligation that is secured primarily by real property or a line of
credit that is secured primarily by real property.
Q-5: What is a mortgage, for purposes of this section and section
6050H, with respect to obligations incurred after December 31, 1984?
[[Page 321]]
A-5: With respect to obligations incurred after December 31, 1984, a
mortgage is any obligation that is secured primarily by real property,
regardless of whether the property is located inside or outside the
United States. (See A-12 of this section for rules relating to interest
received by foreign persons.) For purposes of this definition, real
property includes stock in a cooperative housing corporation. A mortgage
does not include a credit card obligation that is secured primarily by
real property or a line of credit that is secured primarily by real
property. The determination of whether a particular obligation is a
mortgage shall be made without regard to the interest recipient's
classification of that obligation. For example, if an obligation is
secured primarily by real property, but the interest recipient
classifies the obligation as a commercial loan because the proceeds are
to be used to finance the payor's trade or business, the obligation is
nevertheless a mortgage for purposes of this section and section 6050H.
Q-6: If the amount of interest received on a mortgage in a calendar
year is less than the amount of interest due on the mortgage, what
amount of interest must be reported under this section?
A-6: The amount of interest received must be reported. For example,
assume that $800 of interest is payable in a calendar year but only $600
of interest is received in the calendar year. The amount of interest
received ($600) must be reported under this section. Similarly, assume
that an interest recipient accrues $900 of interest on a mortgage in a
calendar year but only $800 of interest is payable and is received in
the calendar year (resulting in a $100 increase in the unpaid balance of
the loan). The amount of interest received ($800) must be reported under
this section.
Q-7: If a payor remits 13 payments of interest on any mortgage in a
calendar year, but the interest recipient receives only 12 payments in
the calendar year, what amount should the interest recipient report?
A-7: The interest recipient should report the interest actually
received in the calendar year. For example, if a payor mails the 13th
payment on December 31 or a calendar year, and the interest recipient
does not receive it until the following calendar year, the interest
recipient should report only the 12 payments received in the calendar
year.
Trade or Business Requirement
Q-8: Must an interest recipient be engaged in the trade or business
of lending money to be subject to the reporting requirement of this
section?
A-8: No. An interest recipient (other than a governmental unit, or
any agency or instrumentality thereof) is subject to this reporting
requirement if the interest recipient is engaged in any trade or
business and, in the course of such trade or business, receives from an
individual $600 or more of interest on any mortgage in a calendar year.
For example, if A, a real estate developer, provides financing to B, an
individual, to enable B to purchase a house in a subdivision owner and
developed by A, and that house is the primary security for the
financing, A is subject to this reporting requirement. Alternatively, if
C, a physician, who is not engaged in any other trade or business, lends
money to D to enable D to purchase C's home, C is not subject to the
reporting requirement of this section because C will not receive the
interest in the course of his sole trade or business of being a
physician.
Q-9: How does the trade or business requirement apply to a
governmental unit?
A-9: A governmental unit (or any agency or instrumentality thereof)
which receives from a payor $600 or more of interest on any mortgage in
a calendar year is subject to the reporting requirement without regard
to the requirement that the money be received in the course of a trade
or business. A governmental unit (or any agency or instrumentality
thereof) that is subject to the reporting requirement must designate an
officer or employee to make the return. The designated officer or
employee must make the return in the form and manner prescribed by this
section.
Treatment of Cooperative Housing Corporations
Q-10: How does this reporting requirement apply in the case of
cooperative housing corporation?
A-10: For purposes of section 6050H and this section, a cooperative
housing corporation (as defined in section 216) is treated as a person
who is engaged in a trade or business and who, in the course of such
trade or business, receives interest from its tenant-stockholders on a
mortgage. Therefore, a cooperative housing corporation is required to
report under section 6050H and this section.
Interest Received on Behalf of Another
Q-11: If, in the course of a trade or business, a person receives
(collects) interest on behalf of another, who is required to report?
A-11: The person first receiving (collecting) the interest is
required to report. For example, a servicing bank that receives $600 or
more of mortgage interest in a calendar year from a payor on behalf of a
lender is required to report the interest received under this section.
No reporting is required under this section upon the transfer of the
interest from the servicing bank to the lender for whom the interest was
received.
Interest Received by Foreign Persons
Q-12: Must an interest recipient that is a foreign person report
under section 6050H and this section?
[[Page 322]]
A-12: An interest recipient that is a foreign person must report
with respect to mortgage interest that is received at a location within
the United States. In the case of interest received at locations outside
the United States, an interest recipient that is a foreign person must
report--
(a) If the foreign person is a controlled foreign corporation within
the meaning of section 957(a); or
(b) If the foreign person is a corporation any interest received
from which would be considered to be from sources within the United
States under section 861(a)(1)(C) (without regard to whether the
interest is paid or credited by a domestic branch of a foreign
corporation engaged in the commercial banking business).
Multiple Borrowers
Q-13: When there is more than one borrower on a mortgage, must the
interest recipient report with respect to each borrower?
A-13: No. The interest recipient must report only with respect to
the payor of record (as defined in A-14 of this section) on the
mortgage. The amount of interest subject to reporting is the full amount
received by the interest recipient with respect to the mortgage during
the calendar year.
Q-14: Who is a payor of record?
A-14: For purposes of this section, the payor of record is the
individual carried on the books and records of the interest recipient as
the principal borrower or the individual designated by the interest
recipient as the payor of record.
Interest Paid by Third Parties
Q-15: If an interest recipient receives interest on a mortgage from
a person other than the borrower, must the interest recipient report
this amount as received from the borrower?
A-15: In general, yes. Except as otherwise provided in this A-15 and
A-15a of this section, an interest recipient must report all amounts
received on a borrower's mortgage as received from the borrower under
section 6050H and this section. For example, assume that N is the
borrower on a mortgage and that interest is received on the mortgage
from N's mother. The interest that is received from N's mother on N's
mortgage is reportable under section 6050H and this section as received
from N. However, interest that is paid by a seller on a purchaser's
mortgage shall not be reported under section 6050H and this section as
received from the purchaser. For example, if a real estate developer
deposits an amount in escrow with the interest recipient and advises the
interest recipient to draw on the account to pay interest on a
purchaser's mortgage, this interest is not reportable under section
6050H and this section. Similarly, if a real estate developer pays a
lump sum to the interest recipient for interest on a purchaser's
mortgage, this interest is not reportable under section 6050H and this
section. In addition, amounts received by the interest recipient as
housing assistance payments from the Department of Housing and Urban
Development (``HUD'') on a borrower's mortgage that is insured under
section 235 of the National Housing Act (12 U.S.C. 1701-1715z (1982 and
Supp. 1983)) shall not be reported as interest received from the
borrower. In such a case, therefore, only the amount of interest
received on the mortgage that exceeds the amount of housing assistance
payments received from HUD shall be reported.
Q-15a: If an interest recipient receives, with respect to a
borrower's mortgage, an amount from a governmental unit, or any agency
or instrumentality thereof (other than an amount received from HUD as
described in A-15 of this section), should the interest recipient report
the amount as received from the borrower?
A-15a: If the interest is received after December 31, 1986, it must
be reported in the same manner as interest on mortgages with respect to
which housing assistance payments are received from HUD, as described in
A-15 of this section. If the interest is received before January 1,
1987, it may, but need not, be reported.
Form and Manner of Return
Form of Return
Q-16: What form must be used to make a return required by section
6050H and this section?
A-16: An interest recipient must make the return on Form 1098 (with
Form 1096 as the transmittal form). The interest recipient may, however,
prepare and use a form that contains provisions substantially similar to
those of Forms 1096 and 1098 if that person complies with any revenue
procedures relating to substitute Forms 1096 and 1098 in effect at that
time. A separate return must be made for each mortgage with respect to
which $600 or more of interest is received for a calendar year.
Information Included on Return
Q-17: What information must an interest recipient include on Form
1098?
A-17: An interest recipient must include the following information
on the Form 1098:
(a) The name, address, and TIN (as defined in section 7701(a)) of
the payor or payor of record;
(b) The name and address of the interest recipient;
(c) The amount of interest (not including points and other prepaid
interest) received on the mortgage in the calendar year; and
(d) Any other information as may be required by Form 1098 or its
instructions.
[[Page 323]]
Time for Filing
Q-18: When must an interest recipient file the return or returns
required by section 6050H and this section?
A-18: An interest recipient must file the return or returns on or
before February 28 of the year following the calendar year in which the
mortgage interest is received.
Place for Filing
Q-19: Where must the return or returns required under section 6050H
and this section be filed?
A-19: The return or returns must be filed with the same Internal
Revenue Service Center where other returns of the interest recipient are
filed.
Use of Magnetic Media
Q-20: What rules apply with respect to the use of magnetic media?
A-20: Any return required under section 6050H and this section must
be filed on magnetic media to the extent required by section 6011(e) and
the regulations thereunder. Any person not required by section 6011(e)
to file returns on magnetic media may request permission to do so. See
Sec. 1.9101 for rules relating to permission to submit information on
magnetic tape or other media. If a person required to file returns on
magnetic media fails to do so, the penalty under section 6652 (failure
to file an information return) applies.
Requirement of Furnishing Statements to Payors
In General
Q-21: What statements are required to be furnished to payors under
section 6050H and this section?
A-21: Any interest recipient required to make an information return
under section 6050H must also furnish a statement to the payor or, if
applicable, payor of record (see A-13 and A-14 of this section). For the
date when the statement must be furnished, see A-26 of this section.
Q-22: Is the statement considered to be furnished to the payor or
payor of record if it is mailed to him at his last known address?
A-22: Yes.
Q-23: If an interest recipient furnishes a statement required under
a Federal mortgage program will the requirements of A-21 of this section
be met?
A-23: Yes, if the statement furnished contains all the information
required under A-24 of this section and is furnished to the payors or
payors of record by the date required under A-26 of this section.
Information Included on Statement
Q-24: What information must be included on the statement required to
be furnished to payors or payors of record under section 6050H and this
section?
A-24: The statement must include the following information:
(a) The information required under A-17 of this section;
(b) A legend stating that the information is being reported to the
Internal Revenue Service; and
(c) A legend stating that the amount reported on the statement is
deductible by the payor for Federal income tax purposes only to the
extent the payor actually paid the amount and was not reimbursed by
another person.
Copy of Form 1098 to Payors
Q-25: Can an interest recipient meet the requirement to furnish a
statement to a payor or payor of record by furnishing a copy of the Form
1098 filed with respect to that payor or payor of record?
A-25: Yes. The requirement of furnishing a statement may be met by
furnishing to the payor or payor of record a copy of the Form 1098
containing the same information filed with the Service with respect to
such payor, or a form that contains provisions substantially similar to
those of Form 1098, provided that the form bears the legends described
in A-24 of this section.
Time for Furnishing Statement
Q-26: When is a statement required to be furnished by an interest
recipient to the payor or payor of record?
A-26: A statement is required to be furnished by the interest
recipient to the payor or payor of record on or before January 31 of the
year following the calendar year in which the mortgage interest is
received.
Penalties
In General
Q-27: Are there any penalties for failing to comply with the
requirements of section 6050H and this section?
A-27: Yes. The penalty for failing to make an information return
with respect to a payor or payor of record is provided in section 6652.
The penalty for failing to furnish a statement to a payor or payor of
record is provided in section 6678.
Q-28: Are there any penalties for failing to furnish a TIN upon
request?
A-28: Yes. Any payor or payor of record is subject to a $50 penalty
by the Internal Revenue Service if such payor fails to furnish his TIN
upon the request of an interest recipient. For rules relating to the
requesting of TINs by interest recipients, see A-30 and A-31 of this
section.
Q-29: Is an interest recipient subject to any penalties for failing
to furnish the TIN of a payor or payor of record?
[[Page 324]]
A-29: Yes. In general, the penalties provided under section 6676
will be assessed against interest recipients who fail to furnish to the
Internal Revenue Service the TIN of a payor or payor of record. With
respect to mortgages in existence on December 31, 1984, however, the
interest recipient will not be subject to the section 6676 penalties if
the interest recipient followed the rules of A-30 and A-31 of this
section for requesting TINs and properly processed the responses.
Requesting TINS
Q-30: What rules apply with respect to the requesting of TINs by
interest recipients?
A-30: With respect to obligations incurred after December 31, 1984,
the interest recipient must take all reasonable steps to obtain the TIN
of the payor or payor of record at the time the obligation is incurred.
With respect to any mortgage for which the interest recipient does not
have the TIN of the payor or payor of record in its accounting system,
the interest recipient must request, at least once a year, the TIN of
such payor.
The request for a TIN need not be in a separate mailing. The request
may be included, for example, in the interest recipient's regular
mailings of payment coupon booklets or annual statements. However, if
the interest recipient makes no other mailings to the payor or payor of
record during 1985 (or during the year in which the obligation is
incurred for obligations incurred after 1985), then the interest
recipient must request the TIN in a separate mailing.
Q-31: What form must the interest recipient use to request the TIN
of a payor or a payor of record?
A-31: No particular form must be used to request the TIN. However,
the request must be made on a separate piece of paper and the request
must clearly notify the payor that the Internal Revenue Service requires
the payor to furnish his TIN in order to verify any deduction for
mortgage interest. The interest recipient must also notify such payor
that he is subject to a $50 penalty, imposed by the Internal Revenue
Service, if he fails to furnish his TIN.
Effective Date
Q-32: When is this section effective?
A-32: This section generally is effective for mortgage interest
received after December 31, 1984, and before January 1, 1988. However,
Q/A-15a of this section is effective for mortgage interest received
after December 31, 1986, and before January 1, 1988.
(26 U.S.C. 6050H)
[T.D. 8047, 50 FR 33530, Aug. 20, 1985, as amended by T.D. 8191, 53 FR
12002, Apr. 12, 1988]
Sec. 1.6050H-2 Time, form, and manner of reporting interest received
on qualified mortgage.
(a) Requirement to file return--(1) Form of return. An interest
recipient must file a return required by Sec. 1.6050H-1(a) on Form 1098
(with Form 1096 as the transmittal form). An interest recipient may use
forms containing provisions substantially similar to those in Forms 1098
and 1096 if it complies with applicable revenue procedures relating to
substitute Forms 1098 and 1096. An interest recipient must file a
separate return for each qualified mortgage for which it receives $600
or more of interest for a calendar year.
(2) Information included on return. An interest recipient must
include on Form 1098:
(i) The name, address, and taxpayer identification number (TIN) (as
defined in section 7701(a)(41)) of the payor of record;
(ii) The name, address, and TIN of the interest recipient;
(iii) The amount of interest (other than points) required to be
reported with respect to the qualified mortgage for the calendar year;
(iv) With respect to reimbursements of interest on a qualified
mortgage (as discussed in paragraph (a)(3) of this section) made to the
payor of record in the calendar year--
(A) Reimbursements aggregating $600 or more; and
(B) Reimbursements aggregating less than $600, but only if $600 or
more of interest on the qualified mortgage is received in the calendar
year from the payor of record;
(v) The amount of points paid directly by the payor of record
(within the meaning of Sec. 1.6050H-1(f)(3)) required to be reported
with respect to the qualified mortgage for the calendar year; and
(vi) Any other information required by Form 1098 or its
instructions.
Section 1.6050H-1(e) contains rules to determine the amount of interest
received on a mortgage for a calendar year.
(3) Reimbursements of interest on a qualified mortgage. For purposes
of paragraph (a)(2)(iv) of this section, a reimbursement of interest on
a qualified mortgage is a reimbursement of an
[[Page 325]]
amount received in a prior year that was required to be reported for
that prior year under paragraph (a)(2)(iii) of this section by any
interest recipient. Only the interest recipient that makes the
reimbursement is required to report the reimbursement under this
section. Form 1098 and the statement furnished to the payor of record
under paragraph (b) of this section must not include any amount that
constitutes interest on the reimbursement paid to the payor of record.
Rules relating to the requirement to report interest on a reimbursement
are, in the case of a person carrying on the banking business (or a
middleman, as defined in Sec. 1.6049-4(f)(4), of a person carrying on
the banking business), provided in section 6049 and the regulations
thereunder, and, for other persons, provided in section 6041 and the
regulations thereunder. Reimbursements of interest on a qualified
mortgage (as described in this section) made in 1993 and subsequent
calendar years must be reported on Form 1098 and statements furnished to
payors of record. Reimbursements made prior to 1993 are not required to
be reported.
(4) Time and place for filing return. An interest recipient must
file a return required by this paragraph (a) on or before February 28
(March 31 if filed electronically) of the year following the calendar
year for which it receives the mortgage interest. If no interest is
required to be reported for the calendar year, but a reimbursement of
interest on a qualified mortgage is required to be reported for the
calendar year, then a return required by this paragraph (a) must be
filed on or before February 28 (March 31 if filed electronically) of the
year following the calendar year in which the reimbursement was made. An
interest recipient must file the return required by paragraph (a) of
this section with the IRS office designated in the instructions for Form
1098.
(5) Use of magnetic media. An interest recipient must file the
return required by paragraph (a) of this section on magnetic media only
if required by section 6011(e) and the regulations thereunder. An
interest recipient not required by section 6011(e) to file returns on
magnetic media may request permission to do so. Section 301.6011-2
contains rules relating to the use of magnetic media. A failure to file
on magnetic media when required constitutes a failure to file an
information return under section 6721.
(b) Requirement to furnish statement--(1) In general. An interest
recipient that must file a return under paragraph (a) of this section
must furnish a statement to the payor of record.
(2) Information included on statement. An interest recipient must
include on the statement that it must furnish to a payor of record:
(i) The information required under paragraph (a)(2) of this section;
(ii) A legend that--
(A) Identifies the statement as important tax information that is
being furnished to the IRS; and
(B) Notifies the payor of record that if the payor of record is
required to file a return, a negligence penalty or other sanction may be
imposed on the payor of record if the IRS determines that an
underpayment of tax results because the payor of record overstated a
deduction for this mortgage interest (if any) or understated income from
this mortgage interest reimbursement (if any) on the payor of record's
return;
(iii) A legend stating that the payor of record may be unable to
deduct the full amount of mortgage interest reported on the statement;
that limitations based on the cost and value of the property securing
the mortgage may apply; and that the payor of record may only deduct
mortgage interest to the extent it was incurred, actually paid by the
payor of record, and not reimbursed by another person; and
(iv) With respect to any information required to be reported under
paragraph (a)(2)(iv) of this section, an instruction providing that the
amount of the reimbursement is not to be deducted and that the amount
must be included in the gross income of the payor of record if the
reimbursed interest was deducted by the payor of record in a prior year
so as to reduce income tax.
(3) Statement furnished pursuant to Federal mortgage program. An
interest recipient that furnishes a statement to a payor of record under
a Federal mortgage program will satisfy the requirement of paragraph
(b)(1) of this section
[[Page 326]]
if the statement contains all the information and legends required by
paragraph (b)(2) of this section and is furnished by the time and at the
place required by paragraph (b)(6) of this section.
(4) Copy of Form 1098 to payor of record. An interest recipient will
satisfy the requirement of paragraph (b)(1) of this section by
furnishing to a payor of record a copy of Form 1098 (or a substitute
statement that complies with applicable revenue procedures) containing
all the information filed with the Internal Revenue Service and all the
legends required by paragraph (b)(2) of this section by the time and at
the place required by paragraph (b)(6) of this section.
(5) Furnishing statement with other information reports. An interest
recipient may transmit the statement required by paragraph (b)(1) of
this section to the payor of record with other information, including
other information returns, as permitted by applicable revenue
procedures.
(6) Time and place for furnishing statement. An interest recipient
must furnish a statement required by paragraph (b)(1) of this section to
a payor of record on or before January 31 of the year following the
calendar year for which it receives the mortgage interest. If no
mortgage interest is required to be reported for the calendar year, but
a reimbursement of interest on a qualified mortgage is required to be
reported for the calendar year, then the statement required by paragraph
(b)(1) of this section must be furnished on or before January 31 of the
year following the calendar year in which the reimbursement was made.
The interest recipient will be considered to have furnished the
statement to the payor of record if it mails the statement to the payor
of record's last known address.
(c) Notice requirement for use of Rule of 78s method of accounting--
(1) In general. An interest recipient seeking to report interest
received on a mortgage under the Rule of 78s method of accounting as
permitted under Sec. 1.6050H-1(e)(4) must notify the payor of record
that the Rule of 78s method of accounting was used to calculate interest
received on the mortgage and that the payor of record may not deduct as
interest the amount calculated under the Rule of 78s method of
accounting unless the payor of record properly uses that method to
determine interest deductions. The notice must state that the payor of
record may use the Rule of 78s method of accounting to determine
interest paid for Federal income tax purposes only for a self-amortizing
consumer loan requiring level payments at regular intervals (at least
annually) over no longer than a five-year period, with no balloon
payment at the end of the loan term, and only when the loan agreement
provides for use of the Rule of 78s method of accounting to determine
interest earned. See Rev. Proc. 83-40, 1983-1 C.B. 774; Rev. Rul. 83-84,
1983-1 C.B. 97.
(2) Time and manner. An interest recipient must provide notice
required by paragraph (c)(1) of this section to a payor of record on or
with the statement required by paragraph (b) of this section. An
interest recipient may provide notice on a separate paper or on the
statement required by paragraph (b) of this section.
(d) Reporting under designation agreement--(1) In general. An
interest recipient that receives or collects interest (including points)
on a mortgage may designate a qualified person to satisfy the reporting
requirements of paragraphs (a), (b), and (c) of this section. If a
designated qualified person reports as permitted under this paragraph
(d), it will satisfy the requirement of paragraph (a)(2)(ii) of this
section by including on Form 1098 (and Form 1096) the name, address, and
TIN of the designated qualified person.
(2) Qualified person. A qualified person is either--
(i) A trade or business with respect to which the interest recipient
is under common control within the meaning of Sec. 1.414(c)-2; or
(ii) A person who is named as the designee by the lender of record
or by a qualified person (under paragraph (d)(2) of this section) in a
designation agreement entered into in accordance with paragraph (d)(3)
of this section, and who either was involved in the original loan
transaction or is a subsequent purchaser of the loan.
(3) Designation agreement. An interest recipient that designates a
qualified
[[Page 327]]
person to satisfy the reporting requirements described in paragraphs
(a), (b), and (c) of this section must make that designation in a
written designation agreement. The designation agreement must identify
the mortgage(s) and calendar years for which the designated qualified
person must report, and must be signed by both the designator and
designee. A designee may report an amount as having been paid directly
by the payor of record (for purposes of paragraph (a)(2)(v) of this
section) only if the designation agreement contains the designator's
representation that it did not lend such amount to the payor of record
as part of the overall transaction. The designator must retain a copy of
the designation agreement for four years following the close of the
calendar year in which the loan is made. The designation agreement need
not be filed with the Internal Revenue Service.
(4) Penalties. A designated qualified person is subject to any
applicable penalties provided in part II of subchapter B of chapter 68
of the Internal Revenue Code as if it were an interest recipient. A
designator is relieved from liability for applicable penalties by
designating a qualified person under the provisions of paragraph (d)(3)
of this section. Paragraph (e) of this section describes applicable
penalties.
(e) Penalty provisions--(1) Returns and statements the due date for
which (determined without regard for extensions) is after December 31,
1987, and before December 31, 1989. For purposes of this paragraph
(e)(1) only, all references to sections of the Internal Revenue Code
refer to sections of the Internal Revenue Code of 1986, as amended on or
before December 31, 1987.
(i) Failure to file return or to furnish statement. The section 6721
penalty applies to an interest recipient that fails to file a return
required by paragraph (a) of this section with respect to a payor of
record. The section 6722 penalty applies to an interest recipient that
fails to furnish a statement required by paragraph (b) of this section
to a payor of record.
(ii) Failure to furnish TIN. The section 6676 penalty may apply to
an interest recipient that fails to furnish the TIN of a payor of record
on a return required by paragraph (a) of this section. The section 6676
penalty may apply to an interest recipient that fails to request and to
obtain the TIN of a payor of record under paragraph (f) of this section.
(iii) Failure to include correct information. The section 6723
penalty may apply to an interest recipient that fails to include correct
information on a return required by paragraph (a) of this section or on
a statement required by paragraph (b) of this section to be furnished to
a payor of record.
(2) Returns and statements the due date for which (determined
without regard for extensions) is after December 31, 1989--(i) Failure
to file return or to furnish statement. The section 6721 penalty applies
to an interest recipient that fails to file a return required by
paragraph (a) of this section with respect to a payor of record. The
section 6722 penalty applies to an interest recipient that fails to
furnish a statement required by paragraph (b) of this section to a payor
of record.
(ii) Failure to furnish TIN. The section 6721 penalty may apply to
an interest recipient that fails to furnish the TIN of a payor of record
on a return required by paragraph (a) of this section. The section 6721
penalty may apply to an interest recipient that fails to request and to
obtain the TIN of a payor of record under paragraph (f) of this section.
(iii) Failure to include correct information. The section 6721
penalty may apply to an interest recipient that fails to include correct
information on a return required by paragraph (a) of this section. The
section 6722 penalty may apply to an interest recipient that fails to
include correct information on a statement required by paragraph (b) of
this section to be furnished to a payor record.
(f) Requirement to request and to obtain TIN--(1) In general. For
obligations incurred after December 31, 1987, an interest recipient must
make all reasonable efforts to obtain the TIN of a payor of record when
the payor of record incurs the obligation. For example, an interest
recipient may require a borrower to furnish a TIN during the mortgage
approval or application process. If an interest recipient does not
[[Page 328]]
maintain the TIN of a payor of record on a mortgage, whenever incurred,
it must request the TIN at least annually and must process responses
properly and promptly.
(2) Manner of requesting TIN. An interest recipient need not
separately mail a request for a TIN. An interest recipient may include a
request in its regular mailing of payment coupon booklets or annual
statements. If an interest recipient makes no mailing to a payor of
record during the year in which the payor of record incurs the
obligation, it must request the TIN in a separate mailing. No particular
form is required to request a TIN. Nevertheless, an interest recipient
must make the request on a separate paper and must clearly notify a
payor of record that the Internal Revenue Service requires the payor of
record to furnish a TIN in order to verify any mortgage interest
deduction. An interest recipient must notify a payor of record that
failure to furnish a TIN subjects the payor of record to a $50 penalty
imposed by the Internal Revenue Service. A request for a TIN made on
Form W-9 satisfies the requirement of this paragraph (f)(2).
(g) Effective date--(1) In general. Except as provided in paragraph
(g)(2) of this section, this section is effective for mortgage interest
received after December 31, 1987. Section 1.6050H-1T contains rules for
reporting mortgage interest received after December 31, 1984, and before
January 1, 1988.
(2) Points. The reporting requirement of this section does not apply
to prepaid interest in the form of points received before January 1,
1995.
[T.D. 8191, 53 FR 12005, Apr. 12, 1988, as amended by T.D. 8507, 58 FR
68753, Dec. 29, 1993; T.D. 8571, 59 FR 63253, Dec. 8, 1994; T.D. 8895,
65 FR 50408, Aug. 18, 2000]
Sec. 1.6050I-0 Table of contents.
This section lists the major captions that appear in Sec. Sec.
1.6050I-1 and 1.6050I-2.
Sec. 1.6050I-1 Returns relating to cash in excess of $10,000 received
in a trade or business.
(a) Reporting requirement.
(1) Reportable transaction.
(i) In general.
(ii) Certain financial transactions.
(2) Cash received for the account of another.
(3) Cash received by agents.
(i) General rule.
(ii) Exception.
(iii) Example.
(b) Multiple payments.
(1) Initial payment in excess of $10,000.
(2) Initial payment of $10,000 or less.
(3) Subsequent payments.
(4) Example.
(c) Meaning of terms.
(1) Cash.
(i) Amounts received prior to February 3, 1992.
(ii) Amounts received on or after February 3, 1992.
(iii) Designated reporting transaction.
(iv) Exception for certain loans.
(v) Exception for certain installment sales.
(vi) Exception for certain down payment plans.
(vii) Examples.
(2) Consumer durable.
(3) Collectible.
(4) Travel or entertainment activity.
(5) Retail sale.
(6) Trade or business.
(7) Transaction.
(8) Recipient.
(d) Exceptions to the reporting requirements of section 6050I.
(1) Receipt of cash by certain financial institutions.
(2) Receipt of cash by certain casinos having gross annual gaming
revenue in excess of $1,000,000.
(i) In general.
(ii) Casinos exempt under 31 CFR 103.45(c).
(iii) Reporting of cash received in a nongaming business.
(iv) Example.
(3) Receipt of cash not in the course of the recipient's trade or
business.
(4) Receipt is made with respect to a foreign cash transaction.
(i) In general.
(ii) Example.
(e) Time, manner, and form of reporting.
(1) Time of reporting.
(2) Form of reporting.
(3) Manner of reporting.
(i) Where to file.
(ii) Verification.
(iii) Retention of returns.
(f) Requirement of furnishing statements.
(1) In general.
(2) Form of statement.
(3) When statement is to be furnished.
(g) Cross-reference to penalty provisions.
(1) Failure to file correct information return.
(2) Failure to furnish correct statement.
(3) Criminal penalties.
Sec. 1.6050I-2 Returns relating to cash in excess of $10,000 received
as bail by court clerks.
(a) Reporting requirement.
(b) Meaning of terms.
[[Page 329]]
(c) Time, form, and manner of reporting.
(1) Time of reporting.
(i) In general.
(ii) Multiple payments.
(2) Form of reporting.
(3) Manner of reporting.
(i) Where to file.
(ii) Verification of identity.
(d) Requirement to furnish statements.
(1) Information to Federal prosecutors.
(i) In general.
(ii) Form of statement.
(2) Information to payors of bail.
(i) In general.
(ii) Form of statement.
(iii) Aggregate amount.
(e) Cross-reference to penalty provisions.
(f) Effective date.
[T.D. 8652, 61 FR 7, Jan. 2, 1996, as amended by T.D. 8974, 66 FR 67687,
Dec. 31, 2001]
Sec. 1.6050I-1 Returns relating to cash in excess of $10,000 received
in a trade or business.
(a) Reporting requirement--(1) Reportable transaction--(i) In
general. Any person (as defined in section 7701(a)(1)) who, in the
course of a trade or business in which such person is engaged, receives
cash in excess of $10,000 in 1 transaction (or 2 or more related
transactions) shall, except as otherwise provided, make a return of
information with respect to the receipt of cash.
(ii) Certain financial transactions. Section 6050I of title 26 of
the United States Code requires persons to report information about
financial transactions to the Internal Revenue Service, and section 5331
of title 31 of the United States Code requires persons to report similar
information about certain transactions to the Financial Crimes
Enforcement Network. This information shall be reported on the same form
as prescribed by the Secretary.
(2) Cash received for the account of another. Cash in excess of
$10,000 received by a person for the account of another must be reported
under this section. Thus, for example, a person who collects delinquent
accounts receivable for an automobile dealer must report with respect to
the receipt of cash in excess of $10,000 from the collection of a
particular account even though the proceeds of the collection are
credited to the account of the automobile dealer (i.e., where the rights
to the proceeds from the account are retained by the automobile dealer
and the collection is made on a fee-for-service basis).
(3) Cash received by agents--(i) General rule. Except as provided in
paragraph (a)(3)(ii) of this section, a person who in the course of a
trade or business acts as an agent (or in some other similar capacity)
and receives cash in excess of $10,000 from a principal, must report the
receipt of cash under this section.
(ii) Exception. An agent who receives cash from a principal and uses
all of the cash within 15 days in a cash transaction (the ``second cash
transaction'') which is reportable under section 6050I or 5312 of title
31 of the United States Code and the regulations thereunder (31 CFR Part
103), and who discloses the name, address, and taxpayer identification
number of the principal to the recipient in the second cash transaction
need not report the initial receipt of cash under this section. An agent
will be deemed to have met the disclosure requirements of this paragraph
(a)(3)(ii) if the agent discloses only the name of the principal and the
agent knows that the recipient has the principal's address and taxpayer
identification number.
(iii) Example. The following example illustrates the application of
the rules in paragraphs (a)(3) (i) and (ii) of this section:
Example. B, the principal, gives D, an attorney, $75,000 in cash to
purchase real property on behalf of B. Within 15 days D purchases real
property for cash from E, a real estate developer, and discloses to E,
B's name, address, and taxpayer identification number. Because the
transaction qualifies for the exception provided in paragraph (a)(3)(ii)
of this section, D need not report with respect to the initial receipt
of cash under this section. The exception does not apply, however, if D
pays E by means other than cash, or effects the purchase more than 15
days following receipt of the cash from B, or fails to disclose B's
name, address, and taxpayer identification number (assuming D does not
know that E already has B's address and taxpayer identification number),
or purchases the property from a person whose sale of the property is
not in the course of that person's trade or business. In any such case,
D is required to report the receipt of cash from B under this section.
[[Page 330]]
(b) Multiple payments. The receipt of multiple cash deposits or cash
installment payments (or other similar payments or prepayments) on or
after January 1, 1990, relating to a single transaction (or two or more
related transactions), is reported as set forth in paragraphs (b)(1)
through (b)(3) of this section.
(1) Initial payment in excess of $10,000. If the initial payment
exceeds $10,000, the recipient must report the initial payment within 15
days of its receipt.
(2) Initial payment of $10,000 or less. If the initial payment does
not exceed $10,000, the recipient must aggregate the initial payment and
subsequent payments made within one year of the initial payment until
the aggregate amount exceeds $10,000, and report with respect to the
aggregate amount within 15 days after receiving the payment that causes
the aggregate amount to exceed $10,000.
(3) Subsequent payments. In addition to any other required report, a
report must be made each time that previously unreportable payments made
within a 12-month period with respect to a single transaction (or two or
more related transactions), individually or in the aggregate, exceed
$10,000. The report must be made within 15 days after receiving the
payment in excess of $10,000 or the payment that causes the aggregate
amount received in the 12- month period to exceed $10,000. (If more than
one report would otherwise be required for multiple cash payments within
a 15-day period that relate to a single transaction (or two or more
related transactions), the recipient may make a single combined report
with respect to the payments. The combined report must be made no later
than the date by which the first of the separate reports would otherwise
be required to be made.) A report with respect to payments of $10,000 or
less that are reportable under this paragraph (b)(3) and are received
after December 31, 1989, but before July 10, 1990, is due July 24, 1990.
(4) Example. The following example illustrates the application of
the rules in paragraphs (b)(1) through (b)(3) of this section:
Example. On January 10, 1991, M receives an initial cash payment of
$11,000 with respect to a transaction. M receives subsequent cash
payments with respect to the same transaction of $4,000 on February 15,
1991, $6,000 on March 20, 1991, and $12,000 on May 15, 1991. M must make
a report with respect to the payment received on January 10, 1991, by
January 25, 1991. M must also make a report with respect to the payments
totalling $22,000 received from February 15, 1991, through May 15, 1991.
This report must be made by May 30, 1991, that is, within 15 days of the
date that the subsequent payments, all of which were received within a
12-month period, exceeded $10,000.
(c) Meaning of terms. The following definitions apply for purposes
of this section--
(1) Cash--(i) Amounts received prior to February 3, 1992. For
amounts received prior to February 3, 1992, the term cash means the coin
and currency of the United States or of any other country, which
circulate in and are customarily used and accepted as money in the
country in which issued.
(ii) Amounts received on or after February 3, 1992. For amounts
received on or after February 3, 1992, the term cash means--
(A) The coin and currency of the United States or of any other
country, which circulate in and are customarily used and accepted as
money in the country in which issued; and
(B) A cashier's check (by whatever name called, including
``treasurer's check'' and ``bank check''), bank draft, traveler's check,
or money order having a face amount of not more than $10,000--
(1) Received in a designated reporting transaction as defined in
paragraph (c)(1)(iii) of this section (except as provided in paragraphs
(c)(1)(iv), (v), and (vi) of this section), or
(2) Received in any transaction in which the recipient knows that
such instrument is being used in an attempt to avoid the reporting of
the transaction under section 6050I and this section.
(iii) Designated reporting transaction. A designated reporting
transaction is a retail sale (or the receipt of funds by a broker or
other intermediary in connection with a retail sale) of--
(A) A consumer durable,
(B) A collectible, or
(C) A travel or entertainment activity.
[[Page 331]]
(iv) Exception for certain loans. A cashier's check, bank draft,
traveler's check, or money order received in a designated reporting
transaction is not treated as cash pursuant to paragraph
(c)(l)(ii)(B)(1) of this section if the instrument constitutes the
proceeds of a loan from a bank (as that term is defined in 31 CFR part
103). The recipient may rely on a copy of the loan document, a written
statement from the bank, or similar documentation (such as a written
lien instruction from the issuer of the instrument) to substantiate that
the instrument constitutes loan proceeds.
(v) Exception for certain installment sales. A cashier's check, bank
draft, traveler's check, or money order received in a designated
reporting transaction is not treated as cash pursuant to paragraph
(c)(1)(ii)(B)(1) of this section if the instrument is received in
payment on a promissory note or an installment sales contract (including
a lease that is considered to be a sale for Federal income tax
purposes). However, the preceding sentence applies only if--
(A) Promissory notes or installment sales contracts with the same or
substantially similar terms are used in the ordinary course of the
recipient's trade or business in connection with sales to ultimate
consumers; and
(B) The total amount of payments with respect to the sale that are
received on or before the 60th day after the date of the sale does not
exceed 50 percent of the purchase price of the sale.
(vi) Exception for certain down payment plans. A cashier's check,
bank draft, traveler's check, or money order received in a designated
reporting transaction is not treated as cash pursuant to paragraph
(c)(1)(ii)(B)(1) of this section is the instrument is received pursuant
to a payment plan requiring one or more down payments and the payment of
the balance of the purchase price by a date no later than the date of
the sale (in the case of an item of travel or entertainment, a date no
later than the earliest date that any item of travel or entertainment
pertaining to the same trip or event is furnished). However, the
preceding sentence applies only if--
(A) The recipient uses payment plans with the same or substantially
similar terms in the ordinary course of its trade or business in
connection with sales to ultimate consumers; and
(B) The instrument is received more than 60 days prior to the date
of the sale (in the case of an item of travel or entertainment, the date
on which the final payment is due).
(vii) Examples. The following examples illustrate the definition of
``cash'' set forth in paragraphs (c)(l)(ii) through (vi) of this
section.
Example 1. D, an individual, purchases gold coins from M, a coin
dealer, for $13,200. D tenders to M in payment United States currency in
the amount of $6,200 and a cashier's check in the face amount of $7,000
which D had purchased. Because the sale is a designated reporting
transaction, the cashier's check is treated as cash for purposes of
section 6050I and this section. Therefore, because M has received more
than $10,000 in cash with respect to the transaction, M must make the
report required by section 6050I and this section.
Example 2. E, an individual, purchases an automobile from Q, an
automobile dealer, for $11,500. E tenders to Q in payment United States
currency in the amount of $2,000 and a cashier's check payable to E and
Q in the amount of $9,500. The cashier's check constitutes the proceeds
of a loan from the bank issuing the check. The origin of the proceeds is
evident from provisions inserted by the bank on the check that instruct
the dealer to cause a lien to be placed on the vehicle as security for
the loan. The sale of the automobile is a designated reporting
transaction. However, under paragraph (c)(1)(iv) of this section,
because E has furnished Q documentary information establishing that the
cashier's check constitutes the proceeds of a loan from the bank issuing
the check, the cashier's check is not treated as cash pursuant to
paragraph (c)(1)(ii)(B)(1) of this section.
Example 3. F, an individual, purchases an item of jewelry from S, a
retail jeweler, for $12,000. F gives S traveler's checks totalling
$2,400 and pays the balance with a personal check payable to S in the
amount of $9,600. Because the sale is a designated reporting
transaction, the traveler's checks are treated as cash for purposes of
section 6050I and this section. However, because the personal check is
not treated as cash for purposes of section 6050I and this section, S
has not received more than $10,000 in cash in the transaction and no
report is required to be filed under section 6050I and this section.
Example 4. G, an individual, purchases a boat from T, a boat dealer,
for $16,500. G pays T with a cashier's check payable to T in the
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amount of $16,500. The cashier's check is not treated as cash because
the face amount of the check is more than $10,000. Thus, no report is
required to be made by T under section 6050I and this section.
Example 5. H, an individual, arranges with W, a travel agent, for
the chartering of a passenger aircraft to transport a group of
individuals to a sports event in another city. H also arranges with W
for hotel accommodations for the group and for admission tickets to the
sports event. In payment, H tenders to W money orders which H had
previously purchased. The total amount of the money orders, none of
which individually exceeds $10,000 in face amount, exceeds $10,000.
Because the transaction is a designated reporting transaction, the money
orders are treated as cash for purposes of section 6050I and this
section. Therefore, because W has received more than $10,000 in cash
with respect to the transaction, W must make the report required by
section 6050I and this section.
(2) Consumer durable. The term consumer durable means an item of
tangible personal property of a type that is suitable under ordinary
usage for personal consumption or use, that can reasonably be expected
to be useful for at least 1 year under ordinary usage, and that has a
sales price of more than $10,000. Thus, for example, a $20,000
automobile is a consumer durable (whether or not it is sold for business
use), but a $20,000 dump truck or a $20,000 factory machine is not.
(3) Collectible. The term collectible means an item described in
paragraphs (A) through (D) of section 408(m)(2) (determined without
regard to section 408(m)(3)).
(4) Travel or entertainment activity. The term travel or
entertainment activity means an item of travel or entertainment (within
the meaning of Sec. 1.274-2(b)(1)) pertaining to a single trip or event
where the aggregate sales price of the item and all other items
pertaining to the same trip or event that are sold in the same
transaction (or related transactions) exceeds $10,000.
(5) Retail sale. The term retail sale means any sale (whether for
resale or for any other purpose) made in the course of a trade or
business if that trade or business principally consists of making sales
to ultimate consumers.
(6) Trade or business. The term trade or business has the same
meaning as under section 162 of the Internal Revenue Code of 1954.
(7) Transaction--(i) The term transaction means the underlying event
precipitating the payer's transfer of cash to the recipient.
Transactions include (but are not limited to) a sale of goods or
services; a sale of real property; a sale of intangible property; a
rental of real or personal property; an exchange of cash for other cash;
the establishment or maintenance of or contribution to a custodial,
trust, or escrow arrangement; a payment of a preexisting debt; a
conversion of cash to a negotiable instrument; a reimbursement for
expenses paid; or the making or repayment of a loan. A transaction may
not be divided into multiple transactions in order to avoid reporting
under this section.
(ii) The term related transactions means any transaction conducted
between a payer (or its agent) and a recipient of cash in a 24-hour
period. Additionally, transactions conducted between a payer (or its
agent) and a cash recipient during a period of more than 24 hours are
related if the recipient knows or has reason to know that each
transaction is one of a series of connected transactions.
(iii) The following examples illustrate the definition of paragraphs
(c)(7) (i) and (ii).
Example (1). A person has a tacit agreement with a gold dealer to
purchase $36,000 in gold bullion. The $36,000 purchase represents a
single transaction under paragraph (c)(7)(i) of this section and the
reporting requirements of this section cannot be avoided by recasting
the single sales transaction into 4 separate $9,000 sales transactions.
Example (2). An attorney agrees to represent a client in a criminal
case with the attorney's fee to be determined on an hourly basis. In the
first month in which the attorney represents the client, the bill for
the attorney's services comes to $8,000 which the client pays in cash.
In the second month in which the attorney represents the client, the
bill for the attorney's services comes to $4,000, which the client again
pays in cash. The aggregate amount of cash paid ($12,000) relates to a
single transaction as defined in paragraph (c)(7)(i) of this section,
the sale of legal services relating to the criminal case, and the
receipt of cash must be reported under this section.
Example (3). A person intends to contribute a total of $45,000 to a
trust fund, and the trustee of the fund knows or has reason to know of
that intention. The $45,000 contribution is a single transaction under
paragraph
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(c)(7)(i) of this section and the reporting requirement of this section
cannot be avoided by the grantor's making five separate $9,000 cash
contributions to a single fund or by making five $9,000 cash
contributions to five separate funds administered by a common trustee.
Example (4). K, an individual, attends a one day auction and
purchases for cash two items, at a cost of $9,240 and $1,732.50
respectively (tax and buyer's premium included). Because the
transactions are related transactions as defined in paragraph (c)(7)(ii)
of this section, the auction house is required to report the aggregate
amount of cash received from the related sales ($10,972.50), even though
the auction house accounts separately on its books for each item sold
and presents the purchaser with separate bills for each item purchased.
Example (5). F, a coin dealer, sells for cash $9,000 worth of gold
coins to an individual on three successive days. Under paragraph
(c)(7)(ii) of this section the three $9,000 transactions are related
transactions aggregating $27,000 if F knows, or has reason to know, that
each transaction is one of a series of connected transactions.
(8) Recipient. (i) The term recipient means the person receiving the
cash. Except as provided in paragraph (c)(8)(ii) of this section, each
store, division, branch, department, headquarters, or office
(``branch'') (regardless of physical location) comprising a portion of a
person's trade or business shall for purposes of this section be deemed
a separate recipient.
(ii) A branch that receives cash payments will not be deemed a
separate recipient if the branch (or a central unit linking such branch
with other branches) would in the ordinary course of business have
reason to know the identity of payers making cash payments to other
branches of such person.
(iii) Examples. The following examples illustrate the application of
the rules in paragraphs (c)(8)(i) and (ii) of this section:
Example (1). N, an individual, purchases regulated futures contracts
at a cost of $7,500 and $5,000, respectively, through two different
branches of Commodities Broker X on the same day. N pays for each
purchase with cash. Each branch of Commodities Broker X transmits the
sales information regarding each of N's purchases to a central unit of
Commodities Broker X (which settles the transactions against N's
account). Under paragraph (c)(8)(ii) of this section the separate
branches of Commodities Broker X are not deemed to be separate
recipients; therefore. Commodities Broker X must report with respect to
the two related regulated futures contracts sales in accordance with
this section.
Example (2). P, a corporation, owns and operates a racetrack. P's
racetrack contains 100 betting windows at which pari-mutuel wagers may
be made. R, an individual, places cash wagers of $3,000 each at five
separate betting windows. Assuming that in the ordinary course of
business each betting window (or a central unit linking windows) does
not have reason to know the identity of persons making wagers at other
betting windows, each betting window would be deemed to be a separate
cash recipient under paragraph (c)(8)(i) of this section. As no
individual recipient received cash in excess of $10,000, no report need
be made by P under this section.
(d) Exceptions to the reporting requirements of section 6050I--(1)
Receipt of cash by certain financial institutions. A financial
institution as defined in subparagraphs (A), (B), (C), (D), (E), (F),
(G), (J), (K), (R), and (S) of section 5312 (a)(2) of Title 31, United
States Code is not required to report the receipt of cash exceeding
$10,000 under section 6050I.
(2) Receipt of cash by certain casinos having gross annual gaming
revenue in excess of $1,000,000--(i) In general. If a casino receives
cash in excess of $10,000 and is required to report the receipt of such
cash directly to the Treasury Department under 31 CFR 103.22(a)(2) and
103.25 and is subject to the recordkeeping requirements of 31 CFR
103.36, then the casino is not required to make a return with respect to
the receipt of such cash under section 6050I and these regulations.
(ii) Casinos exempt under 31 CFR 103.45(c). Under the authority of
section 6050I(c)(1)(A), the Secretary may exempt from the reporting
requirements of section 6050I casinos with gross annual gaming revenue
in excess of $1,000,000 that are exempt under 31 CFR 103.45(c) from
reporting certain cash transactions to the Treasury Department under 31
CFR 103.22(a)(2) and 103.25. The determination whether a casino which is
granted an exemption under 31 CFR 103.45(c) will be required to report
under section 6050I will be made on a case by case basis, concurrently
with the granting of such an exemption.
[[Page 334]]
(iii) Reporting of cash received in a nongaming business. Nongaming
businesses (such as shops, restaurants, entertainment, and hotels) at
casino hotels and resorts are separate trades or businesses in which the
receipt of cash in excess of $10,000 is reportable under section 6050I
and these regulations. Thus, a casino exempt under paragraph (d)(2) (i)
or (ii) of this section must report with respect to cash in excess of
$10,000 received in its nongaming businesses.
(iv) Example. The following example illustrates the application of
the rules in paragraphs (d)(2) (i) and (iii) of this section:
Example. A and B are casinos having gross annual gaming revenue in
excess of $1,000,000. C is a casino with gross annual gaming revenue of
less than $1,000,000. Casino A receives $15,000 in cash from a customer
with respect to a gaming transaction which the casino reports to the
Treasury Department under 31 CFR 103.22(a)(2) and 103.25. Casino B
receives $15,000 in cash from a customer in payment for accommodations
provided to that customer at Casino B's hotel. Casino C receives $15,000
in cash from a customer with respect to a gaming transaction. Casino A
is not required to report the transaction under section 6050I or these
regulations because the exception for certain casinos provided in
paragraph (d)(2)(i) (``the casino exception'') applies. Casino B is
required to report under section 6050I and these regulations because the
casino exception does not apply to the receipt of cash from a nongaming
activity. Casino C is required to report under section 6050I and these
regulations because the casino exception does not apply to casinos
having gross annual gaming revenue of $1,000,000 or less which do not
have to report to the Treasury Department under 31 CFR 103.22(a)(2) and
103.25.
(3) Receipt of cash not in the course of the recipient's trade or
business. The receipt of cash in excess of $10,000 by a person other
than in the course of the person's trade or business is not reportable
under section 6050I. Thus, for example, F, an individual in the trade or
business of selling real estate, sells a motorboat for $12,000, the
purchase price of which is paid in cash. F did not use the motorboat in
any trade or business in which F was engaged. F is not required to
report under section 6050I or these regulations because the exception
provided in this paragraph (d)(3) applies.
(4) Receipt is made with respect to a foreign cash transaction--(i)
In general. Generally, there is no requirement to report with respect to
a cash transaction if the entire transaction occurs outside the United
States (the fifty states and the District of Columbia). An entire
transaction consists of both the transaction as defined in paragraph
(c)(7)(i) of this section and the receipt of cash by the recipient. If,
however, any part of an entire transaction occurs in the Commonwealth of
Puerto Rico or a possession or territory of the United States and the
recipient of cash in that transaction is subject to the general
jurisdiction of the Internal Revenue Service under title 26 of the
United States Code, the recipient is required to report the transaction
under this section.
(ii) Example. The following example illustrates the application of
the rules in paragraph (d)(4)(i) of this section:
Example. W, an individual engaged in the trade or business of
selling aircraft, reaches an agreement to sell an airplane to a U.S.
citizen living in Mexico. The agreement, no portion of which is
formulated in the United States, calls for a purchase price of $125,000
and requires delivery of and payment for the airplane to be made in
Mexico. Upon delivery of the airplane in Mexico, W receives $125,000 in
cash. W is not required to report under section 6050I or these
regulations because the exception provided in paragraph (d)(4)(i) of
this section (``foreign transaction exception'') applies. If, however,
any part of the agreement to sell had been formulated in the United
States, the foreign transaction exception would not apply and W would be
required to report the receipt of cash under section 6050I and these
regulations.
(e) Time, manner, and form of reporting--(1) Time of reporting. The
reports required by this section must be filed with the Internal Revenue
Service by the 15th day after the date the cash is received. However, in
the case of multiple payments relating to a single transaction (or two
or more related transactions), see paragraph (b) of this section.
(2) Form of reporting. A report required by paragraph (a) of this
section must be made on Form 8300. A return of information made in
compliance with this paragraph must contain the name, address, and
taxpayer identification number of the person from whom
[[Page 335]]
the cash was received; the name, address, and taxpayer identification
number of the person on whose behalf the transaction was conducted (if
the recipient knows or has reason to know that the person from whom the
cash was received conducted the transaction as an agent for another
person); the amount of cash received; the date and nature of the
transaction; and any other information required by Form 8300. Form 8300
can be obtained from any Internal Revenue Service Forms Distribution
Center.
(3) Manner of reporting--(i) Where to file. A person making a return
of information under this section must file Form 8300 by mailing it to
the address shown in the instructions to the form.
(ii) Verification. A person making a return of information under
this section must verify the identity of the person from whom the
reportable cash is received. Verification of the identity of a person
who purports to be an alien must be made by examination of such person's
passport, alien identification card, or other official document
evidencing nationality or residence. Verification of the identity of any
other person may be made by examination of a document normally
acceptable as a means of identification when cashing or accepting checks
(for example, a driver's license or a credit card). In addition, a
return will be considered incomplete if the person required to make a
return knows (or has reason to know) that an agent is conducting the
transaction for a principal, and the return does not identify both the
principal and the agent.
(iii) Retention of returns. A person required to make an information
return under this section must keep a copy of each return filed for five
years from the date of filing.
(f) Requirement of furnishing statements--(1) In general. Any person
required to make an information return under this section must furnish a
single, annual, written statement to each person whose name is set forth
in a return (``identified person'') filed with the Internal Revenue
Service.
(2) Form of statement. The statement required by the preceding
paragraph need not follow any particular format, but it must contain the
following information:
(i) The name and address of the person making the return;
(ii) The aggregate amount of reportable cash received by the person
who made the information return required by this section during the
calendar year in all cash transactions relating to the identified
person; and
(iii) A legend stating that the information contained in the
statement is being reported to the Internal Revenue Service.
(3) When statement is to be furnished. Statements required under
this paragraph (f) must be furnished to an identified person on or
before January 31 of the year following the calendar year in which the
cash is received. A statement shall be considered to be furnished to an
identified person if it is mailed to the identified person at the
identified person's last known address.
(g) Cross-reference to penalty provisions--(1) Failure to file
correct information return. See section 6721 for civil penalties
relating to the failure to file a correct return under section 6050I(a)
and paragraph (a) of this section.
(2) Failure to furnish correct statement. See section 6722 for civil
penalties relating to the failure to furnish a correct statement to
identified persons under section 6050I(e) and paragraph (f) of this
section.
(3) Criminal penalties. Any person who willfully fails to make a
return or makes a false return under section 6050I and this section may
be subject to criminal prosecution.
[T.D. 8098, 51 FR 31611, Sept. 4, 1986; 51 FR 33033, Sept. 18, 1986, as
amended by T.D. 8373, 56 FR 57976, 57977, Nov. 15, 1991; 58 FR 16496,
Mar. 29, 1993; T.D. 8479, 58 FR 33764, June 21, 1993; T.D. 8974, 66 FR
67687, Dec. 31, 2001]
Sec. 1.6050I-2 Returns relating to cash in excess of $10,000 received
as bail by court clerks.
(a) Reporting requirement. Any clerk of a Federal or State court who
receives more than $10,000 in cash as bail for any individual charged
with a specified criminal offense must make a return of information with
respect to that cash receipt. For purposes of this section, a clerk is
the clerk's office or the office, department, division,
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branch, or unit of the court that is authorized to receive bail. If
someone other than a clerk receives bail on behalf of a clerk, the clerk
is treated as receiving the bail for purposes of this paragraph (a).
(b) Meaning of terms. The following definitions apply for purposes
of this section--
Cash means--
(1) The coin and currency of the United States, or of any other
country, that circulate in and are customarily used and accepted as
money in the country in which issued; and
(2) A cashier's check (by whatever name called, including
treasurer's check and bank check), bank draft, traveler's check, or
money order having a face amount of not more than $10,000.
Specified criminal offense means--
(1) A Federal criminal offense involving a controlled substance (as
defined in section 802 of title 21 of the United States Code), provided
the offense is described in Part D of Subchapter I or Subchapter II of
title 21 of the United States Code;
(2) Racketeering (as defined in section 1951, 1952, or 1955 of title
18 of the United States Code);
(3) Money laundering (as defined in section 1956 or 1957 of title 18
of the United States Code); and
(4) Any State criminal offense substantially similar to an offense
described in this paragraph (b).
(c) Time, form, and manner of reporting--(1) Time of reporting--(i)
In general. The information return required by this section must be
filed with the Internal Revenue Service by the 15th day after the date
the cash bail is received.
(ii) Multiple payments. If multiple payments are made to satisfy
bail reportable under this section and the initial payment does not
exceed $10,000, the initial payment and subsequent payments must be
aggregated and the information return required by this section must be
filed with the Internal Revenue Service by the 15th day after receipt of
the payment that causes the aggregate amount to exceed $10,000. However,
if payments are made to satisfy separate bail requirements, no
aggregation is required. Thus, if in Month 1 a clerk receives $6,000 in
bail for an individual charged with a specified criminal offense and
later, in Month 2, receives $7,000 in bail for that same individual
charged with another specified criminal offense, no aggregation is
required.
(2) Form of reporting. The return of information required by
paragraph (a) of this section must be made on Form 8300 and must contain
the following information--
(i) The name, address, and taxpayer identification number (TIN) of
the individual charged with the specified criminal offense;
(ii) The name, address, and TIN of each person posting the bail
(payor of bail), other than a person posting bail who is licensed as a
bail bondsman in the jurisdiction in which the bail is received;
(iii) The amount of cash received;
(iv) The date the cash was received; and
(v) Any other information required by Form 8300 or its instructions.
(3) Manner of reporting--(i) Where to file. Returns required by this
section must be filed with the Internal Revenue Service office
designated in the instructions for Form 8300. A copy of the information
return required to be filed under this section must be retained for five
years from the date of filing.
(ii) Verification of identity. A clerk required to make an
information return under this section must, in accordance with Sec.
1.6050I-1(e)(3)(ii), verify the identity of each payor of bail listed in
the return.
(d) Requirement to furnish statements--(1) Information to Federal
prosecutors--(i) In general. A clerk required to make an information
return under this section must furnish a written statement to the United
States Attorney for the jurisdiction in which the individual charged
with the specified crime resides and the United States Attorney for the
jurisdiction in which the specified criminal offense occurred
(applicable United States Attorney(s)). The written statement must be
filed with the applicable United States Attorney(s) by the 15th day
after the date the cash bail is received.
[[Page 337]]
(ii) Form of statement. The written statement must include the
information required by paragraph (c)(2) of this section. The
requirement of this paragraph (d)(1)(ii) will be satisfied if the clerk
provides to the applicable United States Attorney(s) a copy of the Form
8300 that is filed with the Internal Revenue Service pursuant to this
section.
(2) Information to payors of bail--(i) In general. A clerk required
to make an information return under this section must furnish a written
statement to each payor of bail whose name is set forth in a return
required by this section. A statement required under this paragraph
(d)(2) must be furnished to a payor of bail on or before January 31 of
the year following the calendar year in which the cash is received. A
statement will be considered furnished to a payor of bail if it is
mailed to the payor's last known address.
(ii) Form of statement. The statement required by this paragraph
(d)(2) need not follow any particular format, but must contain the
following information--
(A) The name and address of the clerk's office making the return;
(B) The aggregate amount of reportable cash received during the
calendar year by the clerk who made the information return required by
this section in all cash transactions relating to the payor of bail; and
(C) A legend stating that the information contained in the statement
has been reported to the Internal Revenue Service and the applicable
United States Attorney(s).
(iii) Aggregate amount. The requirement of furnishing the aggregate
amount in paragraph (d)(2)(ii)(B) of this section will be satisfied if
the clerk provides to the payor of bail either a single written
statement listing the aggregate amount, or a copy of each Form 8300
relating to that payor of bail.
(e) Cross-reference to penalty provisions. See sections 6721 through
6724 for penalties relating to the failure to comply with the provisions
of this section.
(f) Effective date. This section applies to cash received by court
clerks on or after February 13, 1995.
[T.D. 8652, 61 FR 7, Jan. 2, 1996]
Sec. 1.6050J-1T Questions and answers concerning information returns
relating to foreclosures and abandonments of security (temporary).
The following questions and answers relate to the requirement of
reporting foreclosures and abandonments of security under section 6050J
of the Internal Revenue Code Act of 1954, as added by section 148 of the
Tax Reform Act of 1984 (98 Stat. 687).
Requirement of Reporting
In General
Q-1: What does section 6050J provide with respect to the reporting
of acquisitions and abandonments of property that secures indebtedness?
A-1: Section 6050J provides that an information return must be made
by any person who, in connection with a trade or business conducted by
the person (except as provided in A-13), lends money and, in full or
partial satisfaction of the debt, acquires an interest in any property
that is security for the debt, or has reason to know that the property
has been abandoned. For purposes of these questions and answers, a
person who lends money in connection with a trade or business is
referred to as a ``lender''.
Trade or Business Requirement
Q-2: Must a person be in the trade or business of lending money in
order to be subject to the reporting requirement of this section?
A-2: No. A person does not have to be in the trade or business of
lending money to be subject to this reporting requirement. Thus, if L
sells automobiles and lends money to B to enable B to purchase an
automobile from L for use in B's trade or business, and that automobile
is security for the loan, L would be subject to this reporting
requirement. Similarly, if P promotes interests in an oil well, and
lends money to I to enable I to invest in the oil well which is security
for the loan, P would be subject to this reporting requirement.
Q-3: How does the reporting requirement apply in the case of pools,
fixed investment trusts, or other similar arrangements through which
undivided beneficial interests or participations in indebtedness are
offered?
A-3: In these cases, the owners of the undivided beneficial
interests or participations are not subject to this reporting
requirement. Instead, the trustee, record owner, or person acting in a
similar capacity is treated as the lender for purposes of this reporting
requirement and is the party required to report. For purposes of both
section 6050J and the applicable penalty provisions, only one return and
one statement must be filed with
[[Page 338]]
respect to each loan or other evidence of indebtedness. For situations
when more than one return or statement must be filed, see A-29, A-31,
and A-41. The trustee, record owner, or person acting in a similar
capacity, rather than the owners of beneficial interests or
participations, is subject to the applicable penalty provisions (see A-
43).
Q-4: How does the reporting requirement apply in the case of
corporate, tax-exempt, or other bond issues?
A-4: In these cases, the owners or holders of a bond issue are not
required to report. Instead, the trustee or person acting in a similar
capacity is treated as the lender for purposes of this reporting
requirement and is the party required to report. For purposes of both
section 6050J and the applicable penalty provisions, only one return and
one statement must be filed with respect to a bond issue. For situations
when more than one return or statement must be filed, see A-29, A-31,
and A-41. The trustee or person acting in a similar capacity, rather
than the owners or holders of a bond issue, is subject to the applicable
penalty provisions (see A-43).
Property Subject to Reporting
Q-5: Does the reporting requirement apply to all types of property
securing indebtedness?
A-5: No. The reporting requirement does not apply to any loan made
to an individual and secured by an interest in tangible personal
property which is neither held for investment nor used in a trade or
business. For rules governing when the reporting requirment applies to
tangible personal property of a type ordinarily used for personal
purposes, see A-8.
Q-6: Does the reporting requirement apply when property securing
indebtedness is held both for personal use and for use in a trade or
business?
A-6: Yes. The reporting requirement applies when property securing
indebtedness is held both for personal use and for use in a trade or
business. Similarly, the reporting requirement applies when the borrower
holds such property both for personal use and for investment purposes.
Q-7: Does the reporting requirement apply to indebtedness secured by
a personal residence?
A-7: Yes. A lender is subject to the reporting requirement if the
property that is security for the loan is real property, including a
personal residence, whether or not held for investment or used in a
trade or business.
Q-8: In the case of a loan made to an individual and secured by
personal property of a type that is ordinarily used for personal
purposes, how does a lender know whether such property is used in a
trade or business or held for investment purposes?
A-8: In the case of a loan made to an individual and secured by
personal property of a type that is ordinarily used for personal
purposes, such as an automobile, computer, or boat, the lender is
subject to the reporting requirement if the lender knows that the
property will be used in a trade or business or held for investment
purposes. For this purpose, a lender knows information if the
information is included on the books and records of the lender or its
agents pertaining to the loan, or is known by the lender or agent's
officers, partners, principals or employees, but only if such
information was acquired in the course of their ordinary business
activities on behalf of the lender. For example, if a borrower indicates
on the loan agreement or disclosure statement that the borrower intends
to use the property securing the loan in the borrower's trade or
business, the lender is subject to this reporting requirement.
Similarly, if the borrower notifies the lender that the borrower intends
to convert the property from personal use to use in a trade or business,
the lender is subject to the reporting requirement.
Q-9: If a lender maintains a system under which the lender
classifies loans according to the use of property that secures the loan
(such as use in a trade or business or personal use), may the lender
rely on this system in determining whether the reporting requirement
applies?
A-9: Yes. A lender may rely on the classification system to
determine whether the reporting requirement applies, provided that the
classification system is designed and reasonably maintained to ensure
accuracy in identifying the use of property.
Acquisition of an Interest
Q-10: For purposes of the reporting requirement, when is a lender
treated as acquiring an interest in property that is security for
indebtedness?
A-10: In general, an interest in property is acquired on the earlier
of the date title is transferred to the lender or the date possession
and the burdens and benefits of ownership are transferred to the lender.
If State or other applicable law provides for an objection period within
which the borrower and other appropriate parties may object to the
lender's proposal to retain the property in satisfaction of the
indebtedness, a lender is treated as acquiring an interest in the
property on the date this objection period expires. If the lender
purchases the property at a sale held to satisfy the indebtedness, such
as at a foreclosure or execution sale, the lender is treated as
acquiring an interest in the property on the later of the date of the
sale or the date the borrower's right of redemption, if any, expires.
See 4A-15 for rules governing reporting when a party other than the
lender acquires property securing indebtedness at a foreclosure,
execution or similar sale.
[[Page 339]]
Q-11: If a lender takes possession of property that is security for
a loan for a limited purpose, such as completing construction on or
improvement to the property, is the lender treated as having acquired an
interest in the property at that point?
A-11: No. The lender in these circumstances is not treated as
acquiring an interest in the property. However, the lender must report
if he later acquires an interest in the property in full or partial
satisfaction of the indebtedness (see A-10 or A-15).
Indirect Acquisition
Q-12: If a lender acquires an interest in a partnership, trust, or
other entity in full or partial satisfaction of a loan that is secured
by the assets or property owned by the partnership, trust, or other
entity, is the lender treated as acquiring an interest in the property
securing the loan?
A-12: Yes. A lender in this case acquires an interest in the
underlying assets or property and the reporting requirements of this
section apply to the acquisition of that interest in a partnership,
trust, or other entity.
Treatment of Governmental Units
Q-13: How does the reporting requirement apply to a governmental
unit?
A-13: A governmental unit (or any agency or instrumentality thereof)
which lends money secured by property is subject to the reporting
requirement without regard to the requirement that the money be lent in
connection with a trade or business. A governmental unit (or any agency
or instrumentality thereof) subject to the reporting requirement must
designate an officer or employee to make the return. The officer or
employee appropriately designated must make the return in the form and
manner prescribed by this section.
Notification of Sale Under Section 7425(b)
Q-14: Does a return filed as required under this section constitute
a notification of sale under section 7425(b)?
A-14: No. A return filed under this section is not considered a
notification of sale under section 7425(b).
Sale to Third Party
Q-15: If a party other than the lender purchases property securing a
loan at a foreclosure, execution, or similar sale, must the lender
report under this section?
A-15: Yes. The lender must report if a party other than the lender
purchases property securing the lender's loan at a foreclosure,
execution, or similar sale. If the proceeds of that sale are applied to
satisfy all or any portion of the lender's loan, the lender must treat
the property as having been abandoned. The lender will be treated as
having reason to know that the property has been abandoned as of the
date of the sale (see A-19). If no proceeds of such a sale are made
available to satisfy any portion of the lender's loan but the lender's
security interest foreclosed upon is terminated, reduced, or otherwise
impaired by reason of the sale, the lender will be treated as having
reason to know that the property has been abandoned as of the date of
the sale (see A-19).
Treatment of Foreign Borrowers
Q-16: How does the reporting requirement apply in the case of
foreign borrowers where the property securing the loan is located
outside the United States?
A-16: No reporting is required where both of the following
requirements are met: (a) The property securing the loan is located
outside the United States, and (b) at any time before the lender is
required to report, the borrower furnishes the lender with a statement,
signed upon penalty of perjury, that he is an exempt foreign person
(unless an employee or other agent of the lender who is responsible for
receiving or reviewing these statements has actual knowledge that the
statement is incorrect). For purposes of this section, the borrower is
an exempt foreign person if he:
(1) Is not a citizen of the United States, a resident of the United
States, a person treated as a resident of the United States by reason of
an election under section 6013 (g) or (h) or a United States corporation
or other United States entity;
(2) Is not subject to the provisions of section 877; and
(3) At the time the statement is furnished, is not, or reasonably
expects not to be, engaged in a trade or business in the United States
during the current year in connection with the loan or property securing
the loan.
If, after providing the statement, the borrower ceases to be an exempt
foreign person, he must so notify the lender in writing within 30 days
of this change in status. If the lender is so notified, this exemption
from the reporting requirement no longer applies.
Abandonments
Q-17: For purposes of this reporting requirement, when has an
abandonment occurred?
A-17: An abandonment has occurred when the objective facts and
circumstances indicate that the borrower intended to and has permanently
discarded the property from use.
Q-18: Does the fact that a lender knows or has reason to know of an
abandonment of property securing a loan mean that the borrower is
entitled to an abandonment loss?
A-18: No. The definition of an abandonment of property securing a
loan in A-17 applies only for purposes of this reporting requirement and
is not intended to apply for
[[Page 340]]
other purposes, such as determining whether a borrower would be entitled
to an abandonment loss.
Q-19: Under what circumstances will a lender be considered to have
reason to know that property which is security for a loan has been
abandoned?
A-19: Whether a lender has reason to know that property which is
security for a loan has been abandoned is to be determined with
reference to all the facts and circumstances concerning the status of
the property. When the lender in the ordinary course of business becomes
aware or should become aware of circumstances indicating that the
property has been abandoned, the lender will be deemed to know all the
information that would have been discovered through a reasonable
inquiry. For example, if a borrower has failed (without adequate
explanation) to make payments on the loan for a substantial period, the
lender must make a reasonable inquiry to determine whether there has
been an abandonment. If a reasonable inquiry would reveal objective
facts and circumstances indicating that the borrower intended to and has
permanently discarded the property from use, then the lender has reason
to know that the property has been abandoned. If a lender knows or has
reason to know that the property has been abandoned and reasonably
expects to commence foreclosure, execution sale, or similar proceedings,
see A-20.
Q-20: If a lender has reason to know that property that is security
for a loan has been abandoned and reasonably expects to commence within
three months foreclosure, execution sale, or similar proceedings, is
reporting of the abandonment required?
A-20: In these circumstances, the lender need not report as of the
date he knows or has reason to know that the property has been
abandoned. Instead, the lender must report as of the date he acquires an
interest in the property or a third party purchases the property at a
foreclosure, execution or similar sale (see A-10 and A-15). In any other
case, the lender must report as of the date the lender knows or has
reason to know that the property has been abandoned (see A-18).
Q-21: If a lender has reason to know that property that is security
for a loan has been abandoned and reasonably expects to commence within
three months foreclosure, execution sale or similar proceedings but in
fact does not commence such proceedings within the three month period,
must the lender report?
A-21: Yes. In these circumstances, the lender's obligation to report
the abandonment arises at the close of the three month period. For
example, if on December 31, 1985, a lender first has reason to know that
property securing his loan has been abandoned and reasonably expects to
commence foreclosure proceedings within three months, the lender is not
required to report as of December 31, 1985 (see A-20). However, if the
lender does not in fact commence foreclosure proceedings by March 31,
1986, the lender's obligation to report arises on this date. The lender
must provide information on the abandonment under A-27 as of the date
the lender first had reason to know of the abandonment (December 31,
1985). The lender must file the return required under this section with
the Internal Revenue Service on or before February 28, 1987, and furnish
a statement to the borrower on or before January 31, 1987 (see A-33 and
A-40).
Subsequent Holder of a Loan
Q-22: To whom does the reporting requirement apply when a person
lends money secured by property and subsequently transfers his interest
in the indebtedness to another person?
A-22: The subsequent holder of a loan is treated as the lender for
purposes of this reporting requirement and is the party required to
report with respect to events occurring after the date he acquires the
loan. This rule applies to all subsequent holders of a secured loan,
including governmental units or any agencies or instrumentalities
thereof. For example, if the Federal National Mortgage Association
purchases real property loans from a lender, it would be subject to the
reporting requirement.
Multiple Lenders
Q-23: If more than one person lends money secured by the same
property, and one lender forecloses upon or otherwise acquires an
interest in the property, must the other lenders report under this
section?
A-23: Yes. In these circumstances, other lenders must report if they
know or have reason to know that the property securing their loans is
foreclosed upon or otherwise acquired by another lender and the sale or
other acquisition terminates, reduces, or otherwise impairs their
security interests in the property (see A-15). For example, if there is
a first and second mortgage on a building, and the second mortgagee
knows or has reason to know that the first mortgagee has foreclosed upon
the building, the second mortgagee is subject to the reporting
requirement even if no part of the indebtedness owed to him is satisfied
by the proceeds of the foreclosure sale. For a description of the
reporting requirement applicable to the first mortgagee, see A-10 and A-
15.
Q-24: If more than one person lends money secured by property, and
one lender knows or has reason to know that the property has been
abandoned, must each lender report under this section?
A-24: No. Each lender is required to report only when he knows or
has reason to know that property has been abandoned (see A-19).
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Form and Manner of Return
Form of Return
Q-25: What form shall be used to make a return required by section
6050J?
A-25: Except as provided in A-35, the return must be made on Forms
1096 and 1099. The person required to make the return, however, may
prepare and use a form which contains provisions substantially similar
with those of Forms 1096 and 1099 if the person complies with any
revenue procedures relating to substitute Forms 1096 and 1099 in effect
at that time.
Information Included on Return
Q-26: What information must be included on a return required by
reason of an acquisition of an interest in property that is security for
a loan?
A-26: The following information must be included on the return:
(a) The name and address of the borrower with respect to the secured
indebtedness;
(b) The borrower's TIN, as defined in Section 7701(a);
(c) A general description of the property in which an interest is
acquired;
(d) Whether the borrower is personally liable for repayment of the
indebtedness;
(e) The date on which the person acquired an interest in the
property (see A-10 or A-15);
(f) The amount of the indebtedness outstanding at the time the
interest in property is acquired;
(g) If the borrower is personally liable for repayment of the
indebtedness, the fair market value of the property at the time the
interest is acquired;
(h) The amount of the indebtedness satisfied by the acquisition; and
(i) Any other information as may be required by Forms 1096 and 1099.
Q-27: What information must be included on a return required because
a person knows or has reason to know that property which is security for
a loan has been abandoned?
A-27: The following information must be included on the return:
(a) The information required in A-26 (a), (b), and (d);
(b) A general description of the property abandoned;
(c) The date on which the person first knows or has reason to know
that the property has been abandoned;
(d) The amount of the indebtedness outstanding as of the date on
which the person first knows or has reason to know that the property has
been abandoned;
(e) If the borrower is personally liable for repayment of the
indebtedness, the fair market value of the property at the time of
abandonment; and
(f) Any other information as may be required by Forms 1096 and 1099.
Partnership Borrower
Q-28: If a borrower is a partnership, must the TIN of each partner
be reported?
A-28: No. If a borrower is a partnership, only the TIN of the
partnership must be reported.
Multiple Borrowers
Q-29: If there is more than one borrower on a single secured loan,
must a person required to report under this section make a return with
respect to each borrower on the loan?
A-29: Yes. Generally, a separate return must be made with respect to
each borrower on a secured loan. However, only one report is required if
the lender knows that the borrowers hold property as tenants by the
entirety or that the property is held as community property.
General Description of Property
Q-30: What type of information constitutes a general description of
the property?
A-30: A general description of the property consists of information
that sufficiently identifies the property. In the case of real property,
a general description consists of the property's address unless this
information is not available or would not sufficiently identify the
property, in which case a legal description (i.e., section, lot, block)
must be provided instead. A general description of personal property
consists of the type, make and model (where applicable) of the property.
For example, an automobile would be described as ``Car--1983 Pontiac
Firebird.'' However, in the case of a single loan secured by more than
one piece of personal property, a general description consists of the
type or category of the pieces acquired or abandoned. For example, if
the security for a single loan is six desks and seven typewriters, a
general description of the property would be ``Office Equipment.''
Multiple Acquisitions and Abandonments
Q-31: Must each acquisition and abandonment that occurs in a taxable
year be reported on a separate return?
A-31: Generally, each acquisition and abandonment required to be
reported by a person for a taxable year must be reported on a separate
return. However, in the case of a single loan secured by more than one
piece of property, separate returns will not be required when a person
acquires an interest in, or knows or has reason to know of the
abandonment of, more than one piece of property that is security for the
single loan in a taxable year. Instead, the person shall make one return
for all of the acquisitions and one return for all of the abandonments
of property that are security for the loan for a taxable year.
[[Page 342]]
Fair Market Value
Q-32: In the case of a foreclosure, execution, or similar sale, what
is the fair market value of the property for purposes of the reporting
requirement?
A-32: In general, in the absence of clear and convincing evidence to
the contrary, the proceeds of the foreclosure, execution, or similar
sale will be considered the fair market value of the property for
purposes of this reporting requirement.
Time for Filing
Q-33: When must a person file the return or returns required by
section 6050J with the Internal Revenue Service?
A-33: The return or returns must be filed on or before February 28
(March 31 if filed electronically) of the year following the calendar
year in which the acquisition of an interest in the property occurs or
in which the lender knows or has reason to know of the abandonment of
the property.
Place for Filing
Q-34: Where must the return or returns be filed?
A-34: The return or returns must be filed with the appropriate
Internal Revenue Service Center, the addresses of which are listed in
the instructions for the Form 1099 series.
Use of Magnetic Media
Q-35: What rules apply with respect to the use of magnetic media?
A-35: Any return required under section 6050J must be filed on
magnetic media to the extent required by section 6011(e). Any person not
required by section 6011(e) to file returns under section 6050J on
magnetic media may request permission to do so. See Sec. 1.9101 for
rules relating to permission to submit information on magnetic tape or
other media. If a person required to file returns on magnetic media
fails to do so, the penalty under section 6652 (failure to file an
information return) applies.
Requirement of Furnishing Statements to Borrowers
In General
Q-36: What statements must be furnished to borrowers?
A-36: Any person required to make an information return under
section 6050J must furnish a statement to each borrower whose name is
required to be set forth in a return filed with the Internal Revenue
Service. For the date when the statement must be furnished, see A-40.
Q-37: Is the statement considered to be furnished to the borrower if
it is mailed to the borrower at the borrower's last known address?
A-37: Yes.
Information Included on Statement
Q-38: What information must be included on the statement?
A-38: The statement must include the following information:
(a) Except in the case where the return is made on behalf of a
governmental unit (or any agency or instrumentality thereof), the name
and address of the person required to make the information return;
(b) In the case where the return is made on behalf of a governmental
unit or any agency or instrumentality thereof, the name and address of
such unit, agency or instrumentality;
(c) The information required under A-26 or A-27, whichever is
applicable; and
(d) A legend stating that the information is being reported to the
Internal Revenue Service.
Copy of Form 1099 to Borrowers
Q-39: May the requirement of furnishing a statement be met by
furnishing a copy of the Form 1099 filed with respect to that borrower?
A-39: Yes. The requirement of furnishing a statement may be met by
furnishing to the borrower a copy of the Form 1099 containing the same
information filed with the Service with respect to that borrower, or a
reasonable facsimile thereof, provided that the form or the reasonable
facsimile bears a legend stating that the information is being reported
to the Internal Revenue Service.
Time of Furnishing Statement
Q-40: When is a statement required to be furnished to the borrower?
A-40: A statement is required to be furnished to the borrower on or
before January 31 of the year following the calendar year in which the
acquisition or abandonment of property occurs.
Multiple Borrowers
Q-41: If a person required to report under this section must make an
information return with respect to more than one borrower on a single
loan, of an interest in the property occurs or in which the lender knows
or has reason to know of the abandonment of the property.
A-41: Yes. A separate statement must be furnished to each borrower
with respect to which a separate return is required under section 6050J.
Extensions of Time
Q-42: Are there any circumstances under which an extension of time
may be granted with respect to the requirement of furnishing statements
to borrowers?
A-42: Yes. Upon written application of the person required to
report, the service center
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director may, for good cause shown, grant that person an additional
period (not to exceed 30 days) in which to furnish statements under
section 6050J with respect to any calendar year. The application for an
extension must be addressed to the director of the service center with
which the returns must be filed. The application must contain a concise
statement of the reasons for requesting the extension in order to aid
the service center director in determining the period of extension, if
any, to be granted. The application must state at the top of the first
page that it is made under section 1.6050J-1T and must be signed by the
person required to report under section 6050J. In general, the
application should be filed not earlier than September 30 of the year in
which the acquisition of an interest in the property occurs or in which
the lender knows or has reason to know of the abandonment of the
property, and not later than January 15 of the following year.
Penalties
Q-43: Are there penalties for failing to comply with the
requirements of section 6050J and the regulations thereunder?
A-43: Yes. The penalty for failing to make any information return
with respect to any borrower under section 6050J is provided in section
6652. The penalty for failing to furnish a statement to any borrower is
provided in section 6678.
Effective Date
Q-44: When is section 6050J effective?
A-44: Section 6050J is effective for acquisitions and abandonments
of property after December 31, 1984.
(Approved by the Office of Management and Budget under control number
1545-0877)
(Secs. 6050J and 7805 of the Internal Revenue Code of 1954 (98 Stat.
687, 68A Stat. 917, 26 U.S.C. 6050J, 7805 respectively)
[T.D. 7971, 49 FR 34460, Aug. 31, 1984, as amended by T.D. 8895, 65 FR
50408, Aug. 18, 2000]
Sec. 1.6050K-1 Returns relating to sales or exchanges of certain
partnership interests.
(a) Partnership return required--(1) In general. Except as otherwise
provided in this paragraph (a), a partnership shall make a separate
return on Form 8308 with respect to each section 751(a) exchange (as
defined in paragraph (a)(4)(i) of this section) of an interest in such
partnership which occurs after December 31, 1984. A partnership that is
in doubt as to whether partnership property constitutes section 751
property to any extent or as to whether a transfer of a partnership
interest constitutes a section 751(a) exchange may file Form 8308 in
order to avoid the risk of incurring a penalty under section 6721. The
penalty under section 6721 will generally apply, however, to
partnerships that do not file Form 8308 where in fact a section 751(a)
exchange occurred, except as provided in paragraphs (a)(2) and (e) of
this section.
(2) Return required under section 6045. No return shall be required
under section 6050K(a) and paragraph (a)(1) of this section with respect
to the sale or exchange of a partnership interest if a return is
required to be filed under section 6045 with respect to such sale or
exchange.
(3) Single or composite documents. The Commissioner may authorize
the use, at the option of the partnership, of a single document which
includes all of the partnership's returns for a calendar year in the
case of partnerships required under paragraph (a)(1) of this section to
make 25 or more returns on Form 8308 for any calendar year. In addition,
the Commissioner may authorize the use for this purpose, also at the
option of such a partnership, of a composite document. These
authorizations shall be subject to such conditions, limitations, and
special rules governing the preparation, execution, filing, and
correction thereof as the Commissioner may deem appropriate. Such
composite document shall consist of a form prescribed by the
Commissioner and an attachment or attachments of magnetic tape or other
approved media. To the extent that the use of a single or composite
document has been authorized by the Commissioner, references in this
section to Form 8303 shall be deemed to refer also to returns included
in a single or composite document under this paragraph (a)(3). Any
single or composite document so authorized shall include the information
required to be provided on Form 8308 under paragraph (b) of this section
with respect to each section 751(a) exchange.
(4) Definitions. For purposes of section 6050K of the Code and this
section--
(i) Section 751(a) exchange. The term section 751(a) exchange means
any sale
[[Page 344]]
or exchange of a partnership interest (or portion thereof) in which any
portion of any money or other property received by a transferor partner
in exchange for all or a part of his or her interest in the partnership
is attributable to section 751 property. The term does not include a
distribution which is treated as a sale or exchange between the
distributee and the partnership under section 751(b) of the Code.
(ii) Section 751 property. The term section 751 property means
unrealized receivables, as defined in section 751(c) of the Code, and
inventory items which have appreciated substantially in value
(``substantially appreciated inventory items''), as defined in section
751(d) of the Code.
(iii) Transferor and transferee. The term transferor means the
beneficial owner of a partnership interest immediately before the
transfer of that interest. The term ``transferee'' means the beneficial
owner of a partnership interest immediately after the transfer of that
interest. However, if a partnership does not know the identity of the
beneficial owner of an interest in the partnership, the record holder of
such interest shall be treated as the transferor or transferee (as the
case may be) for purposes of paragraphs (b) and (c) of this section.
(b) Contents of return. The return on Form 8308 shall include the
following information:
(1) The names, addresses, and taxpayer identification numbers of the
transferee and transferor in the exchange and of the partnership filing
the return;
(2) The date of the exchange; and
(3) Such other information as may be required by Form 8308 or its
instructions.
(c) Statement to be furnished to transferor and transferee. Every
partnership required to file a return under paragraph (a) of this
section must furnish to each person whose name is required to be set
forth in such return a written statement on or before January 31 of the
calendar year following the calendar year in which the section 751(a)
exchange occurred to which the return under paragraph (a) relates (or,
if later, 30 days after the partnership is notified of the exchange as
defined in paragraph (e) of this section). The partnership shall use a
copy of the completed Form 8308 as a statement unless the Form 8308
contains information with respect to more than one section 751(a)
exchange (see paragraph (a)(3) of this section). If the partnership does
not use a copy of Form 8308 as a statement, the statement shall include
the information required to be shown on Form 8308 with respect to the
section 751(a) exchange to which the person to whom the statement is
furnished is a party. In addition, it shall state that--
(1) The information shown on the statement has been supplied to the
Internal Revenue Service,
(2) A transferor of a partnership interest in a sale or exchange
described in section 751(a) of the Internal Revenue Code is required to
treat a portion of any gain or loss resulting from the sale or exchange
as ordinary income or loss, and
(3) The transferor in a section 751(a) sale or exchange is required
under paragraph (a)(3) of Sec. 1.751-1 to attach a statement relating
to the sale or exchange to his or her income tax return for the taxable
year in which the sale or exchange occurred.
(d) Requirement that transferor notify partnership--(1) In general.
The transferor of any partnership interest in a section 751(a) exchange
shall notify the partnership of such exchange in writing within 30 days
of the exchange (or, if earlier, January 15 of the calendar year
following the calendar year in which the exchange occurred). The written
notification from the transferor shall include the following
information:
(i) The names and addresses of the transferor and transferee in the
section 751(a) exchange;
(ii) The taxpayer identification numbers of the transferor and, if
known, of the transferee; and
(iii) The date of the exchange.
Any transferor who notified a partnership under section 6050K(c)(1)
prior to January 22, 1986 by a notification that does not meet the
requirements of this paragraph (d) shall furnish such partnership with
the written notification described in this paragraph (d) on or before
February 21, 1986.
[[Page 345]]
(2) Return required under section 6045. No transferor shall be
required to notify a partnership of the sale or exchange of a
partnership interest under section 6050K(c)(1) or paragraph (d)(1) of
this section if a return is required to be filed under section 6045 with
respect to such sale or exchange.
(e) Partnership not required to make a return or furnish statements
under this section until it has notice of the exchange. A partnership
shall not be required to make a return or furnish statements under
section 6050K and this section with respect to any section 751(a)
exchange until it has been notified of the exchange. For purposes of
section 6050K(c)(2) and this section, a partnership is notified of a
section 751(a) exchange when either:
(1) The partnership receives the written notification from the
transferor required under paragraph (d) of this section; or
(2) The partnership has knowledge that there has been a transfer of
a partnership interest or any portion thereof, and, at the time of the
transfer, the partnership had any section 751 property. However, no
return or statements are required under section 6050K if the transfer
was not a section 751(a) exchange (e.g., a transfer which in its
entirety constitutes a gift for federal income tax purposes). For
purposes of this paragraph (e)(2), the partnership may rely on a written
statement from the transferor that the transfer was not a section 751(a)
exchange in the absence of knowledge to the contrary. For rules
applicable where the partnership is in doubt as to whether partnership
property constitutes section 751 property to any extent or as to whether
a transfer of a partnership interest constitutes a section 751(a)
exchange, see paragraph (a)(1) of this section.
(f) Partnership return is to be attached to Form 1065--(1) In
general. Any partnership return on Form 8308 required under this section
shall be filed as an attachment to the partnership's Form 1065 for its
taxable year in which the calendar year in which the section 751(a)
exchange occurred ends and shall be filed at the time (determined with
regard to any extension of time for filing) and place prescribed for
filing of the partnership's Form 1065 for that taxable year (see
paragraph (e) of Sec. 1.6031-1 for the time and place for filing Form
1065).
(2) Notification after Form 1065 is filed. If a partnership is
notified of an exchange (as defined in paragraph (e) of this section)
after the partnership has filed Form 1065 for the taxable year with
respect to which the exchange should have been reported, Form 8308 shall
be filed with the service center or other Internal Revenue office with
which the partnership's Form 1065 was filed, on or before the thirtieth
day after the partnership is notified of the exchange.
(g) Penalties. For penalties for failure of:
(1) Transferors to furnish the notification required by paragraph
(d) of this section see section 6722 (b);
(2) Partnerships to furnish any statement required under paragraph
(c) of this section see section 6722 (a); and
(3) Partnerships to file the return on Form 8308 as required by
paragraph (a) of this section see section 6721.
[T.D. 8119, 52 FR 41, Jan. 2, 1987]
Sec. 1.6050L-1 Information return by donees relating to certain
dispositions of donated property.
(a) Information returns--(1) Disposition of charitable deduction
property. If a donee of any charitable deduction property (as defined in
paragraph (e) of this section), sells, exchanges, consumes, or otherwise
disposes of (with or without consideration) such property (or any
portion thereof) within 2 years after the date of the donor's
contribution of such property, the donee shall make an information
return on the form prescribed by the Internal Revenue Service. For
special rules with respect to successor donees, see paragraph (c) of
this section.
(2) Disposition of items appraised for $500 or less--(i) In general.
Paragraph (a)(1) of this section shall not apply with respect to an item
of charitable deduction property disposed of by sale if the appraisal
summary (as defined in Sec. 1.170A-13(c)(4)) signed by the donee with
respect to the item contains, at the time of the donee's signature, a
statement signed by the donor that the appraised value of the item does
not exceed $500. In the case of an appraisal
[[Page 346]]
summary that describes more than one item, this exception shall apply
only with respect to an item clearly identified as having an appraised
value of $500 or less. For purposes of this paragraph (a)(2)(i), items
that form a set (such as, for example, a collection of books written by
the same author, components of a stereo system, or a group of place
settings of a pattern of silverware) are considered one item. In
addition, all nonpublicly traded stock is considered one item as are all
nonpublicly traded securities other than nonpublicly traded stock.
(ii) Transitional rule. Paragraph (a)(2)(i) of this section is
satisfied with respect to an appraisal summary submitted to the donee on
or before January 31, 1986, if such donee obtained the required
statement from the donor on or before March 31, 1986, on either an
amended appraisal summary or an attachment to the original appraisal
summary.
(3) Consumption for distribution of exempt purpose. Paragraph (a)(1)
of this section shall not apply with respect to an item of charitable
deduction property consumed or distributed by a donee without
consideration if the consumption or distribution is in furtherance of a
purpose or function constituting a basis for such donee's exemption
under section 501 of the Code. For example, no reporting is required
with respect to medical supplies consumed or distributed by a tax-exempt
relief organization in aiding disaster victims.
(b) Information required to be provided on return. The information
return required by paragraph (a)(1) of this section shall include the
following:
(1) The name, address, and employer identification number of the
donee making the information return;
(2) A description of the property (or portion disposed of) in
sufficient detail to identify the charitable deduction property received
by such donee;
(3) The name and taxpayer identification number of the donor (social
security number if the donor is an individual or employer identification
number if the donor is a corporation or partnership);
(4) The date of the contribution to such donee;
(5) Any amount received by such donee with respect to the
disposition;
(6) The date of the disposition by such donee; and
(7) Such other information as may be specified by the form or its
instructions.
(c) Successor donees--(1) In general. Section 6050L and this section
shall apply to successor donees that receive charitable deduction
property (as defined in paragraph (e) of this section) that was
transferred by the original donee after July 5, 1988, (whether the
successor donee received the property from the original donee or another
successor donee). For definitions of the terms ``donor,'' ``donee,''
``original donee,'' and ``successor donee,'' see Sec. 1.170A-
13(c)(7)(iv)-(vii).
(2) Information required to be provided on return. With respect to
charitable deduction property that is transferred to one or more
successor donees to which this section applies, the information return
required by paragraph (a)(1) of this section shall include, in addition
to the information described in paragraph (b) of this section, the
following:
(i) The name, address, and employer identification number of the
immediately succeeding successor donee (if any) and the immediately
preceding successor donee (if any);
(ii) The name, address, and employer identification number of the
original donee if different from the information required by paragraph
(b)(1) of this section;
(iii) The date of contribution to the original donee; and
(iv) Such other information as may be specified by the form or its
instructions.
(3) Information to be provided to transferor. Every successor donee
to which this section applies that receives any charitable deduction
property within the 2-year period described in paragraph (a)(1) of this
section shall provide its name, address, and employer identification
number to that preceding donee on or before the 15th day after the later
of--
(i) The date of transfer to such successor donee, or
[[Page 347]]
(ii) The date such successor donee receives a copy of the appraisal
summary from the preceding donee.
(4) Donees that transfer property to successor donees. In addition
to complying with the requirements of paragraph (a)(1) of this section,
every donee that transfers any charitable deduction property to a
successor donee to which this section applies within the 2-year period
described in paragraph (a)(1) of this section--
(i) Shall provide its name, address, and employer identification
number and a copy of the appraisal summary (as described in Sec.
1.170A-13(c)(4)) relating to the transferred property to the successor
donee on or before the 15th day after the latest of--
(A) The date of such transfer, or
(B) The date the original donee signs the appraisal summary, or
(C) In a case in which the transferring donee is a successor donee,
the date such donee receives a copy of the appraisal summary from such
donee's transferor, and
(ii) Shall provide a copy of its information return required by
paragraph (a)(1) this section to the successor donee on or before the
15th day after the transferring donee files the information return
pursuant to paragraph (e)(2) of this section.
(5) Donee. In the case of charitable deduction property that is
transferred to a successor donee to which this section applies, the term
donee as used in paragraph (a)(2) and (e) of this section means only the
original donee.
(d) Special rules--(1) Statement to be furnished to donors. Every
donee making a return under section 6050L and this section with respect
to the disposition of charitable deduction property shall furnish a copy
of the return to the donor of the property.
(2) Retention of appraisal summary. Every donee shall retain the
appraisal summary described in Sec. 1.170A-13(c)(4) in the donee's
records for so long as it may be relevant in the administration of any
internal revenue law.
(e) Charitable deduction property. For purposes of this section, the
term charitable deduction property means any property (other than money
and publicly traded securities to which Sec. 1.170A-13(c)(7)(xi)(B)
does not apply) contributed after December 31, 1984, with respect to
which the donee signs (or is presented with for signature in cases
described in Sec. 1.170A-13(c)(4)(iv)(C)(2)) an appraisal summary (as
required by Sec. 1.170A-13(c)(4)(i)(B)). For purposes of this section,
if such donee signs (or is presented with for signature in cases
described in Sec. 1.170A-13(c)(4)(iv)(C)(2)) the appraisal summary
after the date of contribution of the property, the property is deemed
to be charitable deduction property from the date of contribution.
(f) Place and time for filing information returns--(1) Place for
filing. The donee information return required by section 6050L and this
section shall be filed with the Internal Revenue Service center listed
on the return form or its instructions.
(2) Time for filing--(i) In general. Except as provided in paragraph
(f)(2)(ii) of this section, the donee information return shall be filed
on or before the 125th day after a donee sells, exchanges, consumes or
otherwise disposes of the charitable deduction property. A donee
information return filed pursuant to this paragraph (f)(2)(i) does not
have to include the information required by paragraphs (b) (3), (4),
(5), or (6), or (c)(2)(i)-(iii) of this section if such information is
not available to the donee by the due date of the return.
(ii) Exception. Notwithstanding paragraph (f)(2)(i) of this section,
in the case of a donee who, on the date of receipt of the transferred
property, had no reason to believe that the substantiation requirements
of Sec. 1.170A-13(c) apply with respect to the property, the donee
information return is not required to be filed until the 60th day after
the later of May 5, 1988, or the date on which such donee has reason to
believe that the substantiation requirements of Sec. 1.170A-13(c) apply
with respect to the property. A donee information return filed pursuant
to this paragraph (f)(2)(ii) does not have to include the information
required by paragraph (b) (3), (4), (5), or (6), or (c)(2)(i)-(iii) of
this section if such information is not available to the donee by the
due date of the return.
[[Page 348]]
(g) Penalties. For penalties for failure to compy with the
requirements of this section, see sections 6676, 6721, and 6723.
[T.D. 8199, 53 FR 16085, May 5, 1988; T.D. 8199, 53 FR 18372, May 23,
1988]
Sec. 1.6050L-2T Information returns by donees relating to qualified
intellectual property contributions (temporary).
(a) In general. Each donee organization described in section 170(c),
except a private foundation (as defined in section 509(a)), other than a
private foundation described in section 170(b)(1)(E), that receives or
accrues net income during a taxable year from any qualified intellectual
property contribution (as defined in section 170(m)(8)) must make an
annual information return on the form prescribed by the Internal Revenue
Service. The information return is required for any taxable year of the
donee that includes any portion of the 10-year period beginning on the
date of the contribution, but not for taxable years beginning after the
expiration of the legal life of the qualified intellectual property.
(b) Information required to be provided on return. The information
return required by section 6050L and paragraph (a) of this section shall
include the following--
(1) The name, address, taxable year, and employer identification
number of the donee making the information return;
(2) The name, address, and taxpayer identification number of the
donor;
(3) A description of the qualified intellectual property in
sufficient detail to identify the qualified intellectual property
received by such donee;
(4) The date of the contribution to the donee;
(5) The amount of net income of the donee for the taxable year that
is properly allocable to the qualified intellectual property (determined
without regard to paragraph (10)(B) of section 170(m) and with the
modifications described in paragraphs (5) and (6) of such section); and
(6) Such other information as may be specified by the form or its
instructions.
(c) Special rule--statement to be furnished to donors--(1) In
general. Every donee making an information return under section 6050L
and this section with respect to a qualified intellectual property
contribution shall furnish a copy of the information return to the donor
of the property. The information return required by section 6050L and
this section shall be furnished to the donor on or before the date the
donee is required to file the return with the Internal Revenue Service.
(2) Before a form is prescribed by the Internal Revenue Service.
Before a form is prescribed by the Internal Revenue Service, every donee
required to make an information return under section 6050L and this
section with respect to qualified intellectual property contributions
shall furnish, in lieu of the prescribed form, a statement to the donor
that includes all information required by paragraphs (b)(1) through
(b)(5) of this section. This statement shall be furnished to the donor
on or before the date the donee would have been required to file the
return with the Internal Revenue Service under paragraph (d)(2)(i) of
this section had a form been prescribed.
(3) Donee taxable years ending prior to or on the date of issuance
of regulations. If the donee's taxable year to which net income from the
qualified intellectual property is properly allocable ends prior to or
on May 23, 2005, the donee shall furnish the information required under
section 6050L and this section to the donor on or before August 22,
2005.
(d) Place and time for filing information return--(1) Place for
filing. The information return required by section 6050L and this
section shall be filed with the Internal Revenue Service location listed
on the prescribed form or in its instructions.
(2) Time for filing--(i) In general. A donee is required to file the
return required by section 6050L and this section on or before the last
day of the first full month following the close of the donee's taxable
year to which net income from the qualified intellectual property is
properly allocable.
(ii) Before a form is prescribed by the Internal Revenue Service. If
the information return required by section 6050L and this section is
required to be filed
[[Page 349]]
before a form is prescribed by the Internal Revenue Service, then an
information return for such taxable year shall be filed on or before the
last day of the second full month following the release of such
prescribed form by the Internal Revenue Service.
(e) Penalties. For penalties for failure to comply with the
requirements of this section, see sections 6721 through 6724.
(f) Effective date. The rules of this section apply to qualified
intellectual property contributions made after June 3, 2004.
[T.D. 9206, 70 FR 29452, May 23, 2005; 70 FR 36345, June 23, 2005]
Sec. 1.6050M-1 Information returns relating to persons receiving
contracts from certain Federal executive agencies.
(a) General rule. Except as otherwise provided in paragraph (c) of
this section, the head of every Federal executive agency or his or her
delegate shall make an information return to the Internal Revenue
Service reporting the following information with respect to each
contract entered into by that Federal executive agency--
(1) Name and address of the contractor;
(2) Contractor's TIN and, if the contractor is a member of an
affiliated group of corporations that files its Federal income tax
returns on a consolidated basis, the name and TIN of the common parent
of the affiliated group;
(3) The date of the contract action;
(4) The expected date of completion of the contract as determined
under any reasonable method, such as the expected contract delivery date
under the contract schedule;
(5) The total amount obligated under the contract action; and
(6) Any other information required by Forms 8596 and 8596A and their
instructions, or by any other administrative guidance issued by the
Internal Revenue Service (such as a revenue procedure).
See paragraph (e) of this section relating to the manner in which to
report increases in amounts obligated under existing contracts. See
paragraph (d)(5) of this section for special rules for agencies that
submit contract information to the Federal Procurement Data Center. For
provisions concerning the requesting and furnishing of identifying
numbers, see section 6109 and the regulations thereunder.
(b) Definitions. The following definitions apply for purposes of
this section--
(1) Federal executive agency. The term ``Federal executive agency''
means--
(i) Any executive agency (as defined in 5 U.S.C. 105) other than the
General Accounting Office;
(ii) Any military department (as defined in 5 U.S.C. 102); and
(iii) The United States Postal Service and the Postal Rate
Commission.
(2) Contract--(i) General rule. The term ``contract'' means an
obligation of a Federal executive agency to make payment of money (or
other property) to a person in return for the sale of property, the
rendering of services, or other consideration. The term ``contract''
includes, for example, such an obligation arising from a written
agreement executed by the agency and the contractor, an award or notice
of award, a job order or task letter issued under a basic ordering
agreement, a letter contract, an order that becomes effective only upon
written acceptance or performance, or an action described in paragraph
(e) of this section.
(ii) Exceptions. For purposes of this section, the term ``contract''
does not include--
(A) A license granted by a Federal executive agency;
(B) An obligation of a contractor (other than a Federal executive
agency) to a subcontractor;
(C) A debt instrument of the United States Government or a Federal
agency, such as a Treasury note, Treasury bond, Treasury bill, savings
bond, or similar instrument; or
(D) An obligation of a Federal executive agency to lend money, lease
property to a lessee, or sell property.
(iii) Special rule for certain contracts of the Small Business
Administration. Any subcontract entered into by the Small Business
Administration (SBA) under a prime contract between the SBA and a
procuring Federal executive agency pursuant to section 8(a) of the Small
Business Act (15 U.S.C. 637(a)) shall not be treated as a contract of
the SBA but
[[Page 350]]
shall be treated as a contract of the procuring agency for purposes of
this section.
(iv) Certain schedule contracts. For purposes of this section, any
of the following contracts entered into on behalf of one or more Federal
executive agencies is not a ``contract'' to be reported by the General
Services Administration or the Department of Veteran's Affairs at the
time of execution:
(A) A Federal Supply Schedule Contract entered into by the General
Services Administration,
(B) An Automated Data Processing Schedule Contract entered into by
the General Services Administration, or
(C) A schedule contract entered into by the Department of Veteran's
Affairs.
Instead, an order placed by a Federal executive agency, including the
General Services Administration or the Department of Veteran's Affairs,
under such a schedule contract is a ``contract'' for purposes of this
section.
(v) Blanket purchase agreements. For purposes of this section, the
term contract does not include a blanket purchase agreement between one
or more Federal executive agencies and one or more contractors. Instead,
an order placed by a Federal executive agency under the terms of a
blanket purchase agreement is a ``contract'' for purposes of this
section.
(vi) Contracts entered into using non-appropriated funds. [Reserved]
(3) Contractor. The term contractor means any person who enters into
a contract with a Federal executive agency.
(4) Person and TIN. The terms person and TIN are defined in sections
7701(a) (1) and (41), respectively.
(c) Exceptions to information reporting requirement--(1) General
exceptions. The following do not need to be reported pursuant to this
section:
(i) Any contract or contract action for which the amount obligated
is $25,000 or less;
(ii) Any contract with a contractor who, in making the agreement, is
acting in his or her capacity as an employee of a Federal executive
agency (e.g., any contract of employment under which the employee is
paid wages subject to the withholding provisions contained in chapter 24
of subtitle C);
(iii) Any contract between a Federal executive agency and another
Federal governmental unit (or any agency or instrumentality thereof);
(iv) Any contract with a foreign government (or any agency or
instrumentality thereof);
(v) Any contract with a state or local governmental unit (or any
agency or instrumentality thereof);
(vi) Any contract with a person who is not required to have a TIN
(see, for example, Sec. 301.6109-1(g));
(vii) Any contract the terms of which provide that all amounts
payable under the contract by any Federal executive agency will be paid
on or before the 120th day following the date of the contract action,
and for which it is reasonable to except that all amounts will be so
paid.
(viii) Any contract under which all money (or other property) that
will be received by the contractor after the 120th day after the date of
the contract action will come from persons other than a Federal
executive agency or an agent of such an agency (e.g., a contract under
which the contractor will collect amounts owed to a Federal executive
agency by the agency's debtor and will remit to the agency the money
collected less an amount that serves as the contractor's consideration
under the contract).
(ix) Any contract for which the Commissioner determines that the
information described in paragraph (a) of this section will not
facilitate the collection of Federal tax liabilities because of the
manner, method, or timing of payment by the agency under that contract.
(2) Special rule for certain classified or confidential contracts.
Contracts described in section 6050M(e)(3), relating to certain
classified or confidential contracts, are to be reported only in
accordance with section 6050M(e)(2).
(d) Filing requirements--(1) Frequency and time for filing. The
information returns required by this section with respect to contracts
of a Federal executive agency entered into on or after January 1, 1989,
must be filed on a quarterly basis for the calendar quarters ending on
the last day of March,
[[Page 351]]
June, September, and December. Except as provided in paragraph (d)(5) of
this section, the returns for contracts entered into during a calendar
quarter must be filed on or before the last day of the month following
that quarter. Notwithstanding the preceding sentence, returns filed
before May 7, 1990, will be considered timely filed.
(2) Form of reporting--(i) General rule concerning magnetic media.
The information returns required by this section with respect to
contracts of a Federal executive agency for each calendar quarter shall
be made in one submission (or in multiple submissions if permitted by
paragraph (d)(4) of this section). Except as provided in paragraph
(d)(2)(ii) of this section, the required returns shall be made on
magnetic media (within the meaning of Sec. 301.6011-2(a)(1)) in
accordance with any applicable revenue procedure or other guidance
promulgated by the Internal Revenue Service for the filing of such
returns under section 6050M.
(ii) Magnetic media exception for low-volume filers. Any Federal
executive agency that on any October 1 has a reasonable expectation of
entering into, during the one year period beginning on that date, fewer
than 250 contracts that are subject to the reporting requirements under
this section may make the information returns required by this section
for each quarter of that one year period on the prescribed paper Form
8596 in accordance with the instructions accompanying such form.
(3) Place of filing--(i) Returns on magnetic media. Information
returns made under this section on magnetic media shall be filed with
the Internal Revenue Service at the Martinsburg Computing Center,
Martinsburg, West Virginia 25401-1359, in accordance with any applicable
revenue procedure or other guidance promulgated by the Internal Revenue
Service relating to the filing of returns under section 6050M.
(ii) Form 8596. Information returns made on Form 8596 shall be filed
with the Ifternal Revenue Service at the location specified in the
instructions for that form.
(4) Special rule concerning multiple returns. To the extent
permitted in any revenue procedure or other guidance relating to the
filing of information returns under this section, a Federal executive
agency which files information returns under this section on magnetic
media may make more than one magnetic media submission for any quarter,
if each submission for that quarter contains all of the information
required by paragraph (a) of this section with respect to contracts
entered into by one or more departments, branches, bureaus, agencies, or
other readily identifiable operating functions (such as a geographic
region) of the Federal executive agency.
(5) Special rules for agencies reporting to the Federal Procurement
Data Center--(i) Election to have the Director of the Federal
Procurement Data Center make returns on behalf of agency. If, in
complying with the requirements of the Federal Procurement Data System
(FPDS) (as established under the authority of the Office of Federal
Procurement Policy Act, as amended, 41 U.S.C. 401 et seq.), a Federal
executive agency is required to submit to the Federal Procurement Data
Center (FPDC) all the information with respect to one or more contracts
required to be reported by paragraph (a) of this section, that Federal
executive agency may, in lieu of making returns directly to the Internal
Revenue Service with respect to those contracts, elect to have the
Director of the FPDC (or his or her delegate) make the required returns
with respect to all of those contracts on its behalf. In order to make
this election for such contracts entered into during a calendar quarter,
the head of a Federal executive agency (or his or her delegate) shall
attach to its submission to the FPDC for that quarter a signed statement
to the effect that:
(A) The Director of the FPDC (or his or her delegate) is authorized,
in accordance with an election made under 26 CFR 1.6050M-1(d)(5) to
make, on the agency's behalf, the required returns for such contracts
for that quarter, and
(B) Under the penalties of perjury, such official has examined the
information to be submitted by the agency to the FPDC for making those
returns and certifies that information to be, to the best of such
official's knowledge and belief, a compilation of agency records
maintained in the normal
[[Page 352]]
course of business for the purpose of providing the information
necessary for making true, correct, and complete returns as required by
section 6050M.
If the election is made, the Director of the FPDC (or his or her
delegate) shall, on the electing agency's behalf, make the returns
required by paragraph (a) of this section with respect to the contracts
to which the election applies.
(ii) Time, manner, and place of filing. The Director of the FPDC (or
his or her delegate) must--
(A) Make the required returns for a quarter on or before the earlier
of;
(1) 45 days following the date that the contract information is
required to be submitted to the FPDC, or
(2) 90 days following the end of the calendar quarter for which the
election is made, except that, if that calendar quarter ends September
30, 105 days following the end of that quarter, and
(B) Comply with paragraph (d)(2)(i) and (3)(i) of this section,
relating to form and place of filing.
Notwithstanding the preceding sentence, returns made before May 7, 1990,
will be considered timely filed.
(iii) Contracts reported directly to the Internal Revenue Service.
Even if the election is made, all information with respect to any
particular contract required to be reported under paragraph (a) of this
section must be reported directly to the Internal Revenue Service by the
electing agency if the FPDS does not require that information to be
submitted to the FPDC. An electing agency shall not, however, make
direct returns to the Internal Revenue Service of contract information
that is subject to the election.
(6) Certification of return--(i) Returns made directly with the
Internal Revenue Service. Each return made under this section by a
Federal executive agency directly with the Internal Revenue Service on
magnetic media or on Forms 8596 and 8596-A shall be signed by the head
of the Federal executive agency (or his or her delegate) under the
penalties of perjury, certifying that such official has examined the
return, that it is prepared pursuant to the requirements of section
6050M and that, to the best of such official's knowledge and belief, it
is compiled from agency records maintained in the normal course of
business for the purpose of making a true, correct, and complete return
as required by section 6050M.
(ii) Returns made by Director of FPDC on agency's behalf. Each
return made under this section by the Director of the FPDC on behalf of
a Federal executive agency shall be signed by the Director of the FPDC
(or his or her delegate) under the penalties of perjury, certifying that
such official has examined the return, that it is prepared pursuant to
the requirements of section 6050M and that, to the best of such
official's knowledge and belief, it is compiled from information
submitted by the Federal executive agency to the FPDC pursuant to Sec.
1.6050M-1(d)(5)(i) for the purpose of making a true, correct, and
complete return as required by section 6050M.
(e) Special rules relating to increases in amount obligated. If,
through the exercise of an option contained in a basic or initial
contract or under any other rule of contract law, express or implied,
the amount of money or other property obligated under the contract is
increased by more than $25,000 in one contract action, then that action
shall be treated as the entering into of a new contract with respect to
which the information required by paragraph (a) of this section is to be
reported to the Internal Revenue Service for the calendar quarter in
which the increase occurs.
(f) Effective date--(1) Contracts required to be reported. Except as
otherwise provided in this paragraph (f), this section applies to each
Federal executive agency with respect to its contracts entered into on
or after January 1, 1989 (including any increase in amount obligated on
or after January 1, 1989, that is treated as a new contract under
paragraph (e) of this section).
(2) Contracts not required to be reported. A Federal executive
agency is not required to report--
(i) Any basic or initial contract entered into before January 1,
1989,
(ii) Any increase contract action occurring before January 1, 1989,
that is treated as a new contract under paragraph (e) of this section,
or
[[Page 353]]
(iii) Any increase contract action that is treated as a new contract
under paragraph (e) of this section if the basic or initial contract to
which that contract action relates was entered into before January 1,
1989, and--
(A) The increase occurs before April 1, 1990, or
(B) The amount of the increase does not exceed $50,000.
(3) Illustration--(i) If Federal executive agency enters into an
initial contract on December 1, 1988, and the amount of money obligated
under the contract is increased by $55,000 on April 15, 1990, then (A)
there is no reporting requirement with respect to the contract when
entered into on December 1, 1988, and (B) the April 15, 1990, increase,
which is treated as a new contract under paragraph (e) of this section,
is subject to the reporting requirements of this section because it is
considered to be a new contract entered into on April 15, 1990.
(ii) If the $55,000 increase had occurred before April 1, 1990,
there would have been no reporting requirement with respect to that
increase.
[T.D. 8275, 54 FR 50369, Dec. 6, 1989; 55 FR 13522, Apr. 11, 1990]
Sec. 1.6050N-1 Statements to recipients of royalties paid after
December 31, 1986.
(a) Requirement. A person required to make an information return
under section 6050N(a) must furnish a statement to each recipient whose
name is required to be shown on the related information return for
royalties paid.
(b) Form, manner, and time for providing statements to recipients.
The statement required by paragraph (a) of this section must be either
the official Form 1099 prescribed by the Internal Revenue Service for
the respective calendar year or an acceptable substitute statement. The
rules under Sec. 1.6042-4 (relating to statements with respect to
dividends) apply comparably in determining the form of the acceptable
substitute statement permitted by this section. Those rules also apply
for purposes of determining the manner of and time for providing the
Form 1099 or its acceptable substitute statement to a recipient under
this section.
(c) Exempted foreign-related items--(1) In general. No return shall
be required under paragraph (a) of this section for payments of the
items described in paragraphs (c)(1)(i) through (iv ) of this section.
(i) Returns of information are not required for payments of
royalties that a payor can, prior to payment, associate with
documentation upon which it may rely to treat as made to a foreign
beneficial owner in accordance with Sec. 1.1441-1(e)(1)(ii) or as made
to a foreign payee in accordance with Sec. 1.6049-5(d)(1) or presumed
to be made to a foreign payee under Sec. 1.6049-5(d)(2), (3), (4), or
(5). However, such payments may be reportable under Sec. 1.1461-1(b)
and (c).
For purposes of this paragraph (c)(1)(i), the provisions in Sec.
1.6049-5(c) (regarding rules applicable to documentation of foreign
status and definition of U.S. payor and non-U.S. payor) shall apply. See
Sec. 1.1441-1(b)(3)(iii)(B) and (C) for special payee rules regarding
scholarships, grants, pensions, annuities, etc. The provisions of Sec.
1.1441-1 shall apply by substituting the term payor for the term
withholding agent and without regard to the fact that the provisions
apply only to amounts subject to withholding under chapter 3 of the
Internal Revenue Code.
(ii) Returns of information are not required for payments of
royalties from sources outside the United States (determined under Part
I of subchapter N and the regulations under these provisions) made
outside the United States by a non-U.S. payor or non-U.S. middleman. For
a definition of non-U.S. payor or non-U.S. middleman, see Sec. 1.6049-
5(c)(5). For circumstances in which a payment is considered to be made
outside the United States, see Sec. 1.6049-5(e).
(iii) Returns of information are not required for payments made by a
foreign intermediary described in Sec. 1.1441-1(e)(3)(i) that it has
received in its capacity as an intermediary and that are associated with
a valid withholding certificate described in Sec. 1.1441-1(e)(3)(ii) or
(iii) and payments made by a U.S. branch of a foreign bank or of a
foreign insurance company described in Sec. 1.1441-1(b)(2)(iv) that are
associated
[[Page 354]]
with a valid withholding certificate described in Sec. 1.1441-
1(e)(3)(v), which certificate the intermediary or branch has furnished
to the payor or middleman from whom it has received the payment, unless,
and to the extent, the intermediary or branch knows that the payments
are required to be reported and were not so reported.
(2) Definitions--(i) Payor. For purposes of this section, the term
payor shall have the meaning ascribed to it under Sec. 1.6049-4(a).
(ii) Joint owners. Amounts paid to joint owners for which a
certificate or documentation is required as a condition for being exempt
from reporting under this paragraph (c) of this section are presumed
made to U.S. payees who are not exempt recipients if, prior to payment,
the payor cannot reliably associate the payment either with a Form W-9
furnished by one of the joint owners in the manner required in
Sec. Sec. 31.3406(d)-1 through 31.3406(d)-5 of this chapter, or with
documentation described in paragraph (c)(1)(i) of this section furnished
by each joint owner upon which it can rely to treat each joint owner as
a foreign payee or foreign beneficial owner. For purposes of applying
this paragraph (c)(2)(ii), the grace period described in Sec. 1.6049-
5(d)(2)(ii) shall apply only if each payee qualifies for such grace
period.
(d) Cross-reference to penalties. For provisions relating to the
penalty provided for failure to file timely a correct information return
required under section 6050N(a), see Sec. 301.6721-1 of this chapter
(Procedure and Administration Regulations). For provisions relating to
the penalty provided for failure to furnish timely a correct payee
statement required under section 6050N(b) and Sec. 1.6050N-1(a), see
Sec. 301.6722-1 of this chapter. See Sec. 301.6724-1 of this chapter
for the waiver of a penalty if the failure is due to reasonable cause
and is not due to willful neglect.
(e) Effective date--This section, except paragraph (c), applies to
payee statements due after December 31, 1995, without regard to
extensions. For further guidance regarding the substantially similar
statement mailing requirements that apply with respect to forms required
to be filed after October 22, 1986, and before January 1, 1996 (see Rev.
Proc. 84-70 (1984-2 C.B. 716) and Sec. 601.601(d)(2) of this chapter).
The provisions of paragraph (c) of this section apply to payments made
after December 31, 2000.
[T.D. 8637, 60 FR 66111, Dec. 21, 1995, as amended by T.D. 8734, 62 FR
53492, Oct. 14, 1997; T.D. 8804, 63 FR 72188, Dec. 31, 1998; T.D. 8856,
64 FR 73412, Dec. 30, 1999]
Sec. 1.6050N-2 Coordination with reporting rules for widely held fixed
investment trusts under Sec. 1.671-5.
See Sec. 1.671-5 for the reporting rules for widely held fixed
investment trusts (as defined under that section).
[T.D. 9241, 71 FR 4025, Jan. 24, 2006]
Sec. 1.6050P-0 Table of contents.
This section lists the major captions that appear in Sec. 1.6050P-1
and Sec. 1.6050P-2.
Sec. 1.6050P-1 Information reporting for discharges of indebtedness by
certain entities.
(a) Reporting requirement.
(1) In general.
(2) No aggregation.
(3) Amounts not includible in income.
(4) Time and place for reporting.
(i) In general.
(ii) Indebtedness discharged in bankruptcy.
(b) Date of discharge.
(1) In general.
(2) Identifiable events.
(i) In general.
(ii) Statute of limitations.
(iii) Decision to discontinue collection activity; creditor's defined
policy.
(iv) Expiration of non-payment testing period.
(3) Permitted reporting.
(c) Indebtedness.
(d) Exceptions from reporting requirement.
(1) Certain bankruptcy discharges.
(i) In general.
(ii) Business or investment debt.
(2) Interest.
(3) Non-principal amounts in lending transactions.
(4) Indebtedness of foreign persons held by foreign branches of U.S.
financial institutions.
(i) Reporting requirements.
(ii) Definition.
(5) Acquisition of indebtedness by related party.
(6) Releases.
(7) Guarantors and sureties.
(e) Additional rules.
(1) Multiple debtors.
(i) In general.
(ii) Amount to be reported.
[[Page 355]]
(2) Multiple creditors.
(i) In general.
(ii) Partnerships.
(iii) Pass-through securitized indebtedness arrangement.
(A) Reporting requirements.
(B) Definition.
(iv) REMICs.
(v) No double reporting.
(3) Coordination with reporting under section 6050J.
(4) Direct or indirect subsidiary.
(5) Entity formed or availed of to hold indebtedness.
(6) Use of magnetic media.
(7) TIN solicitation requirement.
(i) In general.
(ii) Manner of soliciting TIN.
(8) Recordkeeping requirements.
(9) No multiple reporting.
(f) Requirement to furnish statement.
(1) In general.
(2) Furnishing copy of Form 1099-C.
(3) Time and place for furnishing statement.
(g) Penalties.
(h) Effective dates.
(1) In general.
(2) Earlier application.
Sec. 1.6050P-2 Organization a significant trade or business of which is
the lending of money.
(a) In general.
(b) Safe harbors.
(1) Organizations not subject to section 6050P in the previous calendar
year.
(2) Organizations that were subject to section 6050P in the previous
calendar year.
(3) No test year.
(c) Seller financing.
(d) Gross income from lending of money.
(e) Acquisition of an indebtedness from a person other than the debtor
included in lending money.
(f) Test year.
(g) Predecessor organization.
(h) Examples.
(i) Effective date.
[T.D. 8654, 61 FR 268, Jan. 4, 1996, as amended by T.D. 9160, 69 FR
62185, Oct. 25, 2004]
Sec. 1.6050P-1 Information reporting for discharges of indebtedness
by certain entities.
(a) Reporting requirement--(1) In general. Except as provided in
paragraph (d) of this section, any applicable entity (as defined in
section 6050P(c)(1)) that discharges an indebtedness of any person
(within the meaning of section 7701(a)(1)) of at least $600 during a
calendar year must file an information return on Form 1099-C with the
Internal Revenue Service. Solely for purposes of the reporting
requirements of section 6050P and this section, a discharge of
indebtedness is deemed to have occurred, except as provided in paragraph
(b)(3) of this section, if and only if there has occurred an
identifiable event described in paragraph (b)(2) of this section,
whether or not an actual discharge of indebtedness has occurred on or
before the date on which the identifiable event has occurred. The return
must include the following information--
(i) The name, address, and taxpayer identification number (TIN), as
defined in section 7701(a)(41), of each person for which there was an
identifiable event during the calendar year;
(ii) The date on which the identifiable event occurred, as described
in paragraph (b) of this section;
(iii) The amount of indebtedness discharged, as described in
paragraph (c) of this section;
(iv) An indication whether the identifiable event was a discharge of
indebtedness in a bankruptcy, if known; and
(v) Any other information required by Form 1099-C or its
instructions, or current revenue procedures.
(2) No aggregation. For purposes of reporting under this section,
multiple discharges of indebtedness of less than $600 are not required
to be aggregated unless such separate discharges are pursuant to a plan
to evade the reporting requirements of this section.
(3) Amounts not includible in income. Except as otherwise provided
in this section, discharged indebtedness must be reported regardless of
whether the debtor is subject to tax on the discharged debt under
sections 61 and 108 or otherwise by applicable law.
(4) Time and place for reporting-- (i) In general. Except as
provided in paragraph (a)(4)(ii) of this section, returns required by
this section must be filed with the Internal Revenue Service office
designated in the instructions for Form 1099-C on or before February 28
(March 31 if filed electronically) of the year following the calendar
year in which the identifiable event occurs.
(ii) Indebtedness discharged in bankruptcy. Indebtedness discharged
in bankruptcy that is required to be reported under this section must be
reported for the later of the calendar year in which the amount of
discharged
[[Page 356]]
indebtedness first becomes ascertainable, or the calendar year in which
the identifiable event occurs.
(b) Date of discharge--(1) In general. Solely for purposes of this
section, except as provided in paragraph (b)(3) of this section,
indebtedness is discharged on the date of the occurrence of an
identifiable event specified in paragraph (b)(2) of this section.
(2) Identifiable events--(i) In general. An identifiable event is--
(A) A discharge of indebtedness under title 11 of the United States
Code (bankruptcy);
(B) A cancellation or extinguishment of an indebtedness that renders
a debt unenforceable in a receivership, foreclosure, or similar
proceeding in a federal or State court, as described in section
368(a)(3)(A)(ii) (other than a discharge described in paragraph
(b)(2)(i)(A) of this section);
(C) A cancellation or extinguishment of an indebtedness upon the
expiration of the statute of limitations for collection of an
indebtedness, subject to the limitations described in paragraph
(b)(2)(ii) of this section, or upon the expiration of a statutory period
for filing a claim or commencing a deficiency judgment proceeding;
(D) A cancellation or extinguishment of an indebtedness pursuant to
an election of foreclosure remedies by a creditor that statutorily
extinguishes or bars the creditor's right to pursue collection of the
indebtedness;
(E) A cancellation or extinguishment of an indebtedness that renders
a debt unenforceable pursuant to a probate or similar proceeding;
(F) A discharge of indebtedness pursuant to an agreement between an
applicable entity and a debtor to discharge indebtedness at less than
full consideration;
(G) A discharge of indebtedness pursuant to a decision by the
creditor, or the application of a defined policy of the creditor, to
discontinue collection activity and discharge debt; or
(H) The expiration of the non-payment testing period, as described
in paragraph (b)(2)(iv) of this section.
(ii) Statute of limitations. In the case of an expiration of the
statute of limitations for collection of an indebtedness, an
identifiable event occurs under paragraph (b)(2)(i)(C) of this section
only if, and at such time as, a debtor's affirmative statute of
limitations defense is upheld in a final judgment or decision of a
judicial proceeding, and the period for appealing the judgment or
decision has expired.
(iii) Decision to discontinue collection activity; creditor's
defined policy. For purposes of the identifiable event described in
paragraph (b)(2)(i)(G) of this section, a creditor's defined policy
includes both a written policy of the creditor and the creditor's
established business practice. Thus, for example, a creditor's
established practice to discontinue collection activity and abandon
debts upon expiration of a particular non-payment period is considered a
defined policy for purposes of paragraph (b)(2)(i)(G) of this section.
(iv) Expiration of non-payment testing period. There is a rebuttable
presumption that an identifiable event under paragraph (b)(2)(i)(H) of
this section has occurred during a calendar year if a creditor has not
received a payment on an indebtedness at any time during a testing
period (as defined in this paragraph (b)(2)(iv)) ending at the close of
the year. The testing period is a 36-month period increased by the
number of calendar months during all or part of which the creditor was
precluded from engaging in collection activity by a stay in bankruptcy
or similar bar under state or local law. The presumption that an
identifiable event has occurred may be rebutted by the creditor if the
creditor (or a third-party collection agency on behalf of the creditor)
has engaged in significant, bona fide collection activity at any time
during the 12-month period ending at the close of the calendar year, or
if facts and circumstances existing as of January 31 of the calendar
year following expiration of the 36-month period indicate that the
indebtedness has not been discharged. For purposes of this paragraph
(b)(2)(iv)--
(A) Significant, bona fide collection activity does not include
merely nominal or ministerial collection action, such as an automated
mailing;
(B) Facts and circumstances indicating that an indebtedness has not
been discharged include the existence of a lien relating to the
indebtedness
[[Page 357]]
against the debtor (to the extent of the value of the security), or the
sale or packaging for sale of the indebtedness by the creditor; and
(C) In no event will an identifiable event described in paragraph
(b)(2)(i)(H) of this section occur prior to December 31, 1997.
(3) Permitted reporting. If a discharge of indebtedness occurs
before the date on which an identifiable event occurs, the discharge
may, at the creditor's discretion, be reported under this section.
(c) Indebtedness. For purposes of this section and Sec. 1.6050P-2,
indebtedness means any amount owed to an applicable entity, including
stated principal, fees, stated interest, penalties, administrative costs
and fines. The amount of indebtedness discharged may represent all, or
only a part, of the total amount owed to the applicable entity.
(d) Exceptions from reporting requirement--(1) Certain bankruptcy
discharges--(i) In general. Reporting is required under this section in
the case of a discharge of indebtedness in bankruptcy only if the
creditor knows from information included in the reporting entity's books
and records pertaining to the indebtedness that the debt was incurred
for business or investment purposes as defined in paragraph (d)(1)(ii)
of this section.
(ii) Business or investment debt. Indebtedness is considered
incurred for business purposes if it is incurred in connection with the
conduct of any trade or business other than the trade or business of
performing services as an employee. Indebtedness is considered incurred
for investment purposes if it is incurred to purchase property held for
investment, as defined in section 163(d)(5).
(2) Interest. The discharge of an amount of indebtedness that is
interest is not required to be reported under this section.
(3) Non-principal amounts in lending transactions. In the case of a
lending transaction, the discharge of an amount other than stated
principal is not required to be reported under this section. For this
purpose, a lending transaction is any transaction in which a lender
loans money to, or makes advances on behalf of, a borrower (including
revolving credits and lines of credit).
(4) Indebtedness of foreign debtors held by foreign branches of U.S.
financial institutions--(i) Reporting requirements. [Reserved]
(ii) Definition. An indebtedness held by a foreign branch of a U.S.
financial institution is described in this paragraph (d)(4) only if--
(A) The financial institution is engaged through a branch or office
in the active conduct of a banking or similar business outside the
United States;
(B) The branch or office is a permanent place of business that is
regularly maintained, occupied, and used to carry on a banking or
similar financial business;
(C) The business is conducted by at least one employee of the branch
or office who is regularly in attendance at such place of business
during normal working hours;
(D) The indebtedness is extended outside of the United States by the
branch or office in connection with that trade or business; and
(E) The financial institution does not know or have reason to know
that the debtor is a United States person.
(5) Acquisition of indebtedness by related party. No reporting is
required under this section in the case of a deemed discharge of
indebtedness under section 108(e)(4) (relating to the acquisition of an
indebtedness by a person related to the debtor), unless the disposition
of the indebtedness by the creditor was made with a view to avoiding the
reporting requirements of this section.
(6) Releases. The release of a co-obligor is not required to be
reported under this section if the remaining debtors remain liable for
the full amount of any unpaid indebtedness.
(7) Guarantors and sureties. Solely for purposes of the reporting
requirements of this section, a guarantor is not a debtor. Thus, in the
case of guaranteed indebtedness, reporting under this section is not
required with respect to a guarantor, whether or not there has been a
default and demand for payment made upon the guarantor.
(e) Additional rules--(1) Multiple debtors--(i) In general. In the
case of indebtedness of $10,000 or more incurred on or
[[Page 358]]
after January 1, 1995, that involves more than one debtor, a reporting
entity is subject to the requirements of paragraph (a) of this section
for each debtor discharged from such indebtedness. In the case of
indebtedness incurred prior to January 1, 1995, and indebtedness of less
than $10,000 incurred on or after January 1, 1995, involving multiple
debtors, reporting under this section is required only with respect to
the primary (or first-named) debtor. Additionally, only one return of
information is required under this section if the reporting entity
knows, or has reason to know, that co-obligors were husband and wife
living at the same address when an indebtedness was incurred, and does
not know or have reason to know that such circumstances have changed at
the date of a discharge of the indebtedness. This paragraph (e)(1)
applies to discharges of indebtedness after December 31, 1994.
(ii) Amount to be reported. In the case of multiple debtors jointly
and severally liable on an indebtedness, the amount of discharged
indebtedness required to be reported under this section with respect to
each debtor is the total amount of indebtedness discharged. For this
purpose, multiple debtors are presumed to be jointly and severally
liable on an indebtedness in the absence of clear and convincing
evidence to the contrary.
(2) Multiple creditors--(i) In general. Except as otherwise provided
in this paragraph (e)(2), if indebtedness is owned (or treated as owned
for federal income tax purposes) by more than one creditor, each
creditor that is an applicable entity must comply with the reporting
requirements of this section with respect to any discharge of
indebtedness of $600 or more allocable to such creditor. A creditor will
be considered to have complied with the requirements of this section if
a lead bank, fund administrator, or other designee of the creditor
complies on its behalf in any reasonable manner, such as by filing a
single return reporting the aggregate amount of indebtedness discharged,
or by filing a return with respect to the portion of the discharged
indebtedness allocable to the creditor. For purposes of this paragraph
(e)(2)(i), any reasonable method may be used to determine the portion of
discharged indebtedness allocable to each creditor.
(ii) Partnerships. For purposes of paragraph (e)(2)(i) of this
section, indebtedness owned by a partnership is treated as owned by the
partners.
(iii) Pass-through securitized indebtedness arrangement--(A)
Reporting requirements. [Reserved]
(B) Definition. For purposes of this paragraph (e)(2)(iii), a pass-
through securitized indebtedness arrangement is any arrangement whereby
one or more debt obligations are pooled and held for twenty or more
persons whose interests in the debt obligations are undivided co-
ownership interests that are freely transferrable. Co-ownership
interests that are actively traded personal property (as defined in
Sec. 1.1092(d)-1) are presumed to be freely transferrable and held by
twenty or more persons.
(iv) REMICs. [Reserved]
(v) No double reporting. If multiple creditors are considered to
hold interests in an indebtedness for purposes of this paragraph (e)(2)
by virtue of holding ownership interests in an entity, and the entity is
required to report a discharge of that indebtedness under paragraph
(e)(5) of this section, then the multiple creditors are not required to
report the discharge of indebtedness.
(3) Coordination with reporting under section 6050J. If, in the same
calendar year, a discharge of indebtedness reportable under section
6050P occurs in connection with a transaction also reportable under
section 6050J (relating to foreclosures and abandonments of secured
property), an applicable entity need not file both a Form 1099-A and a
Form 1099-C with respect to the same debtor. The filing requirements of
section 6050J will be satisfied with respect to a borrower if, in lieu
of filing Form 1099-A, a Form 1099-C is filed in accordance with the
instructions for the filing of that form. This paragraph (e)(3) applies
to discharges of indebtedness after December 31, 1994.
(4) Direct or indirect subsidiary. For purposes of section
6050P(c)(2)(C), the term direct or indirect subsidiary means a
corporation in a chain of corporations beginning with an entity
described in section 6050P(c)(2)(A), if at least 50 percent of the total
combined
[[Page 359]]
voting power of all classes of stock entitled to vote, or at least 50
percent of the total value of all classes of stock, of such corporation
is directly owned by the entity described in section 6050P(c)(2)(A), or
by one or more other corporations in the chain.
(5) Entity formed or availed of to hold indebtedness.
Notwithstanding Sec. 1.6050P-2(b)(3), if an entity (the transferee
entity) is formed or availed of by an applicable entity (within the
meaning of section 6050P(c)(1)) for the principal purpose of holding
indebtedness acquired (including originated) by the applicable entity,
then, for purposes of section 6050P(c)(2)(D), the transferee entity has
a significant trade or business of lending money.
(6) Use of magnetic media. Any return required under this section
must be filed on magnetic media to the extent required by section
6011(e) and the regulations thereunder. A failure to file on magnetic
media when required constitutes a failure to file an information return
under section 6721. Any person not required by section 6011(e) to file
returns on magnetic media may request permission to do so under
applicable regulations and revenue procedures.
(7) TIN solicitation requirement--(i) In general. For purposes of
reporting under this section, a reasonable effort must be made to obtain
the correct name/taxpayer identification number (TIN) combination of a
person whose indebtedness is discharged. A TIN obtained at the time an
indebtedness is incurred satisfies the requirement of this section,
unless the entity required to file knows that such TIN is incorrect. If
the TIN is not obtained prior to the occurrence of an identifiable
event, it must be requested of the debtor for purposes of satisfying the
requirement of this paragraph (e)(7).
(ii) Manner of soliciting TIN. Solicitations made in the manner
described in Sec. 301.6724-1(e)(1)(i) and (2) of this chapter will be
deemed to have satisfied the reasonable effort requirement set forth in
paragraph (e)(7)(i) of this section. A TIN solicitation made after the
occurrence of an identifiable event must clearly notify the debtor that
the Internal Revenue Service requires the debtor to furnish its TIN, and
that failure to furnish such TIN may subject the debtor to a $50 penalty
imposed by the Internal Revenue Service. A TIN provided under this
section is not required to be certified under penalties of perjury.
(8) Recordkeeping requirements. Any applicable entity required to
file a return with the Internal Revenue Service under this section must
also retain a copy of the return, or have the ability to reconstruct the
data required to be included on the return under paragraph (a)(1) of
this section, for at least four years from the date such return is
required to be filed under paragraph (a)(4) of this section.
(9) No multiple reporting. If discharged indebtedness is reported
under this section, no further reporting under this section is required
for the amount so reported, notwithstanding that a subsequent
identifiable event occurs with respect to the same amount. Further, no
additional reporting or Form 1099-C correction is required if a creditor
receives a payment of all or a portion of a discharged indebtedness
reported under this section for a prior calendar year.
(f) Requirement to furnish statement--(1) In general. Any applicable
entity required to file a return under this section must furnish to each
person whose name is shown on such return a written statement that
includes the following information--
(i) The information required by paragraph (a)(1) of this section;
(ii) The name, address, and TIN of the applicable entity required to
file a return under paragraph (a) of this section;
(iii) A legend identifying the statement as important tax
information that is being furnished to the Internal Revenue Service; and
(iv) Any other information required by Form 1099-C or its
instructions, or current revenue procedures.
(2) Furnishing copy of Form 1099-C. The requirement to provide a
statement to the debtor will be satisfied if the applicable entity
furnishes copy B of the Form 1099-C or a substitute statement that
complies with the requirements of the current revenue procedure for
substitute Forms 1099.
[[Page 360]]
(3) Time and place for furnishing statement. The statement required
by this paragraph (f) must be furnished to the debtor on or before
January 31 of the year following the calendar year in which the
identifiable event occurs. The statement will be considered furnished to
the debtor if it is mailed to the debtor's last known address.
(g) Penalties. For penalties for failure to comply with the
requirements of this section, see sections 6721 through 6724.
(h) Effective dates--(1) In general. The rules in this section apply
to discharges of indebtedness after December 21, 1996, except paragraphs
(e)(1) and (e)(3) of this section, which apply to discharges of
indebtedness after December 31, 1994 and, except paragraph (e)(5) of
this section, which applies to discharges of indebtedness occurring
after December 31, 2004.
(2) Earlier application. Notwithstanding the provisions of paragraph
(h)(1) of this section, an applicable financial entity may, at its
discretion, apply any of the provisions of this section to any discharge
of indebtedness occurring on or after January 1, 1996, and before
December 22, 1996.
[T.D. 8654, 61 FR 268, Jan. 4, 1996, as amended by T.D. 8895, 65 FR
50408, Aug. 18, 2000; T.D. 9160, 69 FR 62186, Oct. 25, 2004]
Sec. 1.6050P-2 Organization a significant trade or business of
which is the lending of money.
(a) In general. For purposes of section 6050P(c)(2)(D), the lending
of money is a significant trade or business of an organization in a
calendar year if the organization lends money on a regular and
continuing basis during the calendar year.
(b) Safe harbors--(1) Organizations not subject to section 6050P in
the previous calendar year. For an organization that was not required to
report under section 6050P in the previous calendar year, the lending of
money is not treated as a significant trade or business for the calendar
year in which the lending occurs if gross income from lending money (as
described in paragraph (d) of this section) in the organization's most
recent test year (as defined in paragraph (f) of this section) is both
less than $5 million and less than 15 percent of the organization's
gross income for that test year.
(2) Organizations that were subject to section 6050P in the previous
calendar year. For an organization that was required to report under
section 6050P for the previous calendar year, the lending of money is
not treated as a significant trade or business for the calendar year in
which the lending occurs if gross income from lending money (as
described in paragraph (d) of this section) in each of the
organization's three most recent test years is both less than $3 million
and less than 10 percent of the organization's gross income for that
test year.
(3) No test year. The lending of money is not treated as a
significant trade or business for an organization for the calendar year
in which the lending occurs if the organization does not have a test
year for that calendar year.
(c) Seller financing. If the principal trade or business of an
organization is selling nonfinancial goods or providing nonfinancial
services and if the organization extends credit to the purchasers of
those goods or services to finance the purchases, then, for purposes of
section 6050P(c)(2)(D), these extensions of credit are not a significant
trade or business of lending money.
(d) Gross income from lending of money. For purposes of this
section, gross income from lending of money includes--
(1) Income from interest, including qualified stated interest,
original issue discount, and market discount;
(2) Gains arising from the sale or other disposition of
indebtedness;
(3) Penalties with respect to indebtedness (whether or not the
penalty is interest for Federal tax purposes); and
(4) Fees with respect to indebtedness, including merchant discount
or interchange (whether or not the fee is interest for Federal tax
purposes).
(e) Acquisition of an indebtedness from a person other than the
debtor included in lending money. For purposes of this section, lending
money includes acquiring an indebtedness not only from the debtor at
origination but also from a prior holder of the indebtedness. Gross
income arising from indebtedness is gross income from the lending of
[[Page 361]]
money without regard to who originated the indebtedness. If an
organization acquires an indebtedness, the organization is required to
report any cancellation of the indebtedness if the organization is
engaged in a significant trade or business of lending money.
(f) Test year. For any calendar year, a test year is a taxable year
of the organization that ends before July 1 of the previous calendar
year.
(g) Predecessor organization. If an organization acquires
substantially all of the property that was used in a trade or business
of some other organization (the predecessor) (including when two or more
corporations are parties to a merger agreement under which the surviving
corporation becomes the owner of the assets and assumes the liabilities
of the absorbed corporation(s)) or was used in a separate unit of the
predecessor, then whether the organization at issue qualifies for one of
the safe harbors in paragraph (b) of this section is determined by also
taking into account the test years, reporting obligations, and gross
income of the predecessor.
(h) Examples. The rules of this section are illustrated by the
following examples:
Example 1. (i) Facts. Finance Company A, a calendar year taxpayer,
was formed in Year 1 as a non-bank subsidiary of Manufacturing Company
and has no predecessor. A lends money to purchasers of Manufacturing
Company's products on a regular and continuing basis to finance the
purchase of those products. A's gross income from stated interest in
Year 1 is $4.7 million. In Year 1, A's gross income from fees and
penalties with respect to the indebtedness is $0.5 million, and A has no
other gross income from lending money within the meaning of paragraph
(d) of this section.
(ii) Results. Section 6050P does not require A to report discharges
of indebtedness occurring in Years 1 or 2, because A has no test year
for those years. Notwithstanding that A lends money in those years on a
regular and continuing basis, under paragraph (b)(3) of this section, A
does not have a significant trade or business of lending money in those
years for purposes of section 6050P(c)(2)(D). However, for Year 3, A's
test year is Year 1. A's gross income from lending in Year 1 is not less
than $5 million for purposes of the applicable safe harbor of paragraph
(b)(1) of this section. Because A lends money on a regular and
continuing basis and does not meet the applicable safe harbor, section
6050P requires A to report discharges of indebtedness occurring in Year
3.
Example 2. (i) Facts. The facts are the same as in Example 1, except
that A is a division of Manufacturing Company, rather than a separate
subsidiary. Manufacturing Company's principal activity is the
manufacture and sale of non-financial products, and, other than
financing the purchase of those products, Manufacturing Company does not
extend credit or otherwise lend money.
(ii) Results. Under paragraph (c) of this section, that financing
activity is not a significant trade or business of lending money for
purposes of section 6050P(c)(2)(D), and section 6050P does not require
Manufacturing Company to report discharges of indebtedness.
Example 3. (i) Facts. Company B, a calendar year taxpayer, is formed
in Year 1. B has no predecessor and a part of its activities consists of
the lending of money. B packages and sells part of the indebtedness it
originates and holds the remainder. B is engaged in these activities on
a regular and continuing basis. For Year 1, the sum of B's gross income
from sales of the indebtedness, plus other income described in paragraph
(d) of this section, is only $4.8 million, but it is 16% of B's gross
income in Year 1.
(ii) Results. Because B lends money on a regular and continuing
basis and does not meet the applicable safe harbor of paragraph (b)(1)
of this section, section 6050P requires B to report discharges of
indebtedness occurring in Year 3. B is not required to report discharges
of indebtedness in Years 1 and 2 because B has no test year for Years 1
and 2.
Example 4. (i) Facts. The facts are the same as in Example 3. In
addition, in each of Years 2, 3, and 4, the sum of B's gross income from
sales of the indebtedness, plus other income described in paragraph (d)
of this section, is less than both $3 million and 10% of B's gross
income.
(ii) Results. (A) Because B was required to report under section
6050P for Year 3, the applicable safe harbor for Year 4 is paragraph
(b)(2) of this section, which is satisfied only if B's gross income from
lending activities for each of the three most recent test years is less
than both $3 million and 10% of B's gross income. For Year 4, even
though B has only two test years, B's gross income in one of those test
years, Year 1, causes B to fail to meet this safe harbor. Accordingly, B
is required to report discharges of indebtedness under section 6050P in
Year 4. For Year 5, B's three most recent test years are Years 1, 2, and
3. However, B's gross income from lending activities in Year 1 is not
less than $3 million and 10% of B's gross income. Accordingly, section
6050P requires B to report discharges of indebtedness in Year 5.
(B) For Year 6, B satisfies the applicable safe harbor requirements
of paragraph (b)(2)
[[Page 362]]
of this section for each of the three most recent test years (Years 2,
3, and 4). Therefore, section 6050P does not require B to report
discharges of indebtedness in Year 6. Because B is not required to
report for Year 6, the applicable safe harbor for Year 7 is the one
contained in paragraph (b)(1) of this section, and thus the only
relevant test year is Year 5.
Example 5. (i) Facts. (A) Company C, a calendar year taxpayer, was
formed in Year 1 and, on a regular and continuing basis, enters into the
following transactions with its clients, all of whom are unrelated
parties to C. C does not have any other income.
(B) C's clients sell goods to customers, frequently accepting as
payment accounts receivable that are due in 30 to 90 days. Under a
contract with each client, C investigates the creditworthiness of the
client's customers with respect to the prospective sales, and, for each
customer, C determines whether, and to what extent, C is willing to
assume the risk of loss on accounts receivable to be issued by the
customer. C's decision whether to assume risk of loss may be based on an
evaluation of the credit quality of particular customers or on the
aggregate credit quality of all of the client's prospective customers.
If C is unwilling to assume the risk, the client either may refuse to
extend any credit to the customer or may accept the account receivable
and bear the risk of loss.
(C) Pursuant to some contracts between C's clients and C, C's
clients assign legal title to the accounts receivable to C when the
accounts receivable are issued by the customers. For these accounts
receivable, C agrees to undertake collections and to remit the amounts
collected to the client, less a fee of 0.70 percent of the face value of
the accounts receivable. Pursuant to other contracts between C's clients
and C, C's clients retain legal title to the accounts receivable and
retain the initial collection responsibility. For these accounts
receivable, C's fee is reduced to 0.35 percent. Both groups of accounts
receivable include accounts receivable for which C has assumed the risk
of loss and accounts receivable for which C has not assumed the risk of
loss.
(D) Based on all the facts and circumstances, C acquires ownership
for Federal tax purposes of some, but not all, of the accounts
receivable that it has agreed to collect and of some, but not all, of
the accounts receivable for which the client has retained collection
responsibility.
(E) In Year 1, C's total fee income with respect to accounts
receivable of which it acquired tax ownership was $2 million. C's fee
income in Year 1 from accounts receivable of which it did not acquire
tax ownership was $700,000. C does not have any other income for Year 1.
(F) In Year 3, there were discharges of $950,000, representing
$100,000 of customer defaults on those accounts receivable of which C
was the owner for Federal tax purposes at the time of the identifiable
event marking the discharge and $850,000 of customer defaults on the
accounts receivable of which the clients, and not C, were the owner.
Whenever C determined the uncollectibility of an account receivable for
which it had not assumed the risk of loss, C reassigned title to the
account receivable to the appropriate client. Each defaulting customer
defaulted on an account receivable with an outstanding balance of at
least $600.
(ii) Results. (A) For Year 3, C's test year is Year 1. Under
paragraph (e) of this section, C's $2 million fee income from the
accounts receivable of which it acquired tax ownership is ``gross income
from lending money'' for purposes of paragraph (b) of this section,
because C was the owner of the accounts for Federal tax purposes. Under
paragraph (e) of this section, C's $700,000 fee income from the accounts
receivable of which it did not acquire tax ownership is not ``gross
income from lending money'' for purposes of paragraph (b) of this
section, because C was not the owner of the accounts receivable for
Federal tax purposes. In Year 1, therefore, C's gross income from
lending money is less than $5 million but is not less than 15% of C's
gross income. Because C lends money on a regular and continuing basis
and does not meet the applicable safe harbor, section 6050P requires C
to report discharges of indebtedness occurring in Year 3.
(B) In Year 3, section 6050P requires C to report the $100,000 of
discharges of the accounts receivable of which C was the owner for
Federal tax purposes at the time of the identifiable event marking the
discharge. Unless an exception to reporting under paragraph (b) or (c)
of this section applies, section 6050P requires C's clients to report
the $850,000 of discharges of the accounts receivable of which C did not
become the owner.
(i) Effective date. This section applies to discharges of
indebtedness occurring on or after January 1, 2005.
[T.D. 9160, 69 FR 62186, Oct. 25, 2004]
Sec. 1.6050S-0 Table of contents.
This section lists captions contained in Sec. Sec. 1.6050S-1,
1.6050S-2T, 1.6050S-3, and 1.6050S-4T.
Sec. 1.6050S-1 Information reporting for qualified tuition and related
expenses.
(a) Information reporting requirement.
(1) In general.
(2) Exceptions.
(i) No reporting by institutions or insurers for nonresident alien
individuals.
(ii) No reporting by institutions for noncredit courses.
(A) In general.
[[Page 363]]
(B) Academic credit defined.
(C) Example.
(iii) No reporting by institutions for individuals whose qualified
tuition and related expenses are waived or are paid with scholarships.
(iv) No reporting by institutions for individuals whose qualified
tuition and related expenses are covered by a formal billing
arrangement.
(A) In general.
(B) Formal billing arrangement defined.
(b) Requirement to file return.
(1) In general.
(2) Information reporting requirements for institutions that elect
to report payments received for qualified tuition and related expenses.
(i) In general.
(ii) Information included on return.
(iii) Reportable amount of payments received for qualified tuition
and related expenses during calendar year determined.
(iv) Separate reporting of reimbursements or refunds of payments of
qualified tuition and related expenses that were reported for a prior
calendar year.
(v) Payments received for qualified tuition and related expenses
determined.
(vi) Reimbursements or refunds of payments for qualified tuition and
related expenses determined.
(vii) Examples.
(3) Information reporting requirements for institutions that elect
to report amounts billed for qualified tuition and related expenses.
(i) In general.
(ii) Information included on return.
(iii) Reportable amounts billed for qualified tuition and related
expenses during calendar year determined.
(iv) Separate reporting of reductions made to amounts billed for
qualified tuition and related expenses that were reported for a prior
calendar year.
(v) Examples.
(4) Requirements for insurers.
(i) In general.
(ii) Information included on return.
(5) Time and place for filing return.
(i) In general.
(ii) Return for nonresident alien individual.
(iii) Extensions of time.
(6) Use of magnetic media.
(c) Requirement to furnish statement.
(1) In general.
(2) Time and manner for furnishing statement.
(i) In general.
(ii) Statement to nonresident alien individual.
(iii) Extensions of time.
(3) Copy of Form 1098-T.
(d) Special rules.
(1) Enrollment determined.
(2) Payments of qualified tuition and related expenses received or
collected by one or more persons.
(i) In general.
(ii) Exception.
(3) Governmental units.
(e) Penalty provisions.
(1) Failure to file correct returns.
(2) Failure to furnish correct information statements.
(3) Waiver of penalties for failures to include a correct TIN.
(i) In general.
(ii) Acting in a responsible manner.
(iii) Manner of soliciting TIN.
(4) Failure to furnish TIN.
(f) Effective date.
Sec. 1.6050S-2T Electronic furnishing of information statements for
qualified tuition and related expenses.
(a) Electronic furnishing of statements.
(1) In general.
(2) Consent.
(i) In general.
(ii) Change in hardware or software requirements.
(iii) Example.
(3) Required disclosures.
(i) In general.
(ii) Paper statement.
(iii) Scope and duration of consent.
(iv) Post-consent request for a paper statement.
(v) Withdrawal of consent.
(vi) Notice of termination.
(vii) Updating information.
(viii) Hardware and software requirements.
(4) Format.
(5) Posting.
(6) Notice.
(i) In general.
(ii) Undeliverable electronic address.
(iii) Corrected statements.
(7) Retention.
(b) Effective date.
Sec. 1.6050S-3 Information reporting for payments of interest on
qualified education loans.
(a) Information reporting requirement in general.
(b) Definitions.
(1) Interest.
(2) Payor.
(c) Requirement to file return.
(1) Form of return.
(2) Information included on return.
(3) Time and place for filing return.
(i) In general.
(ii) Extensions of time.
(4) Use of magnetic media.
(d) Requirement to furnish statement.
(1) In general.
(2) Time and manner for furnishing statement.
(i) In general.
[[Page 364]]
(ii) Extensions of time.
(3) Copy of Form 1098-E.
(e) Special rules.
(1) Transitional rule for reporting of loan origination fees and
capitalized interest.
(2) Qualified education loan certification.
(3) Payments of interest received or collected by one or more
persons.
(i) In general.
(ii) Exception.
(4) Reporting by foreign persons.
(5) Governmental units.
(f) Penalty provisions.
(1) Failure to file correct returns.
(2) Failure to furnish correct information statements.
(3) Waiver of penalties for failures to include a correct TIN.
(i) In general.
(ii) Acting in a responsible manner.
(iii) Manner of soliciting TIN.
(4) Failure to furnish TIN.
(g) Effective date.
Sec. 1.6050S-4T Electronic furnishing of information statements for
payments of interest on qualified education loans.
(a) Electronic furnishing of statements.
(1) In general.
(2) Consent.
(i) In general.
(ii) Change in hardware or software requirements.
(iii) Example.
(3) Required disclosures.
(i) In general.
(ii) Paper statement.
(iii) Scope and duration of consent.
(iv) Post-consent request for a paper statement.
(v) Withdrawal of consent.
(vi) Notice of termination.
(vii) Updating information.
(viii) Hardware and software requirements.
(4) Format.
(5) Posting.
(6) Notice.
(i) In general.
(ii) Undeliverable electronic address.
(iii) Corrected statements.
(7) Retention.
(b) Effective date.
[T.D. 8992, 67 FR 20904, Apr. 29, 2002, as amended by T.D. 9029, 67 FR
77681, Dec. 19, 2002]
Sec. 1.6050S-1 Information reporting for qualified tuition and related
expenses.
(a) Information reporting requirement--(1) In general. Except as
provided in paragraph (a)(2) of this section, any eligible educational
institution (as defined in section 25A(f)(2) and the regulations
thereunder) (an institution) that enrolls (as determined under paragraph
(d)(1) of this section) any individual for any academic period (as
defined in the regulations under section 25A), and any person that is
engaged in a trade or business of making payments under an insurance
arrangement as reimbursements or refunds (or other similar amounts) of
qualified tuition and related expenses (as defined in section 25A(f)(1)
and the regulations thereunder) (an insurer) must--
(i) File an information return, as described in paragraph (b) of
this section, with the Internal Revenue Service (IRS) with respect to
each individual described in paragraph (b) of this section; and
(ii) Furnish a statement, as described in paragraph (c) of this
section, to each individual described in paragraph (c) of this section.
(2) Exceptions--(i) No reporting by institution or insurer for
nonresident alien individuals. The information reporting requirements of
this section do not apply with respect to any individual who is a
nonresident alien (as defined in section 7701(b) and Sec. 301.7701(b)-3
of this chapter) during the calendar year, unless the individual
requests the institution or insurer to report. If a nonresident alien
individual requests an institution or insurer to report, the institution
or insurer must comply with the requirements of this section for the
calendar year with respect to which the request is made.
(ii) No reporting by institutions for noncredit courses--(A) In
general. The information reporting requirements of this section do not
apply with respect to any course for which no academic credit is offered
by the institution.
(B) Academic credit defined. Academic credit means credit offered by
an institution for the completion of course work leading toward a post-
secondary degree, certificate, or other recognized post-secondary
educational credential.
(C) Example. The following example illustrates the rules of this
paragraph (a)(2)(ii):
Example. Student A, a medical doctor, takes a course at University
X's medical school. Student A takes the course to fulfill State Y's
licensing requirement that medical doctors attend continuing medical
education courses each year. Student A is not enrolled
[[Page 365]]
in a degree program at University X and takes the medical course through
University X's continuing professional education division. University X
does not offer credit toward a post-secondary degree on an academic
transcript for the completion of the course but gives Student A a
certificate of attendance upon completion. Under this paragraph
(a)(2)(ii), University X is not subject to the information reporting
requirements of section 6050S and this section for the medical education
course taken by Student A.
(iii) No reporting by institutions for individuals whose qualified
tuition and related expenses are waived or are paid with scholarships.
The information reporting requirements of this section do not apply with
respect to any individual whose qualified tuition and related expenses
are waived in their entirety or are paid entirely with scholarships.
(iv) No reporting by institutions for individuals whose qualified
tuition and related expenses are covered by a formal billing
arrangement--(A) In general. The information reporting requirements of
this section do not apply with respect to any individual whose qualified
tuition and related expenses are covered by a formal billing arrangement
as defined in paragraph (a)(2)(iv)(B) of this section.
(B) Formal billing arrangement defined. A formal billing arrangement
means--
(1) An arrangement in which the institution bills only an employer
for education furnished by the institution to an individual who is the
employer's employee and does not maintain a separate financial account
for that individual;
(2) An arrangement in which the institution bills only a
governmental entity for education furnished by the institution to an
individual and does not maintain a separate financial account for that
individual; or
(3) Any other similar arrangement in which the institution bills
only an institutional third party for education furnished to an
individual and does not maintain a separate financial account for that
individual, but only if designated as a formal billing arrangement by
the Commissioner in published guidance of general applicability or in
guidance directed to participants in specific arrangements.
(b) Requirement to file return--(1) In general. Institutions may
elect to report either the information described in paragraph (b)(2) of
this section, or the information described in paragraph (b)(3) of this
section. Once an institution elects to report under either paragraph
(b)(2) or (3) of this section, the institution must use the same
reporting method for all calendar years in which it is required to file
returns, unless permission is granted to change reporting methods.
Paragraph (b)(2) of this section requires institutions to report, among
other information, the amount of payments received during the calendar
year for qualified tuition and related expenses. Institutions must
report separately adjustments made during the calendar year that relate
to payments received for qualified tuition and related expenses that
were reported for a prior calendar year. For purposes of paragraph
(b)(2) of this section, an adjustment made to payments received means a
reimbursement or refund. Paragraph (b)(3) requires institutions to
report, among other information, the amounts billed during the calendar
year for qualified tuition and related expenses. Institutions must
report separately adjustments made during the calendar year that relate
to amounts billed for qualified tuition and related expenses that were
reported for a prior calendar year. For purposes of paragraph (b)(3) of
this section, an adjustment made to amounts billed means a reduction in
charges. Insurers must report the information described in paragraph
(b)(4) of this section.
(2) Information reporting requirements for institutions that elect
to report payments received for qualified tuition and related expenses--
(i) In general. Except as provided in paragraph (a)(2) of this section,
an institution reporting payments received for qualified tuition and
related expenses must file an information return with the IRS on Form
1098-T, ``Tuition Statement,'' with respect to each individual enrolled
(as determined in paragraph (d)(1) of this section) for an academic
period beginning during the calendar year or during a prior calendar
year and for whom a transaction described in paragraphs
[[Page 366]]
(b)(2)(ii)(C), (E), (F) or (G) of this section is made during the
calendar year. An institution may use a substitute Form 1098-T if the
substitute form complies with applicable revenue procedures relating to
substitute forms (see Sec. 601.601(d)(2) of this chapter).
(ii) Information included on return. An institution reporting
payments received for qualified tuition and related expenses must
include on Form 1098-T--
(A) The name, address, and taxpayer identification number (TIN)(as
defined in section 7701(a)(41)) of the institution;
(B) The name, address, and TIN of the individual who is, or has
been, enrolled by the institution;
(C) The amount of payments of qualified tuition and related expenses
that the institution received from any source with respect to the
individual during the calendar year;
(D) An indication by the institution whether any payments received
for qualified tuition and related expenses reported for the calendar
year relate to an academic period that begins during the first three
months of the next calendar year;
(E) The amount of any scholarships or grants for the payment of the
individual's costs of attendance that the institution administered and
processed during the calendar year;
(F) The amount of any reimbursements or refunds of qualified tuition
and related expenses made during the calendar year with respect to the
individual that relate to payments of qualified tuition and related
expenses that were reported by the institution for a prior calendar
year;
(G) The amount of any reductions to the amount of scholarships or
grants for the payment of the individual's costs of attendance that were
reported by the institution with respect to the individual for a prior
calendar year;
(H) A statement or other indication showing whether the individual
was enrolled for at least half of the normal full-time work load for the
course of study the individual is pursuing for at least one academic
period that begins during the calendar year (see section 25A and the
regulations thereunder);
(I) A statement or other indication showing whether the individual
was enrolled in a program leading to a graduate-level degree, graduate-
level certificate, or other recognized graduate-level educational
credential; and
(J) Any other information required by Form 1098-T and its
instructions.
(iii) Reportable amount of payments received for qualified tuition
and related expenses during calendar year determined. The amount of
payments received for qualified tuition and related expenses with
respect to an individual during the calendar year that is reportable on
Form 1098-T is determined by netting the amount of payments received (as
defined in paragraph (b)(2)(v) of this section) for qualified tuition
and related expenses during the calendar year against any reimbursements
or refunds (as defined in paragraph (b)(2)(vi) of this section) made
during the calendar year that relate to payments received for qualified
tuition and related expenses during the same calendar year.
(iv) Separate reporting of reimbursements or refunds of payments of
qualified tuition and related expenses that were reported for a prior
calendar year. An institution must separately report on Form 1098-T any
reimbursements or refunds (as defined in paragraph (b)(2)(vi) of this
section) made during the current calendar year that relate to payments
of qualified tuition and related expenses that were reported by the
institution for a prior calendar year. Such reimbursements or refunds
shall not be netted against the payments received for qualified tuition
and related expenses during the current calendar year.
(v) Payments received for qualified tuition and related expenses
determined. For purposes of determining the amount of payments received
for qualified tuition and related expenses during a calendar year,
payments received with respect to an individual during the calendar year
from any source (except for any scholarship or grant that, by its terms,
must be applied to expenses other than qualified tuition and related
expenses, such as room and board) are treated as payments of qualified
tuition and related expenses up to the total amount billed by the
institution for such expenses. For purposes of this section, a payment
includes any positive account balance (such as any reimbursement or
[[Page 367]]
refund credited to an individual's account) that an institution applies
toward current charges.
(vi) Reimbursements or refunds of payments for qualified tuition and
related expenses determined. For purposes of determining the amount of
reimbursements or refunds made of payments received for qualified
tuition and related expenses, any reimbursement or refund made with
respect to an individual during a calendar year (except for any refund
of a scholarship or grant that, by its terms, was required to be applied
to expenses other than qualified tuition and related expenses, such as
room and board) is treated as a reimbursement or refund of payments for
qualified tuition and related expenses up to the amount of any reduction
in charges for such expenses. For purposes of this section, a
reimbursement or refund includes amounts that an institution credits to
an individual's account, as well as amounts disbursed to, or on behalf
of, the individual.
(vii) Examples. The following examples illustrate the rules in this
paragraph (b)(2):
Example 1. (i) In early August 2003, University X bills enrolled
Student A $10,000 for qualified tuition and related expenses and $6,000
for room and board for the 2003 Fall semester. In late August 2003,
Student A pays $11,000 to University X. In early September 2003, Student
A drops to half-time enrollment for the 2003 Fall semester. In late
September 2003, University X credits $5,000 to Student A's account,
reflecting a $5,000 reduction in charges for qualified tuition and
related expenses. In late September 2003, University X applies the
$5,000 positive account balance toward current charges.
(ii) Under paragraph (b)(2)(v) of this section, the $11,000 payment
is treated as a payment of qualified tuition and related expenses up to
the $10,000 billed for qualified tuition and related expenses. Under
paragraph (b)(2)(vi) of this section, the $5,000 credited to the
student's account is treated as a reimbursement or refund of payments
for qualified tuition and related expenses, because the current year
charges for qualified tuition and related expenses were reduced by
$5,000. Under paragraph (b)(2)(iii) of this section, University X is
required to net the $10,000 payment received for qualified tuition and
related expenses during 2003 against the $5,000 reimbursement or refund
of payments received for qualified tuition and related expenses during
2003. Therefore, Institution X is required to report $5,000 of payments
received for qualified tuition and related expenses during 2003.
Example 2. (i) The facts are the same as in Example 1, except that
Student A pays the full $16,000 in late August 2003. In late September
2003, University X reduces the tuition charges by $5,000 and issues a
$5,000 refund to Student A.
(ii) Under paragraph (b)(2)(v) of this section, the $16,000 payment
is treated as a payment of qualified tuition and related expenses up to
the $10,000 billed for qualified tuition and related expenses. Under
paragraph (b)(2)(vi) of this section, the $5,000 refund is treated as
reimbursement or refund of payments for qualified tuition and related
expenses, because the current year charges for qualified tuition and
related expenses were reduced by $5,000. Under paragraph (b)(2)(iii) of
this section, University X is required to net the $10,000 payment
received for qualified tuition and related expenses during 2003 against
the $5,000 reimbursement or refund of payments received for qualified
tuition and related expenses during 2003. Therefore, Institution X is
required to report $5,000 of payments received for qualified tuition and
related expenses during 2003.
Example 3. (i) The facts are the same as in Example 1, except that
Student A is enrolled full-time, and, in early September 2003, Student A
decides to live at home with her parents. In late September 2003,
University X adjusts Student A's account to eliminate room and board
charges and issues a $1,000 refund to Student A.
(ii) Under paragraph (b)(2)(v) of this section, the $11,000 payment
is treated as a payment of qualified tuition and related expenses up to
the $10,000 billed for qualified tuition and related expenses. Under
paragraph (b)(2)(vi) of this section, the $1,000 refund is not treated
as reimbursement or refund of payments for qualified tuition and related
expenses, because there is no reduction in charges for qualified tuition
and related expenses. Therefore, under paragraph (b)(2)(iii) of this
section, University X is required to report $10,000 of payments received
for qualified tuition and related expenses during 2003.
Example 4. (i) In early December 2003, College Y bills enrolled
Student B $10,000 for qualified tuition and related expenses and $6,000
for room and board for the 2004 Spring semester. In late December 2003,
Student B pays $16,000. In mid-January 2004, after the 2004 Spring
semester classes begin, Student B drops to half-time enrollment. In mid-
January 2004, College Y credits Student B's account with $5,000,
reflecting a $5,000 reduction in charges for qualified tuition and
related expenses, but does not issue a refund to Student B. In early
August 2004, College Y bills Student B $10,000 for qualified tuition and
related expenses and $6,000 for room and board for the 2004 Fall
semester. In early
[[Page 368]]
September 2004, College Y applies the $5,000 positive account balance
toward Student B's $16,000 bill for the 2004 Fall semester. In late
September 2004, Student B pays $6,000 towards the charges.
(ii) In the reporting for calendar year 2003, under paragraph
(b)(2)(v) of this section, the $16,000 payment in December 2003 is
treated as a payment of qualified tuition and related expenses up to the
$10,000 billed for qualified tuition and related expenses. Under
paragraph (b)(2)(iii) of this section, College Y is required to report
$10,000 of payments received for qualified tuition and related expenses
during 2003. In addition, College Y is required to indicate that the
payments reported for 2003 relate to an academic period that begins
during the first three months of the next calendar year.
(iii) In the reporting for calendar year 2004, under paragraph
(b)(2)(vi) of this section, the $5,000 credited to Student B's account
is treated as a reimbursement or refund of qualified tuition and related
expenses, because the charges for qualified tuition and related expenses
were reduced by $5,000. Under paragraph (b)(2)(iv) of this section, the
$5,000 reimbursement or refund of qualified tuition and related expenses
must be separately reported on Form 1098-T because it relates to
payments of qualified tuition and related expenses reported by College Y
for 2003. Under paragraph (b)(2)(v) of this section, the $5,000 positive
account balance that is applied toward charges for the 2004 Fall
semester is treated as a payment. Therefore, College Y received total
payments of $11,000 during 2004 (the $5,000 credit plus the $6,000
payment). Under paragraph (b)(2)(v) of this section, the $11,000 of
total payments are treated as a payment of qualified tuition and related
expenses up to the $10,000 billed for such expenses. Therefore, for
2004, College Y is required to report $10,000 of payments received for
qualified tuition and related expenses during 2004 and a $5,000 refund
of payments of qualified tuition and related expenses reported for 2003.
(3) Information reporting requirements for institutions that elect
to report amounts billed for qualified tuition and related expenses--(i)
In general. Except as provided in paragraph (a)(2) of this section, an
institution reporting amounts billed for qualified tuition and related
expenses must file an information return on Form 1098-T with respect to
each individual enrolled (as determined in paragraph (d)(1) of this
section) for an academic period beginning during the calendar year or
during a prior calendar year and for whom a transaction described in
paragraphs (b)(3)(ii)(C), (E), (F) or (G) of this section is made during
the calendar year. An institution may use a substitute Form 1098-T if
the substitute form complies with applicable revenue procedures relating
to substitute forms (see Sec. 601.601(d)(2) of this chapter).
(ii) Information included on return. An institution reporting
amounts billed for qualified tuition and related expenses must include
on Form 1098-T--
(A) The name, address, and taxpayer identification number (TIN)(as
defined in section 7701(a)(41)) of the institution;
(B) The name, address, and TIN of the individual who is, or has
been, enrolled by the institution;
(C) The amount billed for qualified tuition and related expenses
with respect to the individual during the calendar year;
(D) An indication by the institution whether any amounts billed for
qualified tuition and related expenses reported for the calendar year
relate to an academic period that begins during the first three months
of the next calendar year;
(E) The amount of any scholarships or grants for the payment of the
individual's costs of attendance that the institution administered and
processed during the calendar year;
(F) The amount of any reductions in charges made during the calendar
year with respect to the individual that relate to amounts billed for
qualified tuition and related expenses that were reported by the
institution for a prior calendar year;
(G) The amount of any reductions to the amount of scholarships or
grants for the payment of the individual's costs of attendance that were
reported by the institution with respect to the individual for a prior
calendar year;
(H) A statement or other indication showing whether the individual
was enrolled for at least half of the normal full-time work load for the
course of study the individual is pursuing for at least one academic
period that begins during the calendar year (see section 25A and the
regulations thereunder);
(I) A statement or other indication showing whether the individual
was enrolled in a program leading to a graduate-level degree, graduate-
level certificate, or other recognized graduate-level educational
credential; and
[[Page 369]]
(J) Any other information required by Form 1098-T and its
instructions.
(iii) Reportable amounts billed for qualified tuition and related
expenses during calendar year determined. The amount billed for
qualified tuition and related expenses with respect to an individual
during the calendar year that is reportable on Form 1098-T is determined
by netting the amounts billed for qualified tuition and related expenses
during the calendar year against any reductions in charges for qualified
tuition and related expenses made during the calendar year that relate
to amounts billed for qualified tuition and related expenses during the
same calendar year.
(iv) Separate reporting of reductions made to amounts billed for
qualified tuition and related expenses that were reported for a prior
calendar year. An institution must separately report on Form 1098-T any
reductions in charges made during the current calendar year that relate
to amounts billed for qualified tuition and related expenses that were
reported by the institution for a prior calendar year. Such reductions
shall not be netted against amounts billed for qualified tuition and
related expenses during the current calendar year.
(v) Examples. The following examples illustrate the rules in this
paragraph (b)(3):
Example 1. (i) In early August 2003, University X bills enrolled
Student A $10,000 for qualified tuition and related expenses and $6,000
for room and board for the 2003 Fall semester. In late August 2003,
Student A pays $11,000 to University X. In early September 2003, Student
A drops to half-time enrollment for the 2003 Fall semester. In late
September 2003, University X adjusts Student A's account and reduces the
charges for qualified tuition and related expenses by $5,000 to reflect
half-time enrollment. In late September 2003, University X applies the
$5,000 account balance toward current charges.
(ii) Under paragraph (b)(3)(iii) of this section, University X is
required to net the $10,000 amount of qualified tuition and related
expenses billed during 2003 against the $5,000 reduction in charges for
qualified tuition and related expenses during 2003. Therefore,
Institution X is required to report $5,000 in amounts billed for
qualified tuition and related expenses during 2003.
Example 2. (i) The facts are the same as in Example 1, except that,
in addition, in early December 2003, College X bills Student A $10,000
for qualified tuition and related expenses and $6,000 for room and board
for the 2004 Spring semester. In early January 2004, Student A pays
$16,000. In mid-January 2004, after the 2004 Spring semester classes
begin, Student A drops to half-time enrollment. In mid-January 2004,
College X credits $5,000 to Student A's account, reflecting a $5,000
reduction in charges for qualified tuition and related expenses, but
does not issue a refund check to Student A. In early August 2004,
College X bills Student A $10,000 for qualified tuition and related
expenses and $6,000 for room and board for the 2004 Fall semester. In
early September 2004, College X applies the $5,000 positive account
balance toward Student A's $16,000 bill for the 2004 Fall semester. In
late September 2004, Student A pays $6,000 toward the charges.
(ii) In the reporting for calendar year 2003, under paragraph
(b)(3)(iii) of this section, College X is required to report $15,000
amounts billed for qualified tuition and related expenses during 2003
($5,000 for the 2003 Fall semester and $10,000 for the 2004 Spring
semester). In addition, College X is required to indicate that some of
the amounts billed for qualified tuition and related expenses reported
for 2003 relate to an academic period that begins during the first three
months of the next calendar year.
(iii) In the reporting for calendar year 2004, under paragraph
(b)(3)(iv) of this section, the $5,000 reduction in charges for
qualified tuition and related expenses must be separately reported on
Form 1098-T because it relates to amounts billed for qualified tuition
and related expenses that were reported by College X for 2003. Under
paragraph (b)(3)(iii) of this section, College X is required to report
$10,000 in amounts billed for qualified tuition and related expenses
during 2004.
(4) Requirements for insurers--(i) In general. Except as otherwise
provided in this section, an insurer must file an information return for
each individual with respect to whom reimbursements or refunds of
qualified tuition and related expenses are made during the calendar year
on Form 1098-T. An insurer may use a substitute Form 1098-T if the
substitute form complies with applicable revenue procedures relating to
substitute forms (see Sec. 601.601(d)(2) of this chapter).
(ii) Information included on return. An insurer must include on Form
1098-T--
(A) The name, address, and taxpayer identification number (TIN) (as
defined in section 7701(a)(41)) of the insurer;
(B) The name, address, and TIN of the individual with respect to
whom reimbursements or refunds of qualified
[[Page 370]]
tuition and related expenses were made;
(C) The aggregate amount of reimbursements or refunds of qualified
tuition and related expenses that the insurer made with respect to the
individual during the calendar year; and
(D) Any other information required by Form 1098-T and its
instructions.
(5) Time and place for filing return--(i) In general. Except as
provided in paragraphs (b)(5)(ii) and (iii) of this section, Form 1098-T
must be filed on or before February 28 (March 31 if filed
electronically) of the year following the calendar year in which
payments were received, or amounts were billed, for qualified tuition or
related expenses, or reimbursements, refunds, or reductions of such
amounts were made. An institution or insurer must file Form 1098-T with
the IRS according to the instructions to Form 1098-T.
(ii) Return for nonresident alien individual. In general, an
institution or insurer is not required to file a return on behalf of a
nonresident alien individual. However, if a nonresident alien individual
requests an institution or insurer to report, the institution or insurer
must file a return described in paragraph (b) of this section with the
IRS on or before the date prescribed in paragraph (b)(5)(i) of this
section, or on or before the thirtieth day after the request, whichever
is later.
(iii) Extensions of time. The IRS may grant an institution or
insurer an extension of time to file returns required in this section
upon a showing of good cause. See General Instructions for Forms 1099
series, 1098 series, 5498 series, and W-2G, ``Certain Gambling
Winnings,'' and applicable revenue procedures for rules relating to
extensions of time to file (see Sec. 601.601(d)(2) of this chapter).
(6) Use of magnetic media. See section 6011(e) and Sec. 301.6011-2
of this chapter for rules relating to the requirement to file Forms
1098-T on magnetic media.
(c) Requirement to furnish statement--(1) In general. An institution
or insurer must furnish a statement to each individual for whom it is
required to file a Form 1098-T. The statement must include--
(i) The information required under paragraph (b) of this section;
(ii) A legend that identifies the statement as important tax
information that is being furnished to the IRS;
(iii) Instructions that--
(A) State that the statement reports either total payments received
by the institution for qualified tuition and related expenses during the
calendar year, or total amounts billed by the institution for qualified
tuition and related expenses during the calendar year, or the total
reimbursements or refunds made by the insurer;
(B) State that, under section 25A and the regulations thereunder,
the taxpayer may claim an education tax credit only with respect to
qualified tuition and related expenses actually paid during the calendar
year; and that the taxpayer may not be able to claim an education tax
credit with respect to the entire amount of payments received, or
amounts billed, for qualified tuition and related expenses reported for
the calendar year;
(C) State that the amount of any scholarships or grants reported for
the calendar year and other similar amounts not reported (because they
are not administered and processed by the institution) may reduce the
amount of any allowable education tax credit for the taxable year;
(D) State that the amount of any reimbursements or refunds of
payments received, or reductions in charges, for qualified tuition and
related expenses, or any reductions to the amount of scholarships or
grants, reported by the institution with respect to the individual for a
prior calendar year may affect the amount of any allowable education tax
credit for the prior calendar year (and may result in an increase in tax
liability for the year of the refund);
(E) State that the amount of any reimbursements or refunds of
qualified tuition and related expenses reported by an insurer may reduce
the amount of an allowable education tax credit for a taxable year (and
may result in an increase in tax liability for the year of the refund);
[[Page 371]]
(F) State that the taxpayer should refer to relevant IRS forms and
publications, and should not refer to the institution or the insurer,
for explanations relating to the eligibility requirements for, and
calculation of, any allowable education tax credit; and
(G) Include the name, address, and phone number of the information
contact of the institution or insurer that filed the Form 1098-T.
(2) Time and manner for furnishing statement--(i) In general. Except
as provided in paragraphs (c)(2)(ii) and (iii) of this section, an
institution or insurer must furnish the statement described in paragraph
(c)(1) of this section to each individual for whom it is required to
file a return, on or before January 31 of the year following the
calendar year in which payments were received, or amounts were billed,
for qualified tuition and related expenses, or reimbursements, refunds,
or reductions of such amounts were made. If mailed, the statement must
be sent to the individual's permanent address, or the individual's
temporary address if the institution or insurer does not know the
individual's permanent address. If furnished electronically, the
statement must be furnished in accordance with the applicable
regulations.
(ii) Statement to nonresident alien individual. If an information
return is filed for a nonresident alien individual, the institution or
insurer must furnish a statement described in paragraph (c)(1) of this
section to the individual in the manner prescribed in paragraph
(c)(2)(i) of this section. The statement must be furnished on or before
the later of the date prescribed in paragraph (c)(2)(i) of this section
or the thirtieth day after the nonresident alien's request to report.
(iii) Extensions of time. The IRS may grant an institution or
insurer an extension of time to furnish the statements required in this
section upon a showing of good cause. See General Instructions for Forms
1099 series, 1098 series, 5498 series, and W-2G, ``Certain Gambling
Winnings,'' and applicable revenue procedures for rules relating to
extensions of time to furnish statements (see Sec. 601.601(d)(2) of
this chapter).
(3) Copy of Form 1098-T. An institution or insurer may satisfy the
requirement of this paragraph (c) by furnishing either a copy of Form
1098-T and its instructions or another document that contains all of the
information filed with the IRS and the information required by paragraph
(c)(1) of this section if the document complies with applicable revenue
procedures relating to substitute statements (see Sec. 601.601(d)(2) of
this chapter).
(d) Special rules--(1) Enrollment determined. An institution may
determine its enrollment for each academic period under its own rules
and policies for determining enrollment or as of any of the following
dates--
(i) 30 days after the first day of the academic period;
(ii) A date during the academic period on which enrollment data must
be collected for purposes of the Integrated Post Secondary Education
Data System administered by the Department of Education; or
(iii) A date during the academic period on which the institution
must report enrollment data to the State, the institution's governing
body, or some other external governing body.
(2) Payments of qualified tuition and related expenses received or
collected by one or more persons--(i) In general. Except as otherwise
provided in paragraph (d)(2)(ii) of this section, if a person collects
or receives payments of qualified tuition and related expenses on behalf
of another person (e.g., an institution), the person collecting or
receiving payments must satisfy the requirements of paragraphs (b) and
(c) of this section. In this case, those requirements do not apply to
the transfer of the payments to the institution.
(ii) Exception. If the person collecting or receiving payments of
qualified tuition and related expenses on behalf of another person
(e.g., an institution) does not possess the information needed to comply
with the requirements of paragraphs (b) and (c) of this section, the
other person must satisfy those requirements.
(3) Governmental units. An institution or insurer that is a
governmental unit, or an agency or instrumentality of a governmental
unit, is subject to the requirements of paragraphs (b) and (c) of
[[Page 372]]
this section and an appropriately designated officer or employee of the
governmental entity must satisfy those requirements.
(e) Penalty provisions--(1) Failure to file correct returns. The
section 6721 penalty may apply to an institution or insurer that fails
to file information returns required by section 6050S and this section
on or before the required filing date; that fails to include all of the
required information on the return; or that includes incorrect
information on the return. See section 6721, and the regulations
thereunder, for rules relating to penalties for failure to file correct
returns. See section 6724, and the regulations thereunder, for rules
relating to waivers of penalties for certain failures due to reasonable
cause.
(2) Failure to furnish correct information statements. The section
6722 penalty may apply to an institution or insurer that fails to
furnish statements required by section 6050S and this section on or
before the prescribed date; that fails to include all the required
information on the statement; or that includes incorrect information on
the statement. See section 6722, and the regulations thereunder, for
rules relating to penalties for failure to furnish correct statements.
See section 6724, and the regulations thereunder, for rules relating to
waivers of penalties for certain failures due to reasonable cause.
(3) Waiver of penalties for failures to include a correct TIN--(i)
In general. In the case of a failure to include a correct TIN on Form
1098-T or a related information statement, penalties may be waived if
the failure is due to reasonable cause. Reasonable cause may be
established if the failure arose from events beyond the institution's or
insurer's control, such as a failure of the individual to furnish a
correct TIN. However, the institution or insurer must establish that it
acted in a responsible manner both before and after the failure.
(ii) Acting in a responsible manner. An institution or insurer must
request the TIN of each individual for whom it is required to file a
return if it does not already have a record of the individual's correct
TIN. If the institution or insurer does not have a record of the
individual's correct TIN, then it must solicit the TIN in the manner
described in paragraph (e)(3)(iii) of this section on or before December
31 of each year during which it receives payments, or bills amounts, for
qualified tuition and related expenses or makes reimbursements, refunds,
or reductions of such amounts with respect to the individual. If an
individual refuses to provide his or her TIN upon request, the
institution or insurer must file the return and furnish the statement
required by this section without the individual's TIN, but with all
other required information. The specific solicitation requirements of
paragraph (e)(3)(iii) of this section apply in lieu of the solicitation
requirements of Sec. 301.6724-1(e) and (f) of this chapter for the
purpose of determining whether an institution or insurer acted in a
responsible manner in attempting to obtain a correct TIN. An institution
or insurer that complies with the requirements of this paragraph (e)(3)
will be considered to have acted in a responsible manner within the
meaning of Sec. 301.6724-1(d) of this chapter with respect to any
failure to include the correct TIN of an individual on a return or
statement required by section 6050S and this section.
(iii) Manner of soliciting TIN. An institution or insurer must
request the individual's TIN in writing and must clearly notify the
individual that the law requires the individual to furnish a TIN so that
it may be included on an information return filed by the institution or
insurer. A request for a TIN made on Form W-9S, ``Request for Student's
or Borrower's Taxpayer Identification Number and Certification,''
satisfies the requirements of this paragraph (e)(3)(iii). An institution
or insurer may establish a system for individuals to submit Forms W-9S
electronically as described in applicable forms and instructions. An
institution or insurer may also develop a separate form to request the
individual's TIN or incorporate the request into other forms customarily
used by the institution or insurer, such as admission or enrollment
forms or financial aid applications.
[[Page 373]]
(4) Failure to furnish TIN. The section 6723 penalty may apply to
any individual who is required (but fails) to furnish his or her TIN to
an institution or insurer. See section 6723, and the regulations
thereunder, for rules relating to the penalty for failure to furnish a
TIN.
(f) Effective date. The rules in this section apply to information
returns required to be filed, and information statements required to be
furnished, after December 31, 2003.
[T.D. 9029, 67 FR 77682, Dec. 19, 2002; 68 FR 6350, Feb. 7, 2003]
Sec. 1.6050S-2 Information reporting for payments and reimbursements
or refunds of qualified tuition and related expenses.
(a) Electronic furnishing of statements--(1) In general. A person
required by section 6050S(d) to furnish a written statement regarding
payments and reimbursements or refunds of qualified tuition and related
expenses (furnisher) to the individual to whom it is required to be
furnished (recipient) may furnish the statement in an electronic format
in lieu of a paper format. A furnisher who meets the requirements of
paragraphs (a)(2) through (6) of this section is treated as furnishing
the required statement.
(2) Consent--(i) In general. The recipient must have affirmatively
consented to receive the statement in an electronic format. The consent
may be made electronically in any manner that reasonably demonstrates
that the recipient can access the statement in the electronic format in
which it will be furnished to the recipient. Alternatively, the consent
may be made in a paper document if it is confirmed electronically.
(ii) Withdrawal of consent. The consent requirement of this
paragraph (a)(2) is not satisfied if the recipient withdraws the consent
and the withdrawal takes effect before the statement is furnished. The
furnisher may provide that a withdrawal of consent takes effect either
on the date it is received by the furnisher or on a subsequent date. The
furnisher may also provide that a request for a paper statement will be
treated as a withdrawal of consent.
(iii) Change in hardware or software requirements. If a change in
the hardware or software required to access the statement creates a
material risk that the recipient will not be able to access the
statement, the furnisher must, prior to changing the hardware or
software, provide the recipient with a notice. The notice must describe
the revised hardware and software required to access the statement and
inform the recipient that a new consent to receive the statement in the
revised electronic format must be provided to the furnisher. After
implementing the revised hardware and software, the furnisher must
obtain from the recipient, in the manner described in paragraph
(a)(2)(i) of this section, a new consent or confirmation of consent to
receive the statement electronically.
(iv) Examples. The following examples illustrate the rules of this
paragraph (a)(2):
Example 1. Furnisher F sends Recipient R a letter stating that R may
consent to receive statements required by section 6050S(d)
electronically on a Web site instead of in a paper format. The letter
contains instructions explaining how to consent to receive the
statements electronically by accessing the Web site, downloading the
consent document, completing the consent document and e-mailing the
completed consent back to F. The consent document posted on the Web site
uses the same electronic format that F will use for the electronically
furnished statements. R reads the instructions and submits the consent
in the manner provided in the instructions. R has consented to receive
the statements electronically in the manner described in paragraph
(a)(2)(i) of this section.
Example 2. Furnisher F sends Recipient R an e-mail stating that R
may consent to receive statements required by section 6050S(d)
electronically instead of in a paper format. The e-mail contains an
attachment instructing R how to consent to receive the statements
electronically. The e-mail attachment uses the same electronic format
that F will use for the electronically furnished statements. R opens the
attachment, reads the instructions, and submits the consent in the
manner provided in the instructions. R has consented to receive the
statements electronically in the manner described in paragraph (a)(2)(i)
of this section.
Example 3. Furnisher F posts a notice on its Web site stating that
Recipient R may receive statements required by section 6050S(d)
electronically instead of in a paper format. The Web site contains
instructions on how R
[[Page 374]]
may access a secure Web page and consent to receive the statements
electronically. By accessing the secure Web page and giving consent, R
has consented to receive the statements electronically in the manner
described in paragraph (a)(2)(i) of this section.
(3) Required disclosures--(i) In general. Prior to, or at the time
of, a recipient's consent, the furnisher must provide to the recipient a
clear and conspicuous disclosure statement containing each of the
disclosures described in paragraphs (a)(3)(ii) through (viii) of this
section.
(ii) Paper statement. The recipient must be informed that the
statement will be furnished on paper if the recipient does not consent
to receive it electronically.
(iii) Scope and duration of consent. The recipient must be informed
of the scope and duration of the consent. For example, the recipient
must be informed whether the consent applies to statements furnished
every year after the consent is given until it is withdrawn in the
manner described in paragraph (a)(3)(v)(A) of this section or only to
the statement required to be furnished on or before the January 31
immediately following the date on which the consent is given.
(iv) Post-consent request for a paper statement. The recipient must
be informed of any procedure for obtaining a paper copy of the
recipient's statement after giving the consent described in paragraph
(a)(2)(i) of this section and whether a request for a paper statement
will be treated as a withdrawal of consent.
(v) Withdrawal of consent. The recipient must be informed that--
(A) The recipient may withdraw a consent by writing (electronically
or on paper) to the person or department whose name, mailing address,
telephone number, and e-mail address is provided in the disclosure
statement;
(B) The furnisher will confirm the withdrawal and the date on which
it takes effect in writing (either electronically or on paper); and
(C) A withdrawal of consent does not apply to a statement that was
furnished electronically in the manner described in this paragraph (a)
before the date on which the withdrawal of consent takes effect.
(vi) Notice of termination. The recipient must be informed of the
conditions under which a furnisher will cease furnishing statements
electronically to the recipient.
(vii) Updating information. The recipient must be informed of the
procedures for updating the information needed by the furnisher to
contact the recipient. The furnisher must inform the recipient of any
change in the furnisher's contact information.
(viii) Hardware and software requirements. The recipient must be
provided with a description of the hardware and software required to
access, print, and retain the statement, and the date when the statement
will no longer be available on the Web site.
(4) Format. The electronic version of the statement must contain all
required information and comply with applicable revenue procedures
relating to substitute statements to recipients.
(5) Notice--(i) In general. If the statement is furnished on a Web
site, the furnisher must notify the recipient that the statement is
posted on a Web site. The notice may be delivered by mail, electronic
mail, or in person. The notice must provide instructions on how to
access and print the statement. The notice must include the following
statement in capital letters, ``IMPORTANT TAX RETURN DOCUMENT
AVAILABLE.'' If the notice is provided by electronic mail, the foregoing
statement must be on the subject line of the electronic mail.
(ii) Undeliverable electronic address. If an electronic notice
described in paragraph (a)(5)(i) of this section is returned as
undeliverable, and the correct electronic address cannot be obtained
from the furnisher's records or from the recipient, then the furnisher
must furnish the notice by mail or in person within 30 days after the
electronic notice is returned.
(iii) Corrected statements. If the furnisher has corrected a
recipient's statement that was furnished electronically, the furnisher
must furnish the corrected statement to the recipient electronically. If
the recipient's statement was furnished through a Web site posting and
the furnisher has corrected the statement, the furnisher must notify
[[Page 375]]
the recipient that it has posted the corrected statement on the Web site
within 30 days of such posting in the manner described in paragraph
(a)(5)(i) of this section. The corrected statement or the notice must be
furnished by mail or in person if--
(A) An electronic notice of the Web site posting of an original
statement was returned as undeliverable; and
(B) The recipient has not provided a new e-mail address.
(6) Access period. Statements furnished on a Web site must be
retained on the Web site through October 15 of the year following the
calendar year to which the statements relate (or the first business day
after such October 15, if October 15 falls on a Saturday, Sunday, or
legal holiday). The furnisher must maintain access to corrected
statements that are posted on the Web site through October 15 of the
year following the calendar year to which the statements relate (or the
first business day after such October 15, if October 15 falls on a
Saturday, Sunday, or legal holiday) or the date 90 days after the
corrected statements are posted, whichever is later.
(b) Paper statements after withdrawal of consent. If a recipient
withdraws consent to receive a statement electronically and the
withdrawal takes effect before the statement is furnished
electronically, a paper statement must be furnished. A paper statement
furnished after the statement due date under this paragraph (b) will be
considered timely if furnished within 30 days after the date the
withdrawal of consent is received by the furnisher.
(c) Effective date. This section applies to statements required to
be furnished after February 13, 2004. Paragraph (a)(6) of this section
also applies to statements required to be furnished after December 31,
2004.
[T.D. 9114, 69 FR 7570, Feb. 18, 2004]
Sec. 1.6050S-3 Information reporting for payments of interest on
qualified education loans.
(a) Information reporting requirement in general. Except as
otherwise provided in this section, any person engaged in a trade or
business that, in the course of that trade or business, receives from
any payor (as defined in paragraph (b)(2) of this section) interest
payments that aggregate $600 or more for any calendar year on one or
more qualified education loans (as defined in section 221(e)(1) and the
regulations thereunder) (a payee) must--
(1) File an information return, as described in paragraph (c) of
this section, with the Internal Revenue Service with respect to the
payor; and
(2) Furnish a statement, as described in paragraph (d) of this
section, to the payor.
(b) Definitions. The following definitions apply for purposes of
this section:
(1) Interest. Interest includes stated interest, loan origination
fees (other than fees for services), and capitalized interest as
described in the regulations under section 221. See paragraph (e)(1) of
this section for a special transitional rule relating to reporting of
loan origination fees and capitalized interest.
(2) Payor. Payor means the individual who is carried on the books
and records of the payee as the borrower on a qualified education loan.
If there are multiple borrowers, the principal borrower on the payee's
books and records is treated as the payor for purposes of section 6050S
and this section.
(c) Requirement to file return--(1) Form of return. A payee must
file an information return for the payor on Form 1098-E, ``Student Loan
Interest Statement.'' A payee may use a substitute for Form 1098-E if
the substitute form complies with the applicable revenue procedures
relating to substitute forms.
(2) Information included on return. A payee must include on Form
1098-E--
(i) The name, address, and taxpayer identification number (TIN) (as
defined in section 7701(a)(41)) of the payee;
(ii) The name, address, and TIN of the payor;
(iii) The aggregate amount of interest payments received during the
calendar year from the payor; and
(iv) Any other information required by Form 1098-E and its
instructions.
(3) Time and place for filing return--(i) In general. Except as
provided in paragraph (c)(3)(ii) of this section, the Form 1098-E must
be filed on or before February 28 (March 31 if filed electronically) of
the year following the calendar year in which interest payments were
received. A payee must file Form
[[Page 376]]
1098-E with the Internal Revenue Service according to the instructions
to Form 1098-E.
(ii) Extensions of time. The Internal Revenue Service may grant a
payee an extension of time to file returns required in this section upon
a showing of good cause. See the instructions to Form 1098-E and
applicable revenue procedures for rules relating to extensions of time
to file.
(4) Use of magnetic media. See section 6011(e) and Sec. 301.6011-2
of this chapter for rules relating to the requirement to file Forms
1098-E on magnetic media.
(d) Requirement to furnish statement--(1) In general. A payee must
furnish a statement to each payor for whom it is required to file a Form
1098-E. The statement must include--
(i) The information required under paragraph (c)(2) of this section;
(ii) A legend that identifies the statement as important tax
information that is being furnished to the Internal Revenue Service;
(iii) Instructions that--
(A) State that, under section 221 and the regulations thereunder,
the payor may not be able to deduct the full amount of interest reported
on the statement;
(B) In the case of qualified education loans made before September
1, 2004, for which the payee does not report payments of interest other
than stated interest, state that the payor may be able to deduct
additional amounts (such as certain loan origination fees and
capitalized interest) not reported on the statement;
(C) State that the payor should refer to relevant Internal Revenue
Service forms and publications, and should not refer to the payee, for
explanations relating to the eligibility requirements for, and
calculation of, any allowable deduction for interest paid on a qualified
education loan; and
(D) Include the name, address, and phone number of the office or
department of the payee that is the information contact for the payee
that filed the Form 1098-E.
(2) Time and manner for furnishing statement--(i) In general. Except
as provided in paragraph (d)(2)(ii) of this section, a payee must
furnish the statement described in paragraph (d)(1) of this section to
the payor on or before January 31 of the year following the calendar
year in which payments of interest on a qualified education loan were
received. If mailed, the statement must be sent to the payor's last
known address. If furnished electronically, the statement must be
furnished in accordance with the applicable regulations.
(ii) Extensions of time. The Internal Revenue Service may grant a
payee an extension of time to furnish statements required in this
section upon a showing of good cause. See the instructions to Form 1098-
E and applicable revenue procedures for rules relating to extensions of
time to furnish statements.
(3) Copy of Form 1098-E. A payee may satisfy the requirement of this
paragraph (d) by furnishing either a copy of Form 1098-E and its
instructions or another document that contains all the information filed
with the Internal Revenue Service and the information required by
paragraph (d)(1) of this section if the document complies with
applicable revenue procedures relating to substitute statements.
(e) Special rules--(1) Transitional rule for reporting of loan
origination fees and capitalized interest--(i) Loans made before
September 1, 2004. For qualified education loans made before September
1, 2004, a payee is not required to report payments of loan origination
fees or capitalized interest or to take such payments into account in
determining the $600 amount for purposes of paragraph (a)(1) of this
section.
(ii) Loans made on or after September 1, 2004. For qualified
education loans made on or after September 1, 2004, a payee is required
to report payments of interest as described in Sec. 1.221-1(f). Under
Sec. 1.221-1(f), interest includes loan origination fees that represent
charges for the use or forbearance of money and capitalized interest.
Under this paragraph (e)(1)(ii), a payee shall take such payments of
interest into account in determining the $600 amount for purposes of
paragraph (a)(1) of this section. For purposes of this section and
section 6050S, interest (including capitalized interest and loan
origination fees) is treated as received, and is reportable, in the year
the interest is treated as paid under the allocation
[[Page 377]]
rules in Sec. 1.221-1(f)(3). See Sec. 1.221-1(f) for rules relating to
capitalized interest, and Sec. 1.221-1(f)(2)(ii) for rules relating to
loan origination fees, on qualified education loans.
(2) Qualified education loan certification. If a loan is not
subsidized, guaranteed, financed, or is not otherwise treated as a
student loan under a program of the Federal, state, or local government
or an eligible educational institution, a payee must request a
certification from the payor that the loan will be used solely to pay
for qualified higher education expenses. A payee may use Form W-9S,
``Request for Student's or Borrower's Social Security Number and
Certification,'' to obtain the certification. A payee may establish an
electronic system for payors to submit Forms W-9S electronically as
described in applicable forms and instructions. A payee may also develop
a separate form to obtain the payor certification or may incorporate the
certification into other forms customarily used by the payee, such as
loan applications, provided the certification is clearly set forth. If
the certification is not received, the loan is not a qualified education
loan for purposes of section 6050S and this section.
(3) Payments of interest received or collected by one or more
persons--(i) In general. Except as otherwise provided in paragraph
(e)(3)(ii) of this section, if a person collects or receives payments of
interest on a qualified education loan on behalf of another person
(e.g., a lender), the person collecting or receiving the interest must
satisfy the information reporting requirements of this section. In this
case, the reporting requirements do not apply to the transfer of
interest to the other person.
(ii) Exception. If the person collecting or receiving payments of
interest on a qualified education loan on behalf of another person
(e.g., a lender) does not possess the information needed to comply with
the information reporting requirements of this section, the other person
must satisfy the information reporting requirements of this section.
(4) Reporting by foreign persons. A payee that is not a United
States person (as defined in section 7701(a)(30)) must report payments
of interest it receives on a qualified education loan only if it
receives the payment--
(i) At a location in the United States; or
(ii) At a location outside the United States if the payee is--
(A) A controlled foreign corporation (within the meaning of section
957(a)); or
(B) A person 50 percent or more of the gross income of which, from
all sources for the three-year period ending with the close of the
taxable year preceding the taxable year in which interest payments were
received (or for such part of the period as the person was in
existence), was effectively connected with the conduct of a trade or
business within the United States.
(5) Governmental units. A governmental unit, or an agency or
instrumentality of a governmental unit, that receives from any payor
interest payments that aggregate $600 or more for any calendar year on
one or more qualified education loans is a payee, without regard to the
requirement of paragraph (a) of this section that the interest be
received in the course of a trade or business.
(f) Penalty provisions--(1) Failure to file correct returns. The
section 6721 penalty may apply to a payee that fails to file information
returns required by section 6050S and this section on or before the
required filing date; that fails to include all of the required
information on the return; or that includes incorrect information on the
return. See section 6721, and the regulations thereunder, for rules
relating to penalties for failure to file correct returns. See section
6724, and the regulations thereunder, for rules relating to waivers of
penalties for certain failures due to reasonable cause.
(2) Failure to furnish correct information statements. The section
6722 penalty may apply to a payee that fails to furnish statements
required by section 6050S and this section on or before the prescribed
date; that fails to include all the required information on the
statement; or that includes incorrect information on the statement. See
section 6722, and the regulations thereunder, for rules relating to
penalties
[[Page 378]]
for failure to furnish correct statements. See section 6724, and the
regulations thereunder, for rules relating to waivers of penalties for
certain failures due to reasonable cause.
(3) Waiver of penalties for failures to include a correct TIN--(i)
In general. In the case of a failure to include a correct TIN on Form
1098-E or a related information statement, penalties may be waived if
the failure is due to reasonable cause. Reasonable cause may be
established if the failure arose from events beyond the payee's control,
such as a failure of the payor to furnish a correct TIN. However, the
payee must establish that it acted in a responsible manner both before
and after the failure.
(ii) Acting in a responsible manner. A payee must request the TIN of
each payor if it does not already have a record of the payor's correct
TIN. If the payee does not have a record of the payor's correct TIN,
then it must solicit the TIN in the manner described in paragraph
(f)(3)(iii) of this section on or before December 31 of each year during
which it receives payments of interest. If a payor refuses to provide
his or her TIN upon request, the payee must file the return and furnish
the statement required by this section without the payor's TIN, but with
all other required information. The specific solicitation requirements
of paragraph (f)(3)(iii) of this section apply in lieu of the
solicitation requirements of Sec. 301.6724-1(e) and (f) of this chapter
for the purpose of determining whether a payee acted in a responsible
manner in attempting to obtain a correct TIN. A payee that complies with
the requirements of this paragraph (f)(3) will be considered to have
acted in a responsible manner within the meaning of Sec. 301.6724-1(d)
of this chapter with respect to any failure to include the correct TIN
of a payor on a return or statement required by section 6050S and this
section.
(iii) Manner of soliciting TIN. A payee must request the payor's TIN
in writing and must clearly notify the payor that the law requires the
payor to furnish a TIN so that it may be included on an information
return filed by the payee. A request for a TIN made on Form W-9S,
``Request for Student's or Borrower's Social Security Number and
Certification,'' satisfies the requirements of this paragraph
(f)(3)(iii). A payee may establish a system for payors to submit Forms
W-9S electronically as described in applicable forms and instructions. A
payee may also develop a separate form to request the payor's TIN or
incorporate the request into other forms customarily used by the payee,
such as loan applications.
(4) Failure to furnish TIN. The section 6723 penalty may apply to
any payor who is required (but fails) to furnish his or her TIN to a
payee. See section 6723, and the regulations thereunder, for rules
relating to the penalty for failure to furnish a TIN.
(g) Effective date. The rules in this section apply to information
returns required to be filed, and information statements required to be
furnished, after December 31, 2003.
[T.D. 8992, 67 FR 20904, Apr. 29, 2002, as amended by T.D. 9125, 69 FR
25499, May 7, 2004]
Sec. 1.6050S-4 Information reporting for payments of interest on
qualified education loans.
(a) Electronic furnishing of statements--(1) In general. A person
required by section 6050S(d) to furnish a written statement regarding
payments of interest on qualified education loans (furnisher) to the
individual to whom it is required to be furnished (recipient) may
furnish the statement in an electronic format in lieu of a paper format.
A furnisher who meets the requirements of paragraphs (a)(2) through (6)
of this section is treated as furnishing the required statement.
(2) Consent--(i) In general. The recipient must have affirmatively
consented to receive the statement in an electronic format. The consent
may be made electronically in any manner that reasonably demonstrates
that the recipient can access the statement in the electronic format in
which it will be furnished to the recipient. Alternatively, the consent
may be made in a paper document if it is confirmed electronically.
(ii) Withdrawal of consent. The consent requirement of this
paragraph (a)(2) is not satisfied if the recipient
[[Page 379]]
withdraws the consent and the withdrawal takes effect before the
statement is furnished. The furnisher may provide that a withdrawal of
consent takes effect either on the date it is received by the furnisher
or on a subsequent date. The furnisher may also provide that a request
for a paper statement will be treated as a withdrawal of consent.
(iii) Change in hardware or software requirements. If a change in
the hardware or software required to access the statement creates a
material risk that the recipient will not be able to access the
statement, the furnisher must, prior to changing the hardware or
software, provide the recipient with a notice. The notice must describe
the revised hardware and software required to access the statement and
inform the recipient that a new consent to receive the statement in the
revised electronic format must be provided to the furnisher. After
implementing the revised hardware and software, the furnisher must
obtain from the recipient, in the manner described in paragraph
(a)(2)(i) of this section, a new consent or confirmation of consent to
receive the statement electronically.
(iv) Examples. The following examples illustrate the rules of this
paragraph (a)(2):
Example 1. Furnisher F sends Recipient R a letter stating that R may
consent to receive statements required by section 6050S(d)
electronically on a Web site instead of in a paper format. The letter
contains instructions explaining how to consent to receive the
statements electronically by accessing the Web site, downloading the
consent document, completing the consent document and e-mailing the
completed consent back to F. The consent document posted on the Web site
uses the same electronic format that F will use for the electronically
furnished statements. R reads the instructions and submits the consent
in the manner provided in the instructions. R has consented to receive
the statements electronically in the manner described in paragraph
(a)(2)(i) of this section.
Example 2. Furnisher F sends Recipient R an e-mail stating that R
may consent to receive statements required by section 6050S(d)
electronically instead of in a paper format. The e-mail contains an
attachment instructing R how to consent to receive the statements
electronically. The e-mail attachment uses the same electronic format
that F will use for the electronically furnished statements. R opens the
attachment, reads the instructions, and submits the consent in the
manner provided in the instructions. R has consented to receive the
statements electronically in the manner described in paragraph (a)(2)(i)
of this section.
Example 3. Furnisher F posts a notice on its Web site stating that
Recipient R may receive statements required by section 6050S(d)
electronically instead of in a paper format. The Web site contains
instructions on how R may access a secure Web page and consent to
receive the statements electronically. By accessing the secure Web page
and giving consent, R has consented to receive the statements
electronically in the manner described in paragraph (a)(2)(i) of this
section.
(3) Required disclosures--(i) In general. Prior to, or at the time
of, a recipient's consent, the furnisher must provide to the recipient a
clear and conspicuous disclosure statement containing each of the
disclosures described in paragraphs (a)(3)(ii) through (viii) of this
section.
(ii) Paper statement. The recipient must be informed that the
statement will be furnished on paper if the recipient does not consent
to receive it electronically.
(iii) Scope and duration of consent. The recipient must be informed
of the scope and duration of the consent. For example, the recipient
must be informed whether the consent applies to statements furnished
every year after the consent is given until it is withdrawn in the
manner described in paragraph (a)(3)(v)(A) of this section or only to
the statement required to be furnished on or before the January 31
immediately following the date on which the consent is given.
(iv) Post-consent request for a paper statement. The recipient must
be informed of any procedure for obtaining a paper copy of the
recipient's statement after giving the consent described in paragraph
(a)(2)(i) of this section and whether a request for a paper statement
will be treated as a withdrawal of consent.
(v) Withdrawal of consent. The recipient must be informed that--
(A) The recipient may withdraw a consent by writing (electronically
or on paper) to the person or department whose name, mailing address,
telephone number, and e-mail address is provided in the disclosure
statement;
[[Page 380]]
(B) The furnisher will confirm the withdrawal and the date on which
it takes effect in writing (either electronically or on paper); and
(C) A withdrawal of consent does not apply to a statement that was
furnished electronically in the manner described in this paragraph (a)
before the date on which the withdrawal of consent takes effect.
(vi) Notice of termination. The recipient must be informed of the
conditions under which a furnisher will cease furnishing statements
electronically to the recipient.
(vii) Updating information. The recipient must be informed of the
procedures for updating the information needed by the furnisher to
contact the recipient. The furnisher must inform the recipient of any
change in the furnisher's contact information.
(viii) Hardware and software requirements. The recipient must be
provided with a description of the hardware and software required to
access, print, and retain the statement, and the date when the statement
will no longer be available on the Web site.
(4) Format. The electronic version of the statement must contain all
required information and comply with applicable revenue procedures
relating to substitute statements to recipients.
(5) Notice--(i) In general. If the statement is furnished on a Web
site, the furnisher must notify the recipient that the statement is
posted on a Web site. The notice may be delivered by mail, electronic
mail, or in person. The notice must provide instructions on how to
access and print the statement. The notice must include the following
statement in capital letters, ``IMPORTANT TAX RETURN DOCUMENT
AVAILABLE.'' If the notice is provided by electronic mail, the foregoing
statement must be on the subject line of the electronic mail.
(ii) Undeliverable electronic address. If an electronic notice
described in paragraph (a)(5)(i) of this section is returned as
undeliverable, and the correct electronic address cannot be obtained
from the furnisher's records or from the recipient, then the furnisher
must furnish the notice by mail or in person within 30 days after the
electronic notice is returned.
(iii) Corrected statements. If the furnisher has corrected a
recipient's statement that was furnished electronically, the furnisher
must furnish the corrected statement to the recipient electronically. If
the recipient's statement was furnished though a Web site posting and
the furnisher has corrected the statement, the furnisher must notify the
recipient that it has posted the corrected statement on the Web site
within 30 days of such posting in the manner described in paragraph
(a)(5)(i) of this section. The corrected statement or the notice must be
furnished by mail or in person if--
(A) An electronic notice of the Web site posting of an original
statement or the corrected statement was returned as undeliverable; and
(B) The recipient has not provided a new e-mail address.
(6) Access period. Statements furnished on a Web site must be
retained on the Web site through October 15 of the year following the
calendar year to which the statements relate (or the first business day
after such October 15, if October 15 falls on a Saturday, Sunday, or
legal holiday). The furnisher must maintain access to corrected
statements that are posted on the Web site through October 15 of the
year following the calendar year to which the statements relate (or the
first business day after such October 15, if October 15 falls on a
Saturday, Sunday, or legal holiday) or the date 90 days after the
corrected statements are posted, whichever is later.
(b) Effective date. This section applies to statements required to
be furnished after February 13, 2004. Paragraph (a)(6) of this section
also applies to statements required to be furnished after December 31,
2003.
[T.D. 9114, 69 FR 7570, Feb. 18, 2004]
Sec. 1.6052-1 Information returns regarding payment of wages in
the form of group-term life insurance.
(a) Requirement of reporting--(1) In general. Every employer, who
during any calendar year provides any one of his employees remuneration
for services in the form of group-term life insurance on the life of
such employee any part of the cost of which is to be
[[Page 381]]
included in such employee's gross income as provided in section 79(a),
shall make a separate return on Form W-2 with respect to each such
employee for such year which includes the following information:
(i) Name, address, and identifying number of the employer;
(ii) Name, address, and social security number of the employee; and
(iii) Total amount includible in the employee's gross income by
reason of the provisions of section 79(a), computed as if each employee
reported his income on the basis of a calendar year (determined as if
the employer making such return is the only employer paying the employee
remuneration in the form of group-term life insurance on his life which
is includible in his gross income under section 79(a)).
Returns on Form W-2 required to be filed pursuant to the provisions of
this section shall be transmitted by Form W-3. In a case where, with
respect to the same employee, an employer must make a return on Form W-2
under this section and also under Sec. 31.6011(a)-4 or Sec.
31.6011(a)-5 of this chapter (Employment Tax Regulations), or under
Sec. 1.6041-2 (relating to return of information as to payments to
employees), such employer may make such returns on the same Form W-2 or
on separate Forms W-2. In a case where an employer must file a Form W-3
under this section and also under Sec. 31.6011(a)-4 or Sec.
31.6011(a)-5 of this chapter (Employment Tax Regulations), the Form W-3
filed under such Sec. 31.6011(a)-4 or Sec. 31.6011(a)-5 shall also be
used as the transmittal form for a return on Form W-2 made pursuant to
the provisions of this section.
(2) Definitions. Terms used in subparagraph (a)(1) of this section
and in section 79 and the regulations thereunder have the meaning
ascribed to them in section 79 and the regulations thereunder.
(b) Time and place for filing--(1) Time for filing--(i) General
rule. In a case where an employer must file Forms W-3 and W-2 under this
section and also under Sec. 31.6011(a)-4 or Sec. 31.6011(a)-5 of this
chapter (Employment Tax Regulations), the time for filing such forms
under this section shall be the same as the time (including extensions
thereof) for filing such forms under Sec. 31.6011(a)-4 or Sec.
31.6011(a)-5.
(ii) Exception. In a case where an employer is not required to file
Forms W-3 and W-2 under Sec. 31.6011(a)-4 or Sec. 31.6011(a)-5 of this
chapter, returns on Forms W-3 and W-2 required under paragraph (a) of
this section for any calendar year shall be filed on or before February
28 (March 31 if filed electronically) of the following year.
(iii) Cross reference. For extensions of time for filing returns,
see section 6081 and the regulations thereunder.
(2) Place for filing. The returns on Forms W-3 and W-2 required
under paragraph (a) of this section shall be filed pursuant to the rules
contained in Sec. 31.6091-1 of this chapter (Employment Tax
Regulations), relating to the place for filing certain returns.
(c) Special rule for calendar years before 1972. For calendar years
before 1972, the provisions of this section will be deemed to have been
complied with if the returns for such years were filed in accordance
with the provisions of this section in effect prior to August 3, 1973,
or with the instructions applicable to the appropriate forms.
(d) Last day for filing return. For provisions relating to the time
for performance of an act when the last day prescribed for performance
falls on Saturday, Sunday, or a legal holiday, see Sec. 301.7503-1 of
this chapter (Regulations on Procedure and Administration).
(e) Penalty. For provisions relating to the penalty provided for
failure to file the information returns required by this section, see
section 6652 and the regulations thereunder.
[T.D. 6888, 31 FR 9205, July 6, 1966, as amended by T.D. 7284, 38 FR
20828, Aug. 3, 1973; T.D. 7580, 43 FR 60160, Dec. 26, 1978; T.D. 7623,
44 FR 28800, May 17, 1979; T.D. 8895, 65 FR 50408, Aug. 18, 2000]
Sec. 1.6052-2 Statements to be furnished employees with respect to
wages paid in the form of group-term life insurance.
(a) Requirement. Every employer filing a return under section
6052(a) and Sec. 1.6052-1 with respect to group-term life insurance on
the life of an employee shall furnish to the employee whose name is set
forth in such return
[[Page 382]]
a written statement showing the information required by paragraph (b) of
this section.
(b) Form of statement. The written statement required to be
furnished to an employee under paragraph (a) of this section shall show:
(1) The total amount includible in the employee's gross income by
reason of the provisions of section 79(a), but determined as if the
employer furnishing such statement is the only employer paying the
employee remuneration in the form of group-term life insurance on his
life which is includible in his gross income under section 79(a).
(2) The name, address, and identifying number of the employer filing
the statement.
The requirement of this section for the furnishing of a statement to an
employee may be satisfied by the furnishing to such employee of a copy
of the return filed pursuant to Sec. 1.6052-1 in respect of such
employee. A statement shall be considered to be furnished to a person
within the meaning of this section if it is mailed to such person at his
last known address.
(c) Time for furnishing statements--(1) In general. Each statement
required by this section to be furnished to any employee for a calendar
year shall be furnished to such person after the close of that year and
on or before January 31 of the following year.
(2) Extensions of time. For good cause shown upon written
application of the employer required to furnish statements under this
section, the district director may grant an extension of time not
exceeding 30 days in which to furnish such statements. The application
shall be addressed to the district director with whom the income tax
returns of the applicant are filed and shall contain a full recital of
the reasons for requesting the extension to aid the district director in
determining the period of the extension, if any, which will be granted.
Such a request in the form of a letter to the district director signed
by the applicant will suffice as an application. The application shall
be filed on or before the date prescribed in subparagraph (1) of this
paragraph for furnishing the statements required by this section.
(3) Last day for furnishing statement. For provisions relating to
the time for performance of an act when the last day prescribed for
performance falls on Saturday, Sunday, or a legal holiday, see Sec.
301.7503-1 of this chapter (Regulations on Procedure and
Administration).
(d) Special rule where Form W-2 is used. The provisions of this
paragraph shall apply notwithstanding anything to the contrary in
paragraph (b) or (c) of this section. The requirement of this section
for the furnishing of a statement to an employee may be satisfied by
furnishing to such employee the employee's copy of Form W-2 filed
pursuant to Sec. 1.6052-1 in respect of such employee. In a case where
the statement furnished by an employer to an employee for purposes of
complying with this section is the employee's copy of a Form W-2, then
the rules in Sec. 31.6051-1 of this chapter (Employment Tax
Regulations) shall apply with respect to the means and time (including
extensions thereof) for furnishing such statements to the employee and
making corrections on such form.
(e) Definitions. Terms used in this section and in section 79 and
the regulations thereunder have the meaning ascribed to them in section
79 and the regulations thereunder.
(f) Penalty. For provisions relating to the penalty provided for
failure to furnish a statement under this section, see section 6678 and
the regulations thereunder.
(g) Special rule for calendar years before 1972. For calendar years
before 1972, the provisions of this section will be deemed to have been
complied with if the statements for such years were furnished in
accordance with the provisions of this section in effect prior to August
3, 1973, or with the instructions applicable to the appropriate forms.
[T.D. 6888, 31 FR 9205, July 6, 1966, as amended by T.D. 7284, 38 FR
20828, Aug. 3, 1973; T.D. 7580, 43 FR 60160, Dec. 26, 1978; T.D. 7623,
44 FR 28800, May 17, 1979]
Sec. 1.6060-1 Reporting requirements for income tax return preparers.
(a) In general. (1) Each person who employs (or engages) one or more
income tax return preparers to prepare any return of tax under subtitle
A of
[[Page 383]]
the Internal Revenue Code of 1954 or claim for refund of tax under
subtitle A of the Internal Revenue Code of 1954, other than for the
person, at any time during a return period shall satisfy the
requirements of section 6060 of the Code by:
(i) Retaining a record of the name, taxpayer identification number,
and principal place of work during the return period of each income tax
return preparer employed (or engaged) by the person at any time during
that period; and
(ii) Making that record available for inspection upon request by the
district director.
The record described in this paragraph (a) must be retained and kept
available for inspection for the 3-year period following the close of
the return period to which that record relates.
(2) The person may chose any form of documentation to be used under
this section as a record of the preparers employed (or engaged) during a
return period. However, the record must disclose on its face which
individuals were employed (or engaged) as income tax return preparers
during that period.
(3) For the definition of the term ``income tax return preparer''
(or ``preparer''), see section 7701(a)(36) and Sec. 301.7701-15. For
the definition of the term ``return period'', see paragraph (b) of this
section.
(4)(i) For purposes of this section, any individual who, in acting
as an income tax return preparer, is not employed by another income tax
return preparer shall be treated as his (or her) own employer. Thus, a
sole proprietor shall retain and make available a record with respect to
himself (or herself) as provided in this section.
(ii) A partnership shall, for purposes of this section, be treated
as the employer of the partners of the partnership and shall retain and
make available a record with respect to the partners and others employed
(or engaged) by the partnership as provided in this section.
(b) Return period defined. For purposes of this section, the term
return period means the 12-month period beginning on July 1 of each
year.
(c) Penalty. For the civil penalty for failure to retain and make
available a record of the preparers employed (or engaged) during a
return period as required under this section, or for failure to include
an item in the record required to be retained and made available under
this section, see Sec. 1.6695-1(e).
[T.D. 7640, 44 FR 49451, Aug. 23, 1979]
signing and verifying of returns and other documents
Sec. 1.6061-1 Signing of returns and other documents by individuals.
(a) Requirement. Each individual (including a fiduciary) shall sign
the income tax return required to be made by him, except that the return
may be signed for the taxpayer by an agent who is duly authorized in
accordance with paragraph (a)(5) or (b) of Sec. 1.6012-1 to make such
return. Other returns, statements, or documents required under the
provisions of subtitle A or F of the Code or of the regulations
thereunder to be made by any person with respect to any tax imposed by
subtitle A of the Code shall be signed in accordance with any
regulations contained in this chapter, or any instructions, issued with
respect to such returns, statements, or other documents.
(b) Cross references. For provisions relating to the signing of
returns, statements, or other documents required to be made by
corporations and partnerships with respect to any tax imposed by
subtitle A of the Code, see Sec. Sec. 1.6062-1 and 1.6063-1,
respectively. For provisions relating to the making of returns by
agents, see paragraphs (a)(5) and (b) of Sec. 1.6012-1; and to the
making of returns for minors and persons under a disability, see
paragraph (a)(4) of Sec. 1.6012-1 and paragraph (b) of Sec. 1.6012-3.
[T.D. 7332, 39 FR 44232, Dec. 23, 1974]
Sec. 1.6062-1 Signing of returns, statements, and other documents
made by corporations.
(a) Returns--(1) In general. Returns required to be made by
corporations under the provisions of subtitle A or F of the Code, or the
regulations thereunder, with respect to any tax imposed by subtitle A of
the Code, shall be signed for the corporation by the president, vice-
president, treasurer, assistant treasurer, chief accounting officer, or
any other officer duly authorized to
[[Page 384]]
sign such returns. It is not necessary that the corporate seal be
affixed to the return. Spaces provided on return forms for affixing the
corporate seal are for the convenience of corporations required by
charter, or by law of the jurisdiction in which they are incorporated,
to affix their corporate seals in the execution of instruments.
(2) By fiduciaries. A return with respect to income required to be
made for a corporation by a fiduciary, pursuant to the provisions of
section 6012(b)(3), shall be signed by such fiduciary. See paragraph
(b)(4) of Sec. 1.6012-3.
(3) By agents. A return with respect to income required to be made
by an agent for a foreign corporation shall be signed by such agent. See
paragraph (g) of Sec. 1.6012-2.
(b) Statements and other documents. Statements and other documents
required to be made by or for corporations under the provisions of
subtitle A or F of the Code, or the regulations thereunder, with respect
to any tax imposed by subtitle A, shall be signed in accordance with the
regulations contained in this chapter, or the forms and instructions,
issued with respect to such statements or other documents.
(c) Evidence of authority to sign. An individual's signature on a
return, statement, or other document made by or for a corporation shall
be prima facie evidence that such individual is authorized to sign such
return, statement, or other document.
(d) Related provisions. For the rules realating to the verification
of returns, see Sec. 1.6065-1.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 7293, 38 FR
32804, Nov. 28, 1973]
Sec. 1.6063-1 Signing of returns, statements, and other documents made
by partnerships.
(a) In general. Returns, statements, and other documents required to
be made by partnerships under the provisions of subtitle A or F of the
Code, or the regulations thereunder, with respect to any tax imposed by
subtitle A of the Code shall be signed by any one of the partners.
However, with respect to the signing of powers of attorney, see
paragraph (a)(2) of Sec. 601.504 of this chapter (Statement of
Procedural Rules).
(b) Evidence of authority to sign. A partner's signature on a
return, statement, or other document made by or for a partnership of
which he is a member shall be prima facie evidence that such partner is
authorized to sign such return, statement, or other document.
(c) Certain partnership elections--(1) In general. For rules
regarding the authority of a partner to sign a partnership return filed
solely for the purpose of making certain partnership level elections,
see Sec. 1.6031(a)-1(b)(5)(ii).
(2) Effective date. Paragraph (c) of this section applies to taxable
years of a partnership beginning after December 31, 1999.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 8841, 64 FR
61502, Nov. 12, 1999]
Sec. 1.6065-1 Verification of returns.
(a) Persons signing returns. If a return, declaration, statement, or
other document made under the provisions of subtitle A or F of the Code,
or the regulation thereunder, with respect to any tax imposed by
subtitle A of the Code is required by the regulations contained in this
chapter, or the form and instructions, issued with respect to such
return, declaration, statement, or other document, to contain or be
verified by a written declaration that it is made under the penalties of
perjury, such return, declaration, statement, or other document shall be
so verified by the person signing it.
(b) Persons preparing returns--(1) In general. Except as provided in
subparagraph (2) of this paragraph, if a return, declaration, statement,
or other document is prepared for a taxpayer by another person for
compensation or as an incident to the performance of other services for
which such person receives compensation, and the return, declaration,
statement, or other document requires that it shall contain or be
verified by a written declaration that it is prepared under the
penalties of perjury, the preparer must so verify the return,
declaration, statement, or other document. A person who renders mere
mechanical assistance in the preparation of a return, declaration,
statement, or other document as, for
[[Page 385]]
example, a stenographer or typist, is not considered as preparing the
return, declaration, statement, or other document.
(2) Exception. The verification required by subparagraph (1) of this
paragraph is not required on returns, declarations, statements, or other
documents which are prepared:
(i) For an employee either by his employer or by an employee
designated for such purpose by the employer, or
(ii) For an employer as a usual incident of the employment of one
regularly or continuously employed by such employer.
[T.D. 6364, 24 FR 1196, Feb. 17, 1959]
time for filing returns and other documents
Sec. 1.6071-1 Time for filing returns and other documents.
(a) In general. Whenever a return, statement, or other document is
required to be made under the provisions of subtitle A or F of the Code,
or the regulations thereunder, with respect to any tax imposed by
subtitle A of the Code, and the time for filing such return, statement,
or other document is not provided for by the Code, it shall be filed at
the time prescribed by the regulations contained in this chapter with
respect to such return, statement, or other document.
(b) Return for a short period. In the case of a return with respect
to tax under subtitle A of the Code for a short period (as defined in
section 443), the district director or director of the Internal Revenue
Service Center may, upon a showing by the taxpayer of unusual
circumstances, prescribe a time for filing the return for such period
later than the time when such return would otherwise be due. However,
the district director or director of the Internal Revenue Service Center
may not extend the time when the return for a DISC (as defined in
section 992(a)(1)) must be filed, as specified in section 6072(b).
(c) Time for filing certain information returns. (1) For provisions
relating to the time for filing returns of partnership income, see
paragraph (e)(2) of Sec. 1.6031-1.
(2) For provisions relating to the time for filing information
returns by banks with respect to common trust funds, see Sec. 1.6032-1.
(3) For provisions relating to the time for filing information
returns by certain organizations exempt from taxation under section
501(a), see paragraph (e) of Sec. 1.6033-1.
(4) For provisions relating to the time for filing returns by trusts
claiming charitable deductions under section 642(c), see paragraph (c)
of Sec. 1.6034-1.
(5) For provisions relating to the time for filing information
returns by officers, directors, and shareholders of foreign personal
holding companies, see Sec. Sec. 1.6035-1 and 1.6035-2.
(6) For provisions relating to the time for filing information
returns with respect to certain stock option transactions, see paragraph
(c) of Sec. 1.6039-1.
(7) For provisions relating to the time for filing information
returns by persons making certain payments, see Sec. 1.6041-2(a)(3) and
Sec. 1.6041-6.
(8) For provisions relating to the time for filing information
returns regarding payments of dividends, see Sec. 1.6042-2(c).
(9) For provisions relating to the time for filing information
returns by corporations with respect to contemplated dissolution or
liquidations, see paragraph (a) of Sec. 1.6043-1.
(10) For provisions relating to the time for filing information
returns by corporations with respect to distributions in liquidation,
see paragraph (a) of Sec. 1.6043-2.
(11) For provisions relating to the time for filing information
returns with respect to payments of patronage dividends, see Sec.
1.6044-2(d).
(12) For provisions relating to the time for filing information
returns with respect to formation or reorganization of foreign
corporations, see Sec. 1.6046-1.
(13) For provisions relating to the time for filing information
returns regarding certain payments of interest, see Sec. 1.6049-4(g).
(14) For provisions relating to the time for filing information
returns with respect to payment of wages in the form of group-term life
insurance, see paragraph (b) of Sec. 1.6052-1.
[[Page 386]]
(15) For provisions relating to the time for filing the annual
information return on Form 1042-S of the tax withheld under chapter 3 of
the Code (relating to withholding of tax nonresident aliens and foreign
corporations and tax-free covenant bonds), see Sec. 1.1461-1(c).
(16) For provisions relating to the time for filing the annual
information return on Form 1042S of the tax withheld under chapter 3 of
the Code (relating to withholding of tax on nonresident aliens and
foreign corporations and tax-free covenant bonds), see paragraph (c) of
Sec. 1.1461-2.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6887, 31 FR
8814, June 24, 1966; T.D. 6908, 31 FR 16775, Dec. 31, 1966; T.D. 7284,
38 FR 20829, Aug. 3, 1973; T.D. 7533, 43 FR 6604, Feb. 15, 1978; T.D.
8734, 62 FR 53492, Oct. 14, 1997]
Sec. 1.6072-1 Time for filing returns of individuals, estates, and
trusts.
(a) In general--(1) Returns of income for individuals, estates and
trusts. Except as provided in paragraphs (b) and (c) of this section,
returns of income required under sections 6012, 6013, 6014, and 6017 of
individuals, estates, domestic trusts, and foreign trusts having an
office or place of business in the United States (including unrelated
business tax returns of such trusts referred to in section 511(b)(2))
shall be filed on or before the fifteenth day of the fourth month
following the close of the taxable year.
(2) Return of trust, or portion of a trust, treated as owned by a
decedent--(i) In general. In the case of a return of a trust, or portion
of a trust, that was treated as owned by a decedent under subpart E
(section 671 and following), part I, subchapter J, chapter 1 of the
Internal Revenue Code as of the date of the decedent's death that is
filed in accordance with Sec. 1.671-4(a) for the fractional part of the
year ending with the date of the decedent's death, the due date of such
return shall be the fifteenth day of the fourth month following the
close of the 12-month period which began with the first day of the
decedent's taxable year.
(ii) Effective date. This paragraph (a)(2) applies to taxable years
ending on or after December 24, 2002.
(b) Decedents. In the case of a final return of a decedent for a
fractional part of a year, the due date of such return shall be the
fifteenth day of the fourth month following the close of the 12-month
period which began with the first day of such fractional part of the
year.
(c) Nonresident alien individuals and foreign trusts. The income tax
return of a nonresident alien individual (other than one treated as a
resident under section 6013 (g) or (h)) and of a foreign trust which
does not have an office or place of business in the United States
(including unrelated business tax returns of such trusts referred to in
section 511(b)(2)0 shall be filed on or before the fifteenth day of the
sixth month following the close of the taxable year. However, a
nonresident alien individual who for the taxable year has wages subject
to withholding under chapter 24 of the Code shall file his income tax
return on or before the fifteenth day of the fourth month following the
close of the taxable year.
(d) Last day for filing return. For provisions relating to the time
for filing a return where the last day for filing falls on Saturday,
Sunday, or a legal holiday, see section 7503 and Sec. 301.7503-1 of
this chapter (Regulations on Procedure and Administration).
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 7426, 41 FR
33263, Aug. 9, 1976; T.D. 7670, 45 FR 6931, Jan. 31, 1980; T.D. 9032, 67
FR 78382, Dec. 24, 2002]
Sec. 1.6072-2 Time for filing returns of corporations.
(a) Domestic and certain foreign corporations. The income tax return
required under section 6012 of a domestic corporation or of a foreign
corporation having an office or place of business in the United States
shall be filed on or before the fifteenth day of the third month
following the close of the taxable year.
(b) Foreign corporations not having an office or place of business
in the United States. The income tax return of a foreign corporation
which does not have an office or place of business in the United States
shall be filed on or before the fifteenth day of the sixth month
following the close of the taxable year.
[[Page 387]]
(c) Exempt organizations. For taxable years beginning after November
10, 1978, the income tax return required under section 6012 and Sec.
1.6012-2(e) of an organization exempt from taxation under section 501(a)
(other than an employee's trust under section 401(a)) shall be filed on
or before the fifteenth day of the fifth month following the close of
the organization's taxable year.
(d) Cooperative organizations. The income tax return of the
following cooperative organizations shall be filed on or before the
fifteenth day of the ninth month following the close of the taxable
year:
(1) A farmers', fruit growers', or like association, organized and
operated in compliance with the requirements of section 521 and Sec.
1.521-1; and
(2) For a taxable year beginning after December 31, 1962, a
corporation described in section 1381(a)(2), which is under a valid
enforceable written obligation to pay patronage dividends (as defined in
section 1388(a) and paragraph (a) of Sec. 1.1388-1) in an amount equal
to at least 50 percent of its net earnings from business done with or
for its patrons, or which paid patronage dividends in such an amount out
of the net earnings from business done with or for patrons during the
most recent taxable year for which it had such net earnings. Net
earnings for this purpose shall not be reduced by any taxes imposed by
Subtitle A of the Code and shall not be reduced by dividends paid on
capital stock or other proprietary interest.
(e) DISC's and former DISC's. The return required under section
6011(c)(2) of a corporation which is a DISC (as defined in section
992(a) shall be filed on or before the 15th day of the 9th month
following the close of the taxable year. For the rule that a DISC may
not have an extension of time in which to file such return, see
Sec. Sec. 1.6071-1(b), 1.6081-1(a), and 1.6081-3(e). The return
required under Sec. 1.6011-2(b)(1) by a former DISC shall be filed at
the time it is required to file its income tax return.
(f) Cross references. For provisions relating to the time for filing
a return where the last day for filing falls on Saturday, Sunday, or a
legal holiday, see section 7503 and Sec. 301.7503-1 of this chapter
(Regulations on Procedure and Administration). For provisions relating
to the fixing of a later time for filing in the case of a return for a
short period, see paragraph (b) of Sec. 1.6071-1. For provisions
relating to time for filing consolidated returns and separate returns
for short periods not included in consolidated returns, see Sec. Sec.
1.1502-75 and 1.1502-76.
[T.D. 6500, 25 FR 12133, Nov. 26, 1960, as amended by T.D. 6643, 28 FR
3163, Apr. 2, 1963; T.D. 7244, 37 FR 28897, Dec. 30, 1972; T.D. 7533, 43
FR 6604, Feb. 15, 1978; T.D. 7896, 48 FR 23818, May 27, 1983]
Sec. 1.6072-3 Income tax due dates postponed in case of China Trade
Act corporations.
(a) With respect to a taxable year beginning after December 31,
1948, and ending before October 1, 1956, the income tax return of any
corporation organized under the China Trade Act of 1922 (15 U.S.C. ch.
4), as amended, shall not become due until December 31, 1956, provided
that during any such taxable year conditions in China have been
generally so unsettled as to militate against the normal commercial
operations and corporate activities of such corporation. However, the
postponement of the due date shall not apply to an income tax return for
any such taxable year if:
(1) The books of account and business records are available so as to
permit the filing of a proper return, and the corporation has otherwise
been in a position to carry on its commercial operations and corporate
activities and to make a proper distribution of its earnings or profits,
if any, so as to permit the certification required by section 941(b); or
(2) All the commercial operations and corporate activities of such
corporation have been carried on in Hong Kong, Macao, or Taiwan
(Formosa).
(b) Notwithstanding the provisions of paragraph (a) (1) or (2) of
this section, the postponed due date referred to in this section will
apply if a corporation satisfies the Commissioner that special
circumstances exist, related to the unsettled conditions in China, which
warrant such postponement.
(c) The postponed due date provided for in this section is expressly
subject
[[Page 388]]
to the power of the Commissioner to extend, as in other cases, the time
for filing the income tax return. See section 6081 and the regulations
thereunder.
Sec. 1.6072-4 Time for filing other returns of income.
(a) Reports for recovery of excessive profits on Government
contracts. For the time for filing annual reports by persons completing
Government contracts, see 26 CFR (1939) 17.16 (Treasury Decision 4906,
approved June 23, 1939), and 26 CFR (1939) 16.15 (Treasury Decision
4909, approved June 28, 1939), as made applicable to section 1471 of the
Internal Revenue Code of 1954 by Treasury Decision 6091, approved August
16, 1954 (19 FR 5167, C.B. 1954-2, 47).
(b) Returns of tax on transfers to avoid income tax. For the time
for filing returns of tax under Chapter 5 of the Code, see Sec. 1.1494-
1.
[T.D. 6908, 31 FR 16775, Dec. 31, 1966]
Sec. 1.6073-1 Time and place for filing declarations of estimated
income tax by individuals.
(a) Individuals other than farmers or fishermen. Declarations of
estimated tax for the calendar year shall be made on or before April
15th of such calendar year by every individual whose anticipated income
for the year meets the requirements of section 6015(a). If, however, the
requirements necessitating the filing of the declaration are first met,
in the case of an individual on the calendar year basis, after April
1st, but before June 2d of the calendar year, the declaration must be
filed on or before June 15th; if such requirements are first met after
June 1st and before September 2d, the declaration must be filed on or
before September 15th; and if such requirements are first met after
September 1st, the declaration must be filed on or before January 15th
of the succeeding calendar year. In the case of an individual on the
fiscal year basis, see Sec. 1.6073-2. A special rule applies to
nonresident aliens who do not have wages subject to withholding under
Chapter 24 of the code and are not treated as residents under section
6013 (g) or (h) of the code. For taxable years beginning after December
31, 1976, these aliens are not required to file a declaration of
estimated tax before June 15th.
(b) Farmers or fishermen--(1) In general. In the case of an
individual on a calendar year basis:
(i) If at least two-thirds of the individual's total estimated gross
income from all sources for the calendar year is from farming or fishing
(including oyster farming), or
(ii) If at least two-thirds of the individual's total gross income
from all sources shown on the return for the preceding taxable year was
from farming or fishing (including oyster farming) (with respect to
declarations of estimated tax for taxable years beginning after November
10, 1978),
He may file a declaration of estimated tax on or before the 15th day of
January of the succeeeding calendar year in lieu of the time prescribed
in paragraph (a) of this section. For the filing of a return in lieu of
a declaration, see paragraph (a) of Sec. 1.6015-1.
(2) Farmers. The estimated gross income from farming is the
estimated income resulting from oyster farming, the cultivation of the
soil, the raising or harvesting of any agricultural or horticultural
commodities, and the raising of livestock, bees, or poultry. In other
words, the requisite gross income must be derived from the operations of
a stock, dairy, poultry, fruit, or truck farm, or plantation, ranch,
nursery, range, orchard, or oyster bed. If an individual receives for
the use of his land income in the form of a share of the crops produced
thereon such income is from farming. As to determination of income of
farmers, see sections 61 and 162 and the regulations thereunder.
(3) Fishermen. The estimated gross income from fishing is the
estimated income resulting from the catching, taking, harvesting,
cultivating or farming of any kind of fish, shellfish (for example,
clams and mussels), crustacea (for example, lobsters, crabs, and
shrimps), sponges, seaweeds, or other aquatic forms of animal and
vegetable life. The estimated gross income from fishing includes the
income expected to be received by an officer or member of the crew of a
vessel while the vessel is engaged in any such activity, whether or not
the officer or member of the crew is himself so engaged, and, in the
case
[[Page 389]]
of an individual who is engaged in any such activity in the employ of
any person, the income expected to be received by such individual from
such employment. In addition, income expected to be received for
services performed as an ordinary incident to any such activity is
estimated gross income from fishing. Similarly, for example, the
estimated gross income from fishing includes income expected to be
received from the shore services of an officer or member of the crew of
a vessel engaged in any such activity, if such services are an ordinary
incident to any such activity. Services performed as an ordinary
incident to such activities include, for example, services performed in
such cleaning, icing, and packing of fish as are necessary for the
immediate preservation of the catch.
(c) Nonresident aliens. Notwithstanding the provisions of paragraph
(a) of this section, for taxable years beginning after December 31,
1976, in the case of a nonresident alien described in section 6072(c)
(relating to returns of nonresident aliens whose wages are not subject
to withholding) whose estimated gross income for the calendar year meets
the requirements of section 6015(a), a declaration of estimated tax for
the calendar year need not be made before June 15th of such calendar
year.
(d) Place for filing declaration. Except as provided in paragraph
(b) of Sec. 301.6091-1 (relating to hand-carried documents), the
declaration of estimated tax shall be filed at the place prescribed by
the instructions applicable to such declaration. For example, if the
instructions applicable to a declaration provide that the declaration of
a taxpayer located in North Carolina be filed with the Director,
Internal Revenue Service Center, Chamblee, Ga., such declaration shall
be filed with the service center.
(e) Amendment of declaration. An amended declaration of estimated
tax may be filed during any interval between installment dates
prescribed for the taxable year. However, no amended declaration may be
filed until after the installment date on or before which the original
declaration was filed and only one amended declaration may be filed
during each interval between installment dates. Except as provided in
paragraph (b) of Sec. 301.6091-1 (relating to hand-carried documents),
an amended declaration shall be filed with the internal revenue officer
with whom the original declaration was filed.
[T.D. 6678, 28 FR 10516, Oct. 1, 1963, as amended by T.D. 6950, 33 FR
5355, Apr. 4, 1968; T.D. 7670, 45 FR 6931, Jan. 31, 1980; T.D. 7719, 45
FR 60902, Sept. 15, 1980]
Sec. 1.6073-2 Fiscal years.
(a) Individuals other than farmers or fishermen. In the case of an
individual on the fiscal year basis, the declaration must be filed on or
before the 15th day of the 4th month of the taxable year. If, however,
the requirements of section 6015(a) are first met after the 1st day of
the 4th month and before the 2d day of the 6th month, the declaration
must be filed on or before the 15th day of the 6th month of the taxable
year. If such requirements are first met after the 1st day of the 6th
month, and before the 2d day of the 9th month, the declaration must be
filed on or before the 15th day of the 9th month of the taxable year. If
such requirements are first met after the 1st day of the 9th month, the
declaration must be filed on or before the 15th day of the 1st month of
the succeeding fiscal year. Thus, if an individual taxpayer has a fiscal
year ending on June 30, 1956, his declaration must be filed on or before
October 15, 1955, if the requirements of section 6015(a) are met on or
before October 1, 1955. If, however, such requirements are not met until
after October 1, 1955, and before December 2, 1955, the declaration need
not be filed until December 15, 1955.
(b) Farmers or fishermen. In the case of an individual on a fiscal
year basis:
(1) If at least two-thirds of the individual's total estimated gross
income from all sources for the fiscal year is from farming or fishing
(including oyster farming), or
(2) If at least two-thirds of the individual's total gross income
from all sources shown on the return for the preceding taxable year was
from farming or fishing (including oyster farming) (with respect to
declarations of estimated tax for taxable years beginning after November
10, 1978),
he may file a declaration on or before the 15th day of the month
immediately
[[Page 390]]
following the close of his taxable year, in lieu of the time prescribed
in paragraph (a) of this section.
(c) Nonresident aliens. Notwithstanding the provisions of paragraph
(a) of this section, in the case of a nonresident alien described in
section 6072(c) (relating to returns of nonresident aliens whose wages
are not subject to withholding) whose anticipated income for the fiscal
year meets the requirements of section 6015(a), Sec. 1.6015(a)-1, and
Sec. 1.6015(i)-1, the declaration of estimated tax for the fiscal year
need not be filed before the 15th day of the 6th month of such fiscal
year.
[T.D. 6678, 28 FR 10516, Oct. 1, 1963, as amended by T.D. 7719, 45 FR
60903, Sept. 15, 1980]
Sec. 1.6073-3 Short taxable years.
(a) Individuals other than farmers or fishermen. In the case of
short taxable years the declaration shall be filed on or before the 15th
day of the 4th month of such taxable year if the requirements of section
6015(a) are met on or before the 1st day of the 4th month of such year.
If such requirements are first met after the 1st day of the 4th month
but before the 2d day of the 6th month, the declaration must be filed on
or before the 15th day of the 6th month. If such requirements are first
met after the 1st day of the 6th month but before the 2d day of the 9th
month, the declaration must be filed on or before the 15th day of the
9th month. If, however, the period for which the declaration is filed is
one of 4 months, or one of 6 months and the requirements of section
6015(a) are not met until after the 1st day of the 4th month, or one of
9 months and such requirements are not met until after the 1st day of
the 6th month, the declaration may be filed on or before the 15th day of
the succeeding taxable year.
(b) Farmers or fishermen. In the case of an individual:
(1) Whose current taxable year is a short taxable year and whose
estimated gross income from farming or fishing (including oyster
farming) is at least two-thirds of his total estimated gross income from
all sources for such current taxable year, or
(2) Whose taxable year preceding the current taxable year was a
short taxable year and whose gross income from farming or fishing
(including oyster farming) was at least two-thirds of the total gross
income from all sources shown on the return for such preceding short
taxable year (with respect to declarations of estimated tax for taxable
years beginning after November 10, 1978),
he may file a declaration of estimated tax on or before the 15th day of
the month immediately following the close of the current taxable year,
in lieu of the time prescribed in paragraph (a) of this section.
(c) Nonresident aliens. Notwithstanding the provisions of paragraph
(a) of this section, in the case of a short taxable year, a nonresident
alien described in section 6072(c) (relating to returns of nonresident
aliens whose wages are not subject to withholding) whose anticipated
income for the short taxable year meets the requirements of section
6015(a). Sections 1.6015(a)-1, 1.6015(g)-1, and 1.6015(i)-1 on or before
the 1st day of the 6th month following the beginning of such year need
not file a declaration of estimated tax before the 15th day of the 6th
month following the beginning of such year.
[T.D. 6678, 28 FR 10516, Oct. 1, 1963, as amended by T.D. 7719, 45 FR
60903, Sept. 15, 1980]
Sec. 1.6073-4 Extension of time for filing declarations by individuals.
(a) In general. District directors and directors of service centers
are authorized to grant a reasonable extension of time for filing a
declaration or an amended declaration. Except as provided in paragraph
(b) of Sec. 301.6091-1 (relating to hand-carried documents), an
application for an extension of time for filing such a declaration shall
be addressed to the internal revenue officer with whom the taxpayer is
required to file his declaration, and must contain a full recital of the
causes for the delay. Except in the case of taxpayers who are abroad, no
extension for filing declarations may be granted for more than 6 months.
(b) Citizens outside of the United States. In the case of a United
States citizen outside the United States and Puerto Rico on the 15th day
of the 4th month of his taxable year, an extension of
[[Page 391]]
time for filing his declaration of estimated tax otherwise due on or
before the 15th day of the 4th month of the taxable year is granted to
and including the 15th day of the 6th month of the taxable year. For
purposes of applying this paragraph to taxable years beginning prior to
January 1, 1964, Alaska shall be considered outside the United States.
(c) Residents outside the United States. In the case of a U.S.
resident living or traveling outside the United States and Puerto Rico
on the 15th day of the 4th month of a taxable year beginning after
December 31, 1978, an extension of time for filing the declaration of
estimated tax otherwise due on or before the 15th day of the 4th month
of the taxable year is granted to and including the 15th day of the 6th
month of the taxable year.
(d) Addition to tax applicable. An extension of time for filing the
declaration of estimated tax automatically extends the time for paying
the estimated tax (without interest) for the same period. However, such
extension does not relieve the taxpayer from the addition to the tax
imposed by section 6654, and the period of the underpayment will be
determined under section 6654(c) without regard to such extension.
[T.D. 6500, 25 FR 12008, Nov. 26, 1960, as amended by T.D. 6638, 28 FR
1765, Feb. 26, 1963; T.D. 6950, 33 FR 5355, Apr. 4, 1968; T.D. 7736, 45
FR 76143, Nov. 18, 1980]
Sec. 1.6074-1 Time and place for filing declarations of estimated
income tax by corporations.
(a) Taxable years beginning on or before December 31, 1963. For
taxable years ending on or after December 31, 1955, and beginning on or
before December 31, 1963, declarations of estimated tax for the taxable
year shall be filed on or before the 15th day of the 9th month of such
year by every corporation whose then anticipated income tax liability
under section 11 or 1201(a), or subchapter L, chapter 1 of the Code, for
the year meets the requirements of section 6016(a). If, however, the
requirements necessitating the filing of a declaration are first met
after the last day of the 8th month and before the first day of the 12th
month of the taxable year the declaration shall be filed on or before
the 15th day of the 12th month of the taxable year. If, however, the
requirements of section 6016(a) are not met before the first day of the
12th month of the taxable year, no declaration need be filed for such
year.
(b) Taxable years beginning after December 31, 1963. A declaration
of estimated tax for a taxable year beginning after December 31, 1963,
required of a corporation by section 6016 shall be filed as follows:
------------------------------------------------------------------------
If the requirements of section 6016 are The declaration shall be
first met-- filed on or before--
------------------------------------------------------------------------
before the 1st day of the 4th month of the the 15th day of the 4th
taxable year. month of the taxable year
after the last day of the 3d month and the 15th day of the 67th
before the 1st day of the 6th month of month of the taxable year
the taxable year.
after the last day of the 5th month and the 15th day of the 9th
before the 1st day of the 9th month of month of the taxable year
the taxable year.
after the last day of the 8th month and the 15th day of the 12th
before the 1st day of the 12th month of month of the taxable year
the taxable year.
------------------------------------------------------------------------
(c) Place for filing declaration. Except as provided in paragraph
(b) of Sec. 301.6091-1 (relating to hand-carried documents), the
declaration of estimated tax shall be filed at the place prescribed by
the instructions applicable to such declaration. For example, if the
instructions applicable to a declaration provide that the declaration of
a corporation located in North Carolina be filed with the Director,
Internal Revenue Service Center, Chamblee, Ga., such declaration shall
be filed with the service center.
(d) Amendment of declaration--(1) Taxable years beginning on or
before December 31, 1963. A declaration of estimated tax for a taxable
year beginning on or before December 31, 1963, which is filed by a
corporation prior to the 15th day of the 12th month of the taxable year
may be amended in the manner prescribed in Sec. 1.6016-3, at any time
on or before such 15th day. An amended declaration shall be filed with
the internal revenue officer with whom the original declaration was
filed.
(2) Taxable years beginning after December 31, 1963. In any case
where a declaration of estimated tax for a taxable year beginning after
December 31, 1963, has been filed, an amended declaration of estimated
tax may be filed during
[[Page 392]]
any interval between installment dates prescribed for the taxable year.
However, no amended declaration may be filed until after the installment
date on or before which the original declaration was filed and only one
amended declaration may be filed during each interval between
installment dates. See Sec. 1.6016-3 for the manner of making an
amended declaration. Except as provided in paragraph (b) of Sec.
301.6091-1 (relating to hand-carried documents), an amended declaration
shall be filed with the internal revenue officer with whom the original
declaration was filed.
[T.D. 6768, 29 FR 14922, Nov. 4, 1964, as amended by T.D. 6950, 33 FR
5355, Apr. 4, 1968]
Sec. 1.6074-2 Time for filing declarations by corporations in case of
a short taxable year.
(a) Taxable years beginning on or before December 31, 1963--(1) In
general. In the case of a short taxable year of 9 months or more
beginning on or before December 31, 1963, where the requirements of
section 6016(a) are met before the 1st day of the 9th month of the short
taxable year, the declaration shall be filed on or before the 15th day
of the 9th month of such short year. In the case of a short taxable year
of more than 9 months, where the requirements of section 6016(a) are
first met after the last day of the 8th month, but before the 1st day of
the last month of the short taxable year, the declaration shall be filed
on or before the 15th day of the last month of such short year. See
Sec. 1.6016-4, relating to the requirement of a declaration in the case
of a short taxable year, and paragraph (a) of Sec. 1.6154-2, relating
to the time for payment of the estimated tax in case of a short taxable
year.
(2) Example. The application of the provisions of this paragraph may
be illustrated by the following example:
Example. A corporation which changes from a calendar year basis to a
fiscal year basis beginning November 1, 1960, will have a short taxable
year beginning January 1, 1960, and ending October 31, 1960. If the
requirements of section 6016(a) are met before September 1, 1960 (the
1st day of the 9th month), the corporation is required to file its
declaration on or before September 15, 1960 (the 15th day of the 9th
month). However, if the requirements of section 6016(a) are first met
after August 31, 1960 (the last day of the 8th month), but before
October 1, 1960 (the 1st day of the last month of the short year), the
corporation is required to file its declaration on or before October 15,
1960 (the 15th day of the last month of the short year).
(b) Taxable years beginning after December 31, 1963--(1) In general.
In the case of a short taxable year of 4 or more months which begins
after December 31, 1963, the declaration shall be filed on or before the
applicable date specified in paragraph (b) of Sec. 1.6074-1, except
that in the case of a short taxable year ending after November 30, 1964,
the declaration shall be filed on or before the 15th day of the last
month of the short taxable year if the requirements of section 6016(a)
are first met before the first day of such last month and the date
specified in such paragraph (b) as applicable is not within the short
taxable year. See Sec. 1.6016-4, relating to the requirement of a
declaration in the case of a short taxable year, and paragraph (b) of
Sec. 1.6154-2, relating to the time for payment of the estimated tax in
case of a short taxable year.
(2) Examples. The application of the provisions of this paragraph
may be illustrated by the following examples:
Example (1). A corporation filing on a calendar year basis which
changes to a fiscal year beginning September 1, 1965, will have a short
taxable year beginning January 1, 1965, and ending August 31, 1965. If
the requirements of section 6016(a) are met before April 1, 1965 (the
1st day of the 4th month), the declaration of estimated tax must be
filed on or before April 15, 1965 (the 15th day of the 4th month).
Example (2). If, in the first example, the corporation first meets
the requirements of section 6016(a) during July 1965, then the
requirements of section 6016(a) were met before the first day of the
last month of the short taxable year, and a declaration of estimated tax
is required to be filed on or before August 15, 1965, for the short
taxable year. However, if the corporation does not meet the requirements
of section 6016(a) until August 1, 1965, then the requirements of
section 6016(a) were not met before the first day of the last month of
the short taxable year, and no declaration of estimated tax is required
to be filed for the short taxable year.
(c) Amendment of declaration--(1) Taxable years beginning on or
before December 31, 1963. Where a declaration of estimated tax for a
short taxable year of more than 9 months beginning on or
[[Page 393]]
before December 31, 1963, is filed before the 15th day of the last month
of the short taxable year, an amended declaration may be filed any time
on or before such 15th day.
(2) Taxable years beginning after December 31, 1963. Where a
declaration of estimated tax for a short taxable year beginning after
December 31, 1963, has been filed, an amended declaration may be filed
during any interval between installment dates. However, no amended
declaration for a short taxable year may be filed until after the
installment date on or before which the original declaration was filed
and only one amended declaration may be filed during each interval
between installment dates. For purposes of this subparagraph the term
``installment date'' includes the 15th day of the last month of a short
taxable year if such 15th day does not fall on a prescribed installment
date.
[T.D. 6768, 29 FR 14923, Nov. 4, 1964]
Sec. 1.6074-3 Extension of time for filing declarations by corporations.
(a) In general. District directors and directors of service centers
are authorized to grant a reasonable extension of time for filing a
declaration or an amended declaration. Except as provided in paragraph
(b) of Sec. 301.6091-1 (relating to hand-carried documents), an
application by a corporation for an extension of time for filing such a
declaration shall be addressed to the internal revenue officer with whom
the corporation is required to file its declaration and must contain a
full recital of the causes for the delay.
(b) Addition to tax applicable. An extension of time granted to a
corporation for filing a declaration of estimated tax automatically
extends the time for paying the estimated tax (without interest) for the
same period. However, such extension does not relieve the corporation
from the addition to the tax imposed by section 6655, and the period of
the underpayment will be determined under section 6655(c) without regard
to such extension.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6950, 33 FR
5355, Apr. 4, 1968]
Extension of Time for Filing Returns
Sec. 1.6081-1 Extension of time for filing returns.
(a) In general. The Commissioner is authorized to grant a reasonable
extension of time for filing any return, declaration, statement, or
other document which relates to any tax imposed by subtitle A of the
Code and which is required under the provisions of subtitle A or F of
the Code or the regulations thereunder. However, other than in the case
of taxpayers who are abroad, such extensions of time shall not be
granted for more than 6 months, and the extension of time for filing the
return of a DISC (as defined in section 992(a)), as specified in section
6072(b), shall not be granted. Except in the case of an extension of
time pursuant to Sec. 1.6081-5, an extension of time for filing an
income tax return shall not operate to extend the time for the payment
of the tax unless specified to the contrary in the extension. For rules
relating to extensions of time for paying tax, see Sec. 1.6161-1.
(b) Application for extension of time--(1) In general. A taxpayer
desiring an extension of the time for filing a return, statement, or
other document shall submit an application therefor on or before the due
date of such return, statement, or other document. Except as provided in
subparagraph (3) of this paragraph and, except as provided in paragraph
(b) of Sec. 301.6091-1 (relating to hand-carried documents), such
application shall be made to the internal revenue officer with whom such
return, statement, or other document is required to be filed. Such
application shall be in writing, properly signed by the taxpayer or his
duly authorized agent, and shall clearly set forth (i) the particular
tax return, information return, statement, or other document, including
the taxable year or period thereof, with respect to which the extension
of the time for filing is desired, and (ii) a full recital of the
reasons for requesting the extension to aid such internal revenue
officer in determining the period of extension, if any, which will be
granted. In the case of a cemetery perpetual care fund trust, a
distributee cemetery's failure to make
[[Page 394]]
timely expenditures of distributions which prevents accurate
determination of the allowable deduction under section 642(i) will be
considered reasonable grounds for a 6-month extension of time for filing
the trust's return. See Sec. 1.642(i)-1(c)(2).
(2) Additional information in the case of Form 1040. In addition to
the information required under subparagraph (1) of this paragraph, the
application of a taxpayer desiring an extension of the time for filing
an individual income tax return on Form 1040 for any taxable year
beginning after December 31, 1958, shall also set forth (i) whether an
income tax return has been filed on or before its due date for each of
the three taxable years immediately preceding the taxable year of such
return, and if not, the reason for each failure, and (ii) whether the
taxpayer was required to file a declaration of estimated tax for the
taxable year of such return, and if so, whether each required estimated
tax payment was made on or before its due date. For purposes of this
subparagraph a return is considered as filed on or before its due date
if it is filed on or before the applicable date provided in section 6072
or on or before the last day of the period covered by an extension of
time granted pursuant to the provisions of section 6081, and each
required payment of estimated tax is considered as paid on or before its
due date if it is paid on or before the applicable date provided in
section 6153 on or before the last day of the period covered by an
extension of time granted pursuant to the provisions of section 6161.
(3) Information returns filed with Service Center. An application
for an extension of the time for filing any information return required
to be filed with an Internal Revenue Service Center shall state the
location of the Service Center with which such return will be filed.
Except as provided in paragraph (b) of Sec. 301.6091-1 (relating to
hand-carried documents), such application shall be made to the internal
revenue officer with whom the applicant is required to file an income
tax return or with whom the applicant would be required to file an
income tax return if such a return were required of him.
(4) Taxpayer unable to sign. In any case in which a taxpayer is
unable, by reason of illness, absence, or other good cause, to sign a
request for an extension, any person standing in close personal or
business relationship to the taxpayer may sign the request on his
behalf, and shall be considered as a duly authorized agent for this
purpose, provided the request sets forth the reasons for a signature
other than the taxpayer's and the relationship existing between the
taxpayer and the signer.
(5) Form of application. The application for an extension of the
time for filing a return, statement, or other document may be made in
the form of a letter. However, in the case of an individual income tax
return on Form 1040, the application for an extension of the time for
filing may be made either on Form 2688 or in the form of a letter.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6581, 26 FR
11678, Dec. 6, 1961; T.D. 6950, 33 FR 5355, Apr. 4, 1968; T.D. 7260, 38
FR 4258, Feb. 12, 1973; T.D. 7533, 43 FR 6604, Feb. 15, 1978; T.D. 7651,
44 FR 61597, Oct. 26, 1979; T.D. 8241, 54 FR 7762, Feb. 23, 1989; T.D.
9163, 69 FR 70548, Dec. 7, 2004]
Sec. 1.6081-2T Automatic extension of time to file certain returns
filed by partnerships (temporary).
(a) In general. A partnership required to file Form 1065, ``U.S.
Partnership Return of Income,'' or Form 8804, ``Annual Return for
Partnership Withholding Tax,'' for any taxable year will be allowed an
automatic 6-month extension of time to file the return after the date
prescribed for filing the return if the partnership files an application
under this section in accordance with paragraph (b) of this section. In
the case of a partnership described in Sec. 1.6081-5(a)(1), the
automatic extension of time to file allowed under this section runs
concurrently with an extension of time to file granted pursuant to Sec.
1.6081-5(a).
(b) Requirements. To satisfy this paragraph (b), the partnership
must--
(1) Submit a complete application on Form 7004, ``Application for
Automatic 6-Month Extension of Time to File Certain Business Income Tax,
Information, and Other Returns,'' or in any other manner prescribed by
the Commissioner;
(2) File the application on or before the later of--
[[Page 395]]
(i) The date prescribed for filing the return of the partnership; or
(ii) The expiration of any extension of time to file granted under
Sec. 1.6081-5(a); and
(3) File the application with the Internal Revenue Service office
designated in the application's instructions.
(c) Payment of section 7519 amount. An automatic extension of time
for filing a partnership return of income granted under paragraph (a) of
this section does not extend the time for payment of any amount due
under section 7519, relating to required payments for entities electing
not to have a required taxable year.
(d) Section 444 election. An automatic extension of time for filing
a partnership return of income will run concurrently with any extension
of time for filing a return allowed because of section 444, relating to
the election of a taxable year other than a required taxable year.
(e) Effect of extension on partner. An automatic extension of time
for filing a partnership return of income under this section does not
extend the time for filing a partner's income tax return or the time for
the payment of any tax due on a partner's income tax return.
(f) Termination of automatic extension. The Commissioner may
terminate an automatic extension at any time by mailing to the
partnership a notice of termination at least 10 days prior to the
termination date designated in such notice. The Commissioner must mail
the notice of termination to the address shown on the Form 7004 or to
the partnership's last known address. For further guidance regarding the
definition of last known address, see Sec. 301.6212-2 of this chapter.
(g) Penalties. See section 6698 for failure to file a partnership
return.
(h) Effective dates. This section is applicable for applications for
an automatic extension of time to file the partnership returns listed in
paragraph (a) of this section filed after December 31, 2005. The
applicability of this section expires on November 4, 2008.
[T.D. 9229, 70 FR 67358, Nov. 7, 2005]
Sec. 1.6081-3 Automatic extension of time for filing corporation
income tax returns.
(a) In general. A corporation or an affiliated group of corporations
filing a consolidated return will be allowed an automatic 6-month
extension of time to file its income tax return after the date
prescribed for filing the return if the following requirements are met:
(1) [Reserved]. For guidance on the form to file to request a 6-
month extension of time to file corporation income tax returns after
December 31, 2005, see Sec. 1.6081-3T.
(2) The application must be filed on or before the date prescribed
for the filing of the return of the corporation (or the consolidated
return of the affiliated group of corporations) with the Internal
Revenue Service office designated in the application's instructions.
(3) The corporation (or affiliated group of corporations filing a
consolidated return) must remit the amount of the properly estimated
unpaid tax liability on or before the date prescribed for payment.
(4) The application must include a statement listing the name and
address of each member of the affiliated group if the affiliated group
will file a consolidated return.
(b) No extension of time for the payment of tax. Any automatic
extension of time for filing a corporation income tax return granted
under paragraph (a) of this section shall not operate to extend the time
for payment of any tax due on such return.
(c) Termination of automatic extension. The Commissioner may
terminate an automatic extension at any time by mailing a notice of
termination to the corporation (parent corporation in the case of an
affiliated group of corporations filing a consolidated return). The
notice shall be mailed at least 10 days prior to the termination date
designated in such notice. The notice of termination shall be sufficient
for all purposes when mailed to the corporation at the address shown on
Form 7004 or to the corporation's last known address. For further
guidance regarding the definition of last known address, see Sec.
301.6212-2 of this chapter.
[[Page 396]]
(d) No extension for DISCs. Paragraphs (a) through (c) of this
section shall not apply to returns filed by a DISC pursuant to section
6011(c)(2).
(e) For guidance on the applicability date of this section, see
Sec. 1.6081-3T.
[T.D. 9163, 69 FR 70548, Dec. 7, 2004, as amended by T.D. 9229, 70 FR
67359, Nov. 7, 2005]
Sec. 1.6081-3T Automatic extension of time for filing corporation
income tax returns (temporary).
(a) [Reserved] For further guidance, see Sec. 1.6081-3(a).
(1) An application must be submitted on Form 7004, ``Application for
Automatic 6-Month Extension of Time to File Certain Business Income Tax,
Information, and Other Returns,'' or in any other manner prescribed by
the Commissioner.
(a)(2) through (d) [Reserved]. For further guidance, see Sec.
1.6081-3(a)(2) through (d).
(e) Effective dates. (1) Except as provided in paragraph (e)(2) of
this section, this section applies to requests for extensions of time to
file corporation income tax returns due after December 7, 2004.
(2) Paragraph (a)(1) of this section applies to applications for an
automatic extension of time to file corporation income tax returns filed
after December 31, 2005. The applicability of this section expires on
November 4, 2008.
[T.D. 9229, 70 FR 67359, Nov. 7, 2005]
Sec. 1.6081-4T Automatic extension of time for filing individual
income tax return (temporary).
(a) In general. An individual who is required to file an individual
income tax return will be allowed an automatic 6-month extension of time
to file the return after the date prescribed for filing the return if
the individual files an application under this section in accordance
with paragraph (b) of this section. In the case of an individual
described in Sec. 1.6081-5(a)(5) or (6), the automatic 6-month
extension will run concurrently with the extension of time to file
granted pursuant to Sec. 1.6081-5.
(b) Requirements. To satisfy this paragraph (b), an individual
must--
(1) Submit a complete application on Form 4868, ``Application for
Automatic Extension of Time To File U.S Individual Income Tax Return,''
or in any other manner prescribed by the Commissioner;
(2) File the application on or before the later of--
(i) The date prescribed for filing the return; or
(ii) The expiration of any extension of time to file granted
pursuant to Sec. 1.6081-5;
(3) File the application with the Internal Revenue Service office
designated in the application's instructions; and
(4) Show on the application the full amount properly estimated as
tax for the taxable year.
(c) No extension of time for the payment of tax. An automatic
extension of time for filing a return granted under paragraph (a) of
this section will not extend the time for payment of any tax due on such
return.
(d) Termination of automatic extension. The Commissioner may
terminate an automatic extension at any time by mailing to the
individual a notice of termination at least 10 days prior to the
termination date designated in such notice. The Commissioner must mail
the notice of termination to the address shown on the Form 4868 or to
the individual's last known address. For further guidance regarding the
definition of last known address, see Sec. 301.6212-2 of this chapter.
(e) Penalties. See section 6651 for failure to file an individual
income tax return or failure to pay the amount shown as tax on the
return. In particular, see Sec. 301.6651-1(c)(3) of this chapter
(relating to a presumption of reasonable cause in certain circumstances
involving an automatic extension of time for filing an individual income
tax return).
(f) Effective dates. This section is applicable for applications for
an automatic extension of time to file an individual income tax return
filed after December 31, 2005. The applicability of this section expires
on November 4, 2008.
[T.D. 9229, 70 FR 67359, Nov. 7, 2005]
[[Page 397]]
Sec. 1.6081-5 Extensions of time in the case of certain partnerships,
corporations and U.S. citizens and residents.
(a) The rules in paragraphs (a) through (e) of this section apply to
returns of income due after April 15, 1988. An extension of time for
filing returns of income and for paying any tax shown on the return is
hereby granted to and including the fifteenth day of the sixth month
following the close of the taxable year in the case of:
(1) Partnerships which are required under Sec. 1.6031(a)-1(e)(2) to
file returns on the fifteenth day of the fourth month following the
close of the taxable year of the partnership, and which keep their
records and books of account outside the United States and Puerto Rico;
(2) Domestic corporations which transact their business and keep
their records and books of account outside the United States and Puerto
Rico;
(3) Foreign corporations which maintain an office or place of
business within the United States;
(4) Domestic corporations whose principal income is from sources
within the possessions of the United States;
(5) United States citizens or residents whose tax homes and abodes,
in a real and substantial sense, are outside the United States and
Puerto Rico; and
(6) United States citizens and residents in military or naval
service on duty, including non-permanent or short term duty, outside the
United States and Puerto Rico.
(b) [Reserved]. For guidance on how a person should demonstrate that
the person qualified for the extension in paragraph (a) of this section
after December 31, 2005, see Sec. 1.6081-5T.
(c) For purposes of paragraph (a)(5) of this section, whether a
person is a United States resident will be determined in accordance with
section 7701(b) of the Code. The term ``tax home,'' as used in paragraph
(a)(5), will have the same meaning which it has for purposes of section
162(a)(2) (relating to travel expenses away from home). If a person does
not have a regular or principal place of business, that person's tax
home will be considered to be his regular place of abode in a real and
substantial sense.
(d) In order to qualify for the extension under paragraph (a)(6),
the assigned tour of duty outside the United States and Puerto Rico must
be for a period that includes the entire due date of the return.
(e) A person otherwise qualifying for the extension under paragraph
(a)(5) or paragraph (a)(6) shall not be disqualified because he is
physically present in the United States or Puerto Rico at any time,
including the due date of the return.
(f) With respect to income tax returns due on April 15, 1988, an
extension of time for filing a return of income and for paying any tax
shown on that return is hereby granted to and including the fifteenth
day of the sixth month following the close of the taxable year in the
case of citizens or residents of the United States who are traveling
outside the United States and Puerto Rico. A taxpayer will be considered
to be traveling outside the United States and Puerto Rico only if the
period of travel outside the United States and Puerto Rico is a period
of at least fourteen days continuous travel that includes all of April
15, 1988. For returns due after April 15, 1988, no extension will be
granted to taxpayers traveling outside the United States and Puerto
Rico.
[T.D. 8312, 55 FR 37227, Sept. 10, 1990; 55 FR 41310, Oct. 10, 1990, as
amended by T.D. 9163, 69 FR 70550, Dec. 7, 2004; T.D. 9229, 70 FR 67359,
Nov. 7, 2005]
Sec. 1.6081-5T Extensions of time in the case of certain partnerships,
corporations, and U.S. citizens and residents (temporary).
(a) [Reserved]. For further guidance, see Sec. 1.6081-5(a).
(b) In order to qualify for the extension under this section--
(1) A statement must be attached to the return showing that the
person for whom the return is made is a person described in paragraph
(a) of this section; or
(2) If a person described in paragraph (a) of this section requests
additional time to file, the person must request the extension on or
before the fifteenth day of the sixth month following the close of the
taxable year and check the
[[Page 398]]
appropriate box on Form 4868, ``Application for Automatic Extension of
Time To File a U.S. Individual Income Tax Return,'' or Form 7004,
``Application for Automatic 6-Month Extension of Time To File Certain
Business Income Tax, Information, and Other Returns,'' whichever is
applicable, or in any other manner prescribed by the Commissioner.
(c) through (f) [Reserved]. For further guidance, see Sec. 1.6081-
5(c) through (f).
(g) Effective date. This section is applicable for applications for
an automatic extension of time to file returns of income for taxpayers
listed in paragraph (a) of this section filed after December 31, 2005.
The applicability of this section expires on November 4, 2008.
[T.D. 9229, 70 FR 67359, Nov. 7, 2005]
Sec. 1.6081-6T Automatic extension of time to file estate or trust
income tax return (temporary).
(a) In general. An estate or trust required to file an income tax
return on Form 1041, ``U.S. Income Tax Return for Estates and Trusts,''
will be allowed an automatic 6-month extension of time to file the
return after the date prescribed for filing the return if the estate or
trust files an application under this section in accordance with
paragraph (b) of this section.
(b) Requirements. To satisfy this paragraph (b), an estate or trust
must--
(1) Submit a complete application on Form 7004, ``Application for
Automatic 6-Month Extension of Time To File Certain Business Income Tax,
Information, and Other Returns,'' or in any other manner prescribed by
the Commissioner;
(2) File the application on or before the date prescribed for filing
the return with the Internal Revenue Service office designated in the
application's instructions; and
(3) Show on the application the amount properly estimated as tax for
the estate or trust for the taxable year.
(c) No extension of time for the payment of tax. An automatic
extension of time for filing a return granted under paragraph (a) of
this section will not extend the time for payment of any tax due on such
return.
(d) Effect of extension on beneficiary. An automatic extension of
time to file an estate or trust income tax return under this section
will not extend the time for filing the income tax return of a
beneficiary of the estate or trust or the time for the payment of any
tax due on the beneficiary's income tax return.
(e) Termination of automatic extension. The Commissioner may
terminate an automatic extension at any time by mailing to the estate or
trust a notice of termination at least 10 days prior to the termination
date designated in such notice. The Commissioner must mail the notice of
termination to the address shown on the Form 7004 or to the estate or
trust's last known address. For further guidance regarding the
definition of last known address, see Sec. 301.6212-2 of this chapter.
(f) Penalties. See section 6651 for failure to file an estate or
trust income tax return or failure to pay the amount shown as tax on the
return.
(g) Effective dates. This section is applicable for applications for
an automatic extension of time to file an estate or trust income tax
return filed after December 31, 2005. The applicability of this section
expires on November 4, 2008.
[T.D. 9229, 70 FR 67360, Nov. 7, 2005]
Sec. 1.6081-7T Automatic extension of time to file Real Estate
Mortgage Investment Conduit (REMIC) income tax return (temporary).
(a) In general. A Real Estate Mortgage Investment Conduit (REMIC)
required to file an income tax return on Form 1066, ``U.S. Real Estate
Mortgage Investment Conduit Income Tax Return,'' or Form 8831, ``Excise
Tax on Excess Inclusions of REMIC Residual Interests,'' for any taxable
year will be allowed an automatic 6-month extension of time to file the
return after the date prescribed for filing the return if the REMIC
files an application under this section in accordance with paragraph (b)
of this section.
(b) Requirements. To satisfy this paragraph (b), a REMIC must--
(1) Submit a complete application on Form 7004, ``Application for
Automatic 6-Month Extension of Time To File
[[Page 399]]
Certain Business Income Tax, Information, and Other Returns,'' or in any
other manner prescribed by the Commissioner;
(2) File the application on or before the date prescribed for filing
the return with the Internal Revenue Service office designated in the
application's instructions; and
(3) Show on the application the full amount properly estimated as
tax for the REMIC for the taxable year.
(c) No extension of time for the payment of tax. An automatic
extension of time for filing a return granted under paragraph (a) of
this section will not extend the time for payment of any tax due on such
return.
(d) Effect of extension on residual or regular interest holders. An
automatic extension of time to file a REMIC income tax return under this
section will not extend the time for filing the income tax return of a
residual or regular interest holder of the REMIC or the time for the
payment of any tax due on the residual or regular interest holder's
income tax return. An automatic extension will also not extend the time
for payment of any excise tax on excess inclusions of REMIC residual
interests.
(e) Termination of automatic extension. The Commissioner may
terminate an automatic extension at any time by mailing to the REMIC a
notice of termination at least 10 days prior to the termination date
designated in such notice. The Commissioner must mail the notice of
termination to the address shown on the Form 7004 or to the REMIC's last
known address. For further guidance regarding the definition of last
known address, see Sec. 301.6212-2 of this chapter.
(f) Penalties. See sections 6698 and 6651 for failure to file a
REMIC income tax return or failure to pay an amount shown as tax on the
return.
(g) Effective dates. This section is applicable for applications for
an automatic extension of time to file REMIC income and excise tax
returns listed in paragraph (a) of this section filed after December 31,
2005. The applicability of this section expires on November 4, 2008.
[T.D. 9229, 70 FR 67360, Nov. 7, 2005]
Sec. 1.6081-8 Automatic extension of time to file certain information
returns.
(a) In general. Except as provided in paragraph (f) of this section,
a person required to file an information return (the filer) on Form W-2
series, W-2G, 1042-S, 1098 series, 1099 series, 5498 series, or 8027
will be allowed one automatic 30-day extension of time to file the
return after the date prescribed for filing the return if the filer or
the person transmitting the return for the filer (the transmitter) files
an application in accordance with paragraph (b) of this section.
(b) Requirements. To satisfy this paragraph (b), an application
must--
(1) Be submitted on Form 8809, ``Request for Extension of Time To
File Information Returns,'' or in any other manner as may be prescribed
by the Commissioner; and
(2) Be filed with the Internal Revenue Service office designated in
the application's instructions on or before the date prescribed for
filing the information return.
(c) Penalties. See sections 6652, 6693, 6721, 6722, and 6723 for
failure to file an information return.
(d) Additional 30-day extension of time to file--(1) In general.
This paragraph (d) provides procedures for obtaining an additional
extension of time for filing an information return on a form listed in
paragraph (a) of this section. No extension of time will be granted
under this paragraph (d) unless the filer or transmitter has first
obtained an automatic extension under this section.
(2) Procedures. In the case of an information return on a form
listed in paragraph (a) of this section, one additional 30-day extension
of time to file the return may be allowed if the filer or transmitter
submits a request for the additional extension before the expiration of
the automatic 30-day extension. The request must--
(i) Be submitted on Form 8809 or in any other manner as may be
prescribed by the Commissioner;
(ii) Explain in detail why the additional time is needed;
(iii) Be signed by the filer or transmitter; and
(iv) Otherwise satisfy the requirements of Sec. 1.6081-1.
[[Page 400]]
(e) No effect on time to provide statement to recipients. An
extension under this section of time to file an information return does
not extend the due date for providing a statement to the person with
respect to whom the information is required to be reported.
(f) Form W-2 filed on expedited basis. This section does not apply
to a return on Form W-2 (series) if the procedures authorized in Sec.
31.6081(a)-1(a)(2)(ii) of this chapter allow an automatic extension of
time to file the return.
(g) Effective date. This section applies to requests for extension
of time to file information returns due after December 7, 2004.
[T.D. 9163, 69 FR 70549, Dec. 7, 2004]
Sec. 1.6081-9 Automatic extension of time to file exempt organization
returns.
(a) In general. A corporation required to file a return on Form 990-
T will be allowed an automatic six-month extension of time to file the
return after the date prescribed for filing if the corporation files an
application in accordance with paragraph (b) of this section. In any
other case, an exempt organization required to file a return on Form 990
(series, except for Form 990-C), 1041-A, 4720, 5227, 6069, or 8870 will
be allowed an automatic three-month extension of time to file the return
after the date prescribed for filing if the exempt organization files an
application in accordance with paragraph (b) of this section. For
guidance on extensions of time for an exempt organization to file Form
990-C, ``Farmer's Cooperative Association Income Tax Return,'' or Form
1120-POL, ``U.S. Income Tax Return for Certain Political
Organizations,'' see Sec. 1.6081-3.
(b) Requirements. To satisfy this paragraph (b), an application for
an automatic extension under this section must--
(1) Be submitted on Form 8868, ``Application for Extension of Time
To File an Exempt Organization Return,'' or in any other manner as may
be prescribed by the Commissioner;
(2) Be filed with the Internal Revenue Service office designated in
the application's instructions on or before the date prescribed for
filing the return;
(3) Show the full amount properly estimated as tentative tax for the
exempt organization for the taxable year; and
(4) Be accompanied by the full remittance of the amount properly
estimated as tentative tax which is unpaid as of the date prescribed for
the filing of the return.
(c) Termination of automatic extension. The Commissioner may
terminate an automatic extension at any time by mailing to the exempt
organization a notice of termination. The notice must be mailed at least
10 days prior to the termination date designated in such notice. The
notice of termination must be mailed to the address shown on the
application for extension or to the exempt organization's last known
address. For further guidance regarding the definition of last known
address, see Sec. 301.6212-2 of this chapter.
(d) Penalties. See sections 6651 and 6652(c) for failure to file an
exempt organization return or failure to pay the amount shown as tax on
the return.
(e) Coordination with Sec. 1.6081-1. No extension of time will be
granted under Sec. 1.6081-1 for filing an exempt organization return
listed in paragraph (a) of this section until an automatic extension has
been allowed pursuant to this section.
(f) Effective date. This section applies to requests for extensions
of time to file an exempt organization return due after December 7,
2004.
[T.D. 9163, 69 FR 70549, Dec. 7, 2004]
Sec. 1.6081-10T Automatic extension of time to file withholding tax
return for U.S. source income of foreign persons (temporary).
(a) In general. A withholding agent or intermediary required to file
a return on Form 1042, ``Annual Withholding Tax Return for U.S. Source
Income of Foreign Persons,'' for any taxable year will be allowed an
automatic 6-month extension of time to file the return after the date
prescribed for filing the return if the withholding agent or
intermediary files an application under this section in accordance with
paragraph (b) of this section.
(b) Requirements. To satisfy this paragraph (b), a withholding agent
or intermediary must--
(1) Submit a complete application on Form 7004, ``Application for
Automatic
[[Page 401]]
6-Month Extension of Time To File Certain Business Income Tax,
Information, and Other Returns,'' or in any other manner prescribed by
the Commissioner;
(2) File the application on or before the date prescribed for filing
the return with the Internal Revenue Service office designated in the
application's instructions; and
(3) Remit the amount of the properly estimated unpaid tax liability
on or before the date prescribed for payment.
(c) No extension of time for the payment of tax. An automatic
extension of time for filing a return granted under paragraph (a) of
this section will not extend the time for payment of any tax due on such
return.
(d) Termination of automatic extension. The Commissioner may
terminate an automatic extension at any time by mailing to the
withholding agent or intermediary a notice of termination at least 10
days prior to the termination date designated in such notice. The
Commissioner must mail the notice of termination to the address shown on
the Form 7004 or to the withholding agent or intermediary's last known
address. For further guidance regarding the definition of last known
address, see Sec. 301.6212-2 of this chapter.
(e) Penalties. See section 6651 for failure to file a return or
failure to pay an amount shown as tax on the return.
(f) Effective dates. This section is applicable for applications for
an automatic extension of time to file the withholding tax return for
U.S. source income of foreign persons return filed after December 31,
2005. The applicability of this section expires on November 4, 2008.
[T.D. 9229, 70 FR 67360, Nov. 7, 2005]
Sec. 1.6081-11T Automatic extension of time for filing certain
employee plan returns (temporary).
(a) In general. An administrator or sponsor of an employee benefit
plan required to file a return under the provisions of chapter 61 or the
regulations thereunder on Form 5500 (series), ``Annual Return/ Report of
Employee Benefit Plan,'' will be allowed an automatic 2\1/2\-month
extension of time to file the return after the date prescribed for
filing the return if the administrator or sponsor files an application
under this section in accordance with paragraph (b) of this section.
(b) Requirements. To satisfy this paragraph (b), an administrator or
sponsor must--
(1) Submit a complete application on Form 5558, ``Application for
Extension of Time To File Certain Employee Plan Returns,'' or in any
other manner as may be prescribed by the Commissioner; and
(2) File the application with the Internal Revenue Service office
designated in the application's instructions on or before the date
prescribed for filing the information return.
(c) Termination of automatic extension. The Commissioner may
terminate an automatic extension at any time by mailing to the
administrator or sponsor a notice of termination at least 10 days prior
to the termination date designated in such notice. The Commissioner must
mail the notice of termination to the address shown on the Form 5558 or
to the administrator or sponsor's last known address. For further
guidance regarding the definition of last known address, see Sec.
301.6212-2 of this chapter.
(d) Penalties. See sections 6652, 6692, and the Employee Retirement
Income Security Act of 1974 for penalties for failure to file a timely
and complete Form 5500.
(e) Effective dates. This section is applicable for applications for
an automatic extension of time to file Forms 5500 filed after December
31, 2005. The applicability of this section expires on November 4, 2008.
[T.D. 9229, 70 FR 67361, Nov. 7, 2005]
Place for Filing Returns or Other Documents
Sec. 1.6091-1 Place for filing returns or other documents.
(a) In general. Except as provided in Sec. 1.6091-4, whenever a
return, statement, or other document is required to be made under the
provisions of subtitle A or F of the Code, or the regulations
thereunder, with respect to any tax imposed by subtitle A of the Code,
and the place for filing such return, statement, or other document is
not provided for by the Code, it shall be
[[Page 402]]
filed at the place prescribed by the regulations contained in this
chapter.
(b) Place for filing certain information returns. (1) For the place
for filing returns of partnership income, see paragraph (e)(1) of Sec.
1.6031(a)-1.
(2) For the place for filing information returns by banks with
respect to common trust funds, see Sec. 1.6032-1.
(3) For the place for filing information returns by certain
organizations exempt from taxation under section 501(a), see paragraph
(e) of Sec. 1.6033-1.
(4) For the place for filing information returns by trusts claiming
charitable deductions under section 642(c), see paragraph (c) of Sec.
1.6034-1.
(5) For the place for filing information returns by officers,
directors, and shareholders of foreign personal holding companies, see
Sec. 1.6035-1.
(6) For the place for filing information returns relating to certain
stock option transactions, see paragraph (c) of Sec. 1.6039-1.
(7) For the place for filing returns of information reporting
certain payments, see paragraph (a)(5) of Sec. 1.6041-2 and Sec.
1.6041-6.
(8) For the place for filing returns of information regarding
payments of dividends, see paragraph (c) of Sec. 1.6042-2 (relating to
returns for calendar years after 1962).
(9) For the place for filing information returns by corporations
relating to contemplated dissolution or liquidation, see paragraph (a)
of Sec. 1.6043-1.
(10) For the place for filing information returns by corporations
relating to distributions in liquidation, see paragraph (a) of Sec.
1.6043-2.
(11) For the place for filing returns of information regarding
payments of patronage dividends, see paragraph (d) of Sec. 1.6044-2.
(12) For the place for filing information returns relating to
formation or reorganization of foreign corporations, see paragraph
(j)(2) of Sec. 1.6046-1.
(13) For the place for filing information returns regarding certain
payments of interest, see paragraph (c) of Sec. 1.6049-1.
(14) For the place for filing information returns with respect to
payment of wages in the form of group-term life insurance, see paragraph
(b) of Sec. 1.6052-1.
(15) For the place for filing information returns on Forms 1042-S
with respect to certain amounts paid to foreign persons, see
instructions to the form.
(16) For the place for filing information returns on Form 5074 with
respect to the allocation of individual income tax to Guam, see
paragraph (b)(3) of Sec. 1.935-1 and paragraph (d) of Sec. 301.7654-1
of this chapter (Regulations on Procedure and Administration).
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6887, 31 FR
8814, June 24, 1966; T.D. 6922, 32 FR 8713, June 17, 1967; T.D. 7284, 38
FR 20829, Aug. 3, 1973; T.D. 7385, 40 FR 50264, Oct. 29, 1975; T.D.
8734, 62 FR 53493, Oct. 14, 1997; T.D. 9156, 69 FR 55744, Sept. 16,
2004]
Sec. 1.6091-2 Place for filing income tax returns.
Except as provided in Sec. 1.6091-3 (relating to certain
international income tax returns) and Sec. 1.6091-4 (relating to
exceptional cases):
(a) Individuals, estates, and trusts. (1) Except as provided in
paragraph (c) of this section, income tax returns of individuals,
estates, and trusts shall be filed with any person assigned the
responsibility to receive returns at the local Internal Revenue Service
office that serves the legal residence or principal place of business of
the person required to make the return.
(2) An individual employed on a salary or commission basis who is
not also engaged in conducting a commercial or professional enterprise
for profit on his own account does not have a ``principal place of
business'' within the meaning of this section.
(b) Corporations. Except as provided in paragraph (c) of this
section, income tax returns of corporations shall be filed with any
person assigned the responsibility to receive returns in the local
Internal Revenue Service office that serves the principal place of
business or principal office or agency of the corporation.
(c) Returns filed with service centers. Notwithstanding paragraphs
(a) and (b) of this section, whenever instructions applicable to income
tax returns provide that the returns be filed with a service center, the
returns must be so filed in accordance with the instructions.
[[Page 403]]
(d) Hand-carried returns. Notwithstanding paragraphs (1) and (2) of
section 6091(b) and paragraph (c) of this section:
(1) Persons other than corporations. Returns of persons other than
corporations which are filed by hand carrying shall be filed with any
person assigned the responsibility to receive hand-carried returns in
the local Internal Revenue Service office as provided in paragraph (a)
of this section.
(2) Corporations. Returns of corporations which are filed by hand
carrying shall be filed with any person assigned the responsibility to
receive hand-carried returns in the local Internal Revenue Service
office as provided in paragraph (b) of this section.
See Sec. 301.6091-1 of this chapter (Regulations on Procedure and
Administration) for provisions relating to the definition of hand
carried.
(e) Amended returns. In the case of amended returns filed after
April 14, 1968, except as provided in paragraph (d) of this section:
(1) Persons other than corporations. Amended returns of persons
other than corporations shall be filed with the service center serving
the legal residence or principal place of business of the person
required to make the return.
(2) Corporations. Amended returns of corporations shall be filed
with the service center serving the principal place of business or
principal office or agency of the corporation.
(f) Returns of persons subject to a termination assessment.
Notwithstanding paragraph (c) of this section:
(1) Persons other than corporations. Returns of persons other than
corporations with respect to whom an assessment was made under section
6851(a) with respect to the taxable year shall be filed with any person
assigned the responsibility to receive returns in the local Internal
Revenue Service office as provided in paragraph (a) of this section.
(2) Corporations. Returns of corporations with respect to whom an
assessment was made under section 6851(a) with respect to the taxable
year shall be filed with any person assigned the responsibility to
receive returns in the local Internal Revenue Service office as provided
in paragraph (b) of this section.
(g) Returns of persons subject to a termination assessment.
Notwithstanding paragraph (c) of this section, income tax returns of
persons with respect to whom an income tax assessment was made under
section 6852(a) with respect to the taxable year must be filed with any
person assigned the responsibility to receive returns in the local
Internal Revenue Service office as provided in paragraphs (a) and (b) of
this section.
[T.D. 6950, 33 FR 5356, Apr. 4, 1968, as amended by T.D. 7012, 34 FR
7690, May 15, 1969; T.D. 7495, 42 FR 33726, July 1, 1977; T.D. 7575, 43
FR 58816, Dec. 18, 1978; T.D. 8628, 60 FR 62210, Dec. 5, 1995; T.D.
9156, 69 FR 55744, Sept. 16, 2004; 69 FR 60222, Oct. 7, 2004]
Sec. 1.6091-3 Filing certain international income tax returns.
The following income tax returns shall be filed as directed in the
applicable forms and instructions:
(a) Income tax returns on which all, or a portion, of the tax is to
be paid in foreign currency. See Sec. Sec. 301.6316-1 to 301.6316-6
inclusive, and Sec. Sec. 301.6316-8 and 301.6316-9 of this chapter
(Regulations on Procedure and Administration).
(b) Income tax returns on an individual citizen of the United States
whose principal place of abode for the period with respect to which the
return is filed is outside the United States. A taxpayer's principal
place of abode will be considered to be outside the United States if his
legal residence is outside the United States or if his return bears a
foreign address.
(c) Income tax returns of an individual citizen of a possession of
the United States (whether or not a citizen of the United States) who
has no legal residence or principal place of business in any internal
revenue district in the United States.
(d) Except in the case of any departing alien return under section
6851 and Sec. 1.6851-2, the income tax return of any nonresident alien
(other than one treated as a resident under section 6013 (g) or (h)).
(e) The income tax return of an estate or trust the fiduciary of
which is outside the United States and has no legal residence or
principal place of
[[Page 404]]
business in any internal revenue district in the United States.
(f) Income tax returns of foreign corporations.
(g) The return by a withholding agent of the income tax required to
be withheld at source under chapter 3 of the Code on nonresident aliens
and foreign corporations and tax-free covenant bonds, as provided in
Sec. 1.1461-2.
(h) Income tax returns of persons who claim the benefits of section
911 (relating to earned income from sources without the United States).
(i) Income tax returns of corporations which claim the benefits of
section 922 (relating to special deduction for Western Hemisphere trade
corporations) except in the case of consolidated returns filed pursuant
to the regulations under section 1502.
(j) Income tax returns of persons who claim the benefits of section
931 (relating to income from sources within possessions of the United
States).
(k) Income tax returns of persons who claim the benefits of section
933 (relating to income from sources within Puerto Rico).
(l) Income tax returns of corporations which claim the benefits of
section 941 (relating to the special deduction for China Trade Act
corporations).
[T.D. 6950, 33 FR 5357, Apr. 4, 1968, as amended by T.D. 7012, 34 FR
7690, May 15, 1969; T.D. 7670, 45 FR 6931, Jan. 31, 1980; T.D. 9156, 69
FR 55744, Sept. 16, 2004]
Sec. 1.6091-4 Exceptional cases.
(a) Permission to file in office other than required office. (1) The
Commissioner may permit the filing of any income tax return required to
be made under the provisions of subtitle A or F of the Code, or the
regulations in this part, in any Internal Revenue Service office,
notwithstanding the provisions of paragraphs (1) and (2) of section
6091(b) and Sec. Sec. 1.6091-1 to 1.6091-3, inclusive.
(2) In cases where the Commissioner authorizes (for all purposes
except venue) an internal revenue service center to receive returns,
such returns pursuant to instructions issued with respect thereto, may
be sent directly to that service center and are thereby filed there for
all purposes except as a factor in determining venue. However, after
initial processing all such returns shall be forwarded by the service
center to the office with which such returns are, without regard to this
subparagraph, required to be filed. For the sole purpose of determining
venue, such returns are filed only with such office.
(3) Notwithstanding the provisions of other sections of this chapter
or any rule issued under this chapter:
(i) In cases where, in accordance with subparagraph (2) of this
paragraph, a return is filed with a service center, the authority of the
members of the office with whom such return would, without regard to
such subparagraph, be required to be filed shall remain the same as if
the return had been so filed;
(ii) Unless a return or other document is a proper attachment to, or
is, a return which the service center is expressly authorized to
receive, such return or other document shall be filed as if all returns
sent directly to the service centers, in accordance with subparagraph
(2) of this paragraph, were filed in the office where such returns are,
without regard to such subparagraph, required to be filed; and
(iii) Unless the performance of an act is directly related to the
sending of a return directly to the service center, such act shall be
performed as if all returns sent directly to the service centers, in
accordance with subparagraph (2) of this paragraph, were filed in the
office where such returns are, without regard to such subparagraph,
required to be filed.
(4) The application of paragraphs (a)(2) and (3) of this section may
be illustrated by the following example:
Example. The Commissioner has authorized the Internal Revenue
Service Center, Philadelphia, Pennsylvania (for all purposes except
venue), to receive Form 1120. Except for that authorization, A, a
corporation with its principal place of business in Greensboro, North
Carolina, is required to file its Form 1120 for Year X with the Internal
Revenue Service Center, Atlanta, Georgia. In addition, A may file an
election to defer development expenditures paid or incurred in Year X.
Under Sec. 1.616-2(e)(2) and applicable published guidance (in this
case Notice 2003-19 (2003-1 C.B. 703)) that statement of election must
be filed with the service center that serves A's principal place of
business where A filed its income tax return. A may make that election
on its income tax return or by
[[Page 405]]
filing it separately. Under paragraph (a)(2) of this section, A may send
its Form 1120 to either the Internal Revenue Service Center,
Philadelphia, Pennsylvania, or to the Internal Revenue Service Center,
Atlanta, Georgia. If A files its statement of election separately from
its income tax return for Year X, then the statement of election is not
a proper attachment to A's income tax return and A should send the
statement of election to the Internal Revenue Service Center, Atlanta,
Georgia (with which A must, without regard to paragraph (a)(2) of this
section, file its income tax return), no later than the time prescribed
for filing Form 1120 for Year X (including extensions).
(b) Returns of officers and employees of the Internal Revenue
Service. The Commissioner may require any officer or employee of the
Internal Revenue Service to file his income tax return in any Internal
Revenue Service office selected by the Commissioner.
(c) Residents of Guam. Income tax returns of an individual citizen
of the United States who is a resident of Guam shall be filed with Guam,
as provided in paragraph (b)(1) of Sec. 1.935-1.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6793, 30 FR
704, Jan. 22, 1965; T.D. 7385, 40 FR 50264, Oct. 29, 1975; T.D. 9156, 69
FR 55744, Sept. 16, 2004]
Miscellaneous Provisions
Sec. 1.6102-1 Computations on returns or other documents.
For provisions with respect to the rounding off to whole-dollar
amounts of money items on returns and accompanying schedules, see Sec.
301.6102-1 of this chapter (Regulations on Procedure and
Administration).
[T.D. 6500, 25 FR 12137, Nov. 26, 1960]
Sec. 1.6107-1 Income tax return preparer must furnish copy of
return to taxpayer and must retain a copy or record.
(a) Furnishing copy to taxpayer. The person who is an income tax
return preparer of any return of tax under subtitle A of the Internal
Revenue Code of 1954 or claim for refund of tax under subtitle A of the
Internal Revenue Code of 1954 shall furnish a completed copy of the
original return or claim for refund to the taxpayer (or nontaxable
entity) not later than the time the original return or claim for refund
is presented for the signature of the taxpayer (or nontaxable entity).
The preparer may, if it wishes request a receipt or other evidence from
the taxpayer (or nontaxable entity) sufficient to show satisfaction of
the requirement of this paragraph (a).
(b) Copy or record to be retained. The person who is an income tax
return preparer of any return or claim for refund shall:
(1)(i) Retain a completed copy of the return or claim for refund; or
(ii) Retain a record, by list, card file, or otherwise of the name,
taxpayer identification number, and taxable year of the taxpayer (or
nontaxable entity) for whom the return or claim for refund was prepared
and the type of return of claim for refund prepared;
(2) Retain a record, by retention of a copy of the return or claim
for refund, maintenance of a list or card file, or otherwise, for each
return or claim for refund presented to the taxpayer (or nontaxable
entity) of the name of the individual preparer required to sign the
return or claim for refund pursuant to Sec. 1.6695-1(b); and
(3) Make the copy or record of returns and claims for refund and
record of the individuals required to sign available for inspection upon
request by the district director.
The material described in this paragraph (b) shall be retained and kept
available for inspection for the 3-year period following the close of
the return period during which the return or claim for refund was
presented for signature to the taxpayer (or nontaxable entity). However,
in the case of a return which becomes due (with extensions, if any)
during a return period following the return period during which the
return was presented for signature, the material shall be retained and
kept available for inspection or the 3-year period following the close
of the later return period in which the return became due. For the
definition of ``return period'' see section 6060(c). If the person
subject to the record retention requirement of this paragraph (b) is a
corporation or a partnership which is dissolved before completion of the
3-year period, then all persons who under state law are responsible for
the winding up of the affairs of the corporation
[[Page 406]]
or partnership shall be subject, on behalf of the corporation or
partnership, to these record retention requirements until completion of
the 3-year period. If state law does not specify any person or persons
as responsible for winding up, then, collectively, the directors or
general partners shall be subject, on behalf of the corporation or
partnership, to the record retention requirements of this paragraph (b).
For purposes of the penalty imposed by section 6695(d), such designated
persons shall be deemed to be the income tax return preparer and will be
jointly and severally liable for each failure.
(c) Preparer. For the definition of ``income tax return preparer'',
see section 7701(a)(36) and Sec. 3071.7701-15. For purposes of applying
this section, in the case of:
(1) An employment arrangement between two or more income tax return
preparers, the person who employs (or engages) one or more other
preparers to prepare for compensation any return or claim for refund
other than for the person shall be considered to be the sole income tax
return preparer; and
(2) A partnership arrangement for the preparation of returns and
claims for refund, the partnership shall be considered to be the sole
income tax return preparer.
(d) Penalties. (1) For the civil penalty for failure to furnish a
copy of the return or claim for refund to the taxpayers (or nontaxable
entity) as required under paragraphs (a) and (c) of this section, see
section 6695(a) and Sec. 1.6695-(a).
(2) For the civil penalty for failure to retain a copy of the return
or claim for refund, or to retain a record as required under paragraphs
(b) and (c) of this section, see section 6695(d) and Sec. 1.6695-1(d).
(Sec. 6060(b), Internal Revenue Code of 1954 (90 Stat. 1691, (26 U.S.C.
6060(b))); sec. 7805, Internal Revenue Code of 1954 (68A Stat. 917, (26
U.S.C. 7805))
[T.D. 7519, 42 FR 59967, Nov. 23, 1977, as amended by T.D. 7640, 44 FR
49452, Aug. 23, 1979; T.D. 7948, 49 FR 8601, Mar. 8, 1984]
Sec. 1.6107-2 Form and manner of furnishing copy of return and
retaining copy or record.
(a) In general. The Commissioner may prescribe the form and manner
of satisfying the requirements imposed by section 6107(a) and (b) and
Sec. 1.6107-1(a) and (b) in forms, instructions, or other appropriate
guidance (see Sec. 601.601(d)(2) of this chapter).
(b) Effective date. To the extent this section relates to section
6107(a) and Sec. 1.6107-1(a), it applies to income tax returns and
claims for refund presented to a taxpayer for signature after December
31, 2002. To the extent this section relates to section 6107(b) and
Sec. 1.6107-1(b), it applies after December 31, 2002, to returns and
claims for refund for which the 3-year period described in section
6107(b) expires after December 31, 2002.
[T.D. 9119, 69 FR 15249, Mar. 25, 2004]
Sec. 1.6109-1 Identifying numbers.
(a) Information to be furnished after April 15, 1974. For provisions
concerning the requesting and furnishing of identifying numbers with
respect to returns, statements, and other documents which must be filed
after April 15, 1974, see Sec. 301.6109-1 of this chapter (Regulations
on Procedure and Administration).
(b) Information to be furnished before April 15, 1974. For
provisions concerning the requesting and furnishing of identifying
numbers with respect to returns, statements, and other documents which
must be filed before April 16, 1974, see 26 CFR Sec. 1.6109-1 (revised
as of April 1, 1973).
[T.D. 7306, 39 FR 9946, Mar. 15, 1974; 39 FR 11080, Mar. 25, 1974]
Sec. 1.6109-2 Income tax return preparers furnishing identifying
numbers for returns or claims for refund filed after December 31, 1999.
(a) Furnishing identifying number--(1) Each return of tax, or claim
for refund of tax, under subtitle A of the Internal Revenue Code
prepared by one or more income tax return preparers must include the
identifying number of the preparer required by Sec. 1.6695-1(b) to sign
[[Page 407]]
the return or claim for refund. In addition, if there is a partnership
or employment arrangement between two or more preparers, the identifying
number of the partnership or employer must also appear on the return or
claim for refund. For the definition of the term ``income tax return
preparer'' (or ``preparer'') see section 7701(a)(36) and Sec. 301.7701-
15 of this chapter.
(2) The identifying number of a preparer who is an individual (not
described in paragraph (a)(3) of this section) is that individual's
social security account number, or such alternative number as may be
prescribed by the Internal Revenue Service in forms, instructions, or
other appropriate guidance.
(3) The identifying number of a preparer (whether an individual,
corporation, or partnership) who employs or engages one or more persons
to prepare the return or claim for refund (other than for the preparer)
is that preparer's employer identification number.
(b) and (c) [Reserved]. For further guidance, see Sec. 1.6109-2A(b)
and (c).
(d) Effective date. Paragraph (a) of this section and this paragraph
(d) apply to returns or claims for refund filed after December 31, 1999.
For returns or claims for refund filed prior to January 1, 2000, see
Sec. 1.6109-2A(a).
[T.D. 9014, 67 FR 52863, Aug. 14, 2002]
Sec. 1.6115-1 Disclosure requirements for quid pro quo contributions.
(a) Good faith estimate defined--(1) In general. A good faith
estimate of the value of goods or services provided by an organization
described in section 170(c) in consideration for a taxpayer's payment to
that organization is an estimate of the fair market value, within the
meaning of Sec. 1.170A-1(c)(2), of the goods or services. The
organization may use any reasonable methodology in making a good faith
estimate, provided it applies the methodology in good faith. If the
organization fails to apply the methodology in good faith, the
organization will be treated as not having met the requirements of
section 6115. See section 6714 for the penalties that apply for failure
to meet the requirements of section 6115.
(2) Good faith estimate for goods or services that are not
commercially available. A good faith estimate of the value of goods or
services that are not generally available in a commercial transaction
may be determined by reference to the fair market value of similar or
comparable goods or services. Goods or services may be similar or
comparable even though they do not have the unique qualities of the
goods or services that are being valued.
(3) Examples. The following examples illustrate the rules of this
paragraph (a).
Example 1. Facility not available on a commercial basis. Museum M,
an organization described in section 170(c), is located in Community N.
In return for a payment of $50,000 or more, M allows a donor to hold a
private event in a room located in M. Private events other than those
held by such donors are not permitted to be held in M. In Community N,
there are four hotels, O, P, Q, and R, that have ballrooms with the same
capacity as the room in M. Of these hotels, only O and P have ballrooms
that offer amenities and atmosphere that are similar to the amenities
and atmosphere of the room in M (although O and P lack the unique
collection of art that is displayed in the room in M). Because the
capacity, amenities, and atmosphere of ballrooms in O and P are
comparable to the capacity, amenities, and atmosphere of the room in M,
a good faith estimate of the benefits received from M may be determined
by reference to the cost of renting either the ballroom in O or the
ballroom in P. The cost of renting the ballroom in O is $2500 and,
therefore, a good faith estimate of the fair market value of the right
to host a private event in the room at M is $2500. In this example, the
ballrooms in O and P are considered similar and comparable facilities to
the room in M for valuation purposes, notwithstanding the fact that the
room in M displays a unique collection of art.
Example 2. Services available on a commercial basis. Charity S is an
organization described in section 170(c). S offers to provide a one-hour
tennis lesson with Tennis Professional T in return for the first payment
of $500 or more that it receives. T provides one-hour tennis lessons on
a commercial basis for $100. Taxpayer pays $500 to S and in return
receives the tennis lesson with T. A good faith estimate of the fair
market value of the lesson provided in exchange for Taxpayer's payment
is $100.
Example 3. Celebrity presence. Charity U is an organization
described in section 170(c). In return for the first payment of $1000 or
more that it receives, U will provide a dinner
[[Page 408]]
for two followed by an evening tour of Museum V conducted by Artist W,
whose most recent works are on display at V. W does not provide tours of
V on a commercial basis. Typically, tours of V are free to the public.
Taxpayer pays $1000 to U and in return receives a dinner valued at $100
and an evening tour of V conducted by W. Because tours of V are
typically free to the public, a good faith estimate of the value of the
evening tour conducted by W is $0. In this example, the fact that
Taxpayer's tour of V is conducted by W rather than V's regular tour
guides does not render the tours dissimilar or incomparable for
valuation purposes.
(b) Certain goods or services disregarded. For purposes of section
6115, an organization described in section 170(c) may disregard goods or
services described in Sec. 1.170A-13(f)(8)(i).
(c) Value of the right to purchase tickets to college or university
athletic events. For purposes of section 6115, the right to purchase
tickets for seating at an athletic event in exchange for a payment
described in section 170(l) is treated as having a value equal to twenty
percent of such payment.
(d) Goods or services provided to employees or partners of donors--
(1) Certain goods or services disregarded. For purposes of section 6115,
goods or services provided by an organization described in section
170(c) to employees of a donor or to partners of a partnership that is a
donor in return for a payment to the donee organization may be
disregarded to the extent that the goods or services provided to each
employee or partner are the same as those described in Sec. 1.170A-
13(f)(8)(i).
(2) Description permitted in lieu of good faith estimate for other
goods or services. The written disclosure statement required by section
6115 may include a description of goods or services, in lieu of a good
faith estimate of their value, if the donor is--
(i) An employer and, in return for the donor's quid pro quo
contribution, an organization described in section 170(c) provides the
donor's employees with goods or services other than those described in
paragraph (d)(1) of this section; or
(ii) A partnership and, in return for its quid pro quo contribution,
the organization provides partners in the partnership with goods or
services other than those described in paragraph (d)(1) of this section.
(e) Effective date. This section applies to contributions made on or
after December 16, 1996. However, taxpayers may rely on the rules of
this section for contributions made on or after January 1, 1994.
[T.D. 8690, 61 FR 65954, Dec. 16, 1996]
Regulations Applicable to Returns or Claims for Refund Filed Prior to
January 1, 2000
Sec. 1.6109-2A Furnishing identifying number of income tax return
preparer.
(a) Furnishing identifying number. For returns or claims for refund
filed prior to January 1, 2000, each return of tax under subtitle A of
the Internal Revenue Code or claim for refund of tax under subtitle A of
the Internal Revenue Code prepared by one or more income tax return
preparers must bear the identifying number of the preparer required by
Sec. 1.6695-1(b) to sign the return or claim for refund. In addition,
it there is a partnership or employment arrangement between two or more
preparers, the identifying number of the partnership or the person who
employs (or engages) one or more other persons to prepare for
compensation the return or claim for refund shall also appear on the
return or claim for refund. If the preparer is:
(1) An individual (not described in subparagraph (2) of this
paragraph (a) who is a citizen or resident of the United States such
preparer's social security account number shall be affixed; and
(2) A person (whether an individual, corporation, or partnership)
who employs (or engages) one or more persons to prepare the return or
claim for refund (other than for the person), or who is not a citizen or
resident of the United States and also is not employed or engaged by
another preparer, such preparer's employer identification number shall
be affixed.
For the definition of the term ``income tax return preparer'' (or
``preparer'') see section 7701(a)(36) and Sec. 301.7701-15.
(b) Furnishing address. (1) Each return or claim for refund which is
prepared
[[Page 409]]
by one or more income tax return preparers shall bear the street
address, city, State, and postal ZIP code of that preparer's place of
business where the preparation of the return or claim for refund was
completed. However, if this place of business is not maintained on a
year-round basis, the return or claim for refund shall bear the street
address, city, State, and postal ZIP code of such preparer's principal
office or business location which is maintained on a yearround basis, or
it none, that preparer's residence.
(2) For purposes of satisfying the requirement of the first sentence
of paragraph (b)(1) of this section, and income tax return preparer,
may, on returns and claims for refund, disclose only the postal ZIP code
of the described place of business as a satisfactory address, but only
if the preparer first by written notice advises each affected Internal
Revenue Service Center that he intends to follow this practice.
(c) Penalty. For the civil penalty for failure to furnish an
identifying number as required under paragraph (a) of this section, see
section 6695(c) and Sec. 1.6695-1(c).
(d) Effective date. Paragraph (a) of this section and this paragraph
(d) apply to returns or claims for refund filed prior to January 1,
2000. For returns or claims for refund filed after December 31, 1999,
see Sec. 1.6109-2(a).
[T.D. 7519, 42 FR 59967, Nov. 23, 1977, as amended by T.D. 8835, 64 FR
43911, Aug. 12, 1999. Redesignated and amended by T.D. 9014, 67 FR
52863, Aug. 14, 2002]
Time and Place for Paying Tax
Place and Due Date for Payment of Tax
Sec. 1.6151-1 Time and place for paying tax shown on returns.
(a) In general. Except as provided in section 6152 and paragraph (b)
of this section, the tax shown on any income tax return shall, without
assessment or notice and demand, be paid to the internal revenue officer
with whom the return is filed at the time fixed for filing the return
(determined without regard to any extension of time for filing the
return). For provisions relating to the time for filing income tax
returns, see section 6072 and Sec. Sec. 1.6072-1 to 1.6072-4,
inclusive. For provisions relating to the place for filing income tax
returns, see section 6091 and Sec. Sec. 1.6091-1 to 1.6091-4,
inclusive.
(b)(1) Returns on which tax is not shown. If a taxpayer files a
return and in accordance with section 6014 and the regulations
thereunder, elects not to show the tax on the return, the amount of tax
determined to be due shall be paid within 30 days after the date of
mailing to the taxpayer a notice stating the amount payable and making
demand upon the taxpayer therefor. However, if the notice is mailed to
the taxpayer more than 30 days before the due date of the return,
payment of the tax shall not be required prior to such due date.
(2) Where tax is shown on the return. In any case in which a
taxpayer files a return on Form 1040A pursuant to paragraph (a)(7) of
Sec. 1.6012-1 and shows the amount of tax on the return, the unpaid
balance of the tax shall, without assessment or notice and demand, be
paid not later than the date fixed for filing the return.
(c) Date fixed for payment of tax. In any case in which a tax
imposed by subtitle A of the Code is required to be paid on or before a
certain date, or within a certain period, any reference in subtitle A or
F of the Code to the date fixed for payment of such tax shall be deemed
a reference to the last day fixed for such payment (determined without
regard to any extension of time for paying the tax).
(d) Use of Government depositaries. (1) For provisions relating to
the use of authorized financial institutions in depositing income and
estimated income taxes of certain corporations, see Sec. 1.6302-1.
(2) For provisions relating to the use of such financial
institutions for the deposit of taxes required to be withheld
[[Page 410]]
under chapter 3 of the Code on nonresident aliens and foreign
corporations and tax-free covenant bonds, see Sec. 1.6302-2.
(Approved by the Office of Management and Budget under control number
1545-0257)
[T.D. 6500, 25 FR 12137, Nov. 26, 1960, as amended by T.D. 6922, 32 FR
8713, June 17, 1967; T.D. 6950, 33 FR 5357, Apr. 4, 1968; T.D. 7102, 36
FR 5498, Mar. 24, 1971; T.D. 7953, 49 FR 19644, May 9, 1984; T.D. 8952,
66 FR 33831, June 26, 2001]
Sec. 1.6153-1 Payment of estimated tax by individuals.
(a) In general. (1) The time for payment of the estimated tax by
individuals for calendar years shall be as follows:
------------------------------------------------------------------------
Dates of payment of estimated
Date of filing declaration tax
------------------------------------------------------------------------
(i) On or before April 15.............. In 4 equal installments--one at
time of filing declaration,
one on or before June 15, one
on or before September 15, and
one on or before January 15 of
the succeeding taxable year
(ii) After April 15 and before June 16 In 3 equal installments--one at
if not required to be filed on or time of filing declaration,
before April 15. one on or before September 15,
and one on or before January
15 of the succeeding taxable
year
(iii) After June 15 and before In 2 equal installments--one at
September 16 if not required to be time of filing declaration,
filed on or before June 15. and the other on or before
January 15 of the succeeding
taxable year
(iv) After September 15 if not required In full at time of filing
to be filed on or before September 15. declaration
------------------------------------------------------------------------
(2) If, for example, due to the nature and amount of his gross
income for 1955, the taxpayer is not required to file his declaration as
of April 15, but is required to file the declaration on or before June
15, 1955, the case comes within the scope of subparagraph (1)(ii) of
this paragraph and the estimated tax is payable in 3 equal installments,
the 1st on the date of filing, the 2d on or before September 15, 1955,
and the 3d installment on or before January 15, 1956.
(3) If a declaration is filed after the time prescribed in section
6073(a) (including any extension of time granted for filing the
declaration), there shall be paid at such time all installments of the
estimated tax which would have been payable on or before such date of
filing if the declaration had been timely filed in accordance with the
provisions of section 6073(a). The remaining installments shall be paid
at the times and in the amounts in which they would have been payable if
the declaration had been timely filed. Thus, for example, B, a single
man who makes his return on the calendar year basis, was employed from
the beginning of 1955 and for several years prior thereto at an annual
salary of $6,000, thus meeting the requirements of section 6015(a). B
filed his declaration for 1955 on September 16, 1955. In such case, B
should have filed a declaration on or before April 15, 1955, and at the
time of filing his declaration he was delinquent in the payment of three
installments of his estimated tax for the taxable year 1955. Hence, upon
his filing the declaration on September 16, 1955, three-fourths of the
estimated tax shown thereon must be paid.
(4) In the case of a decedent, payments of estimated tax are not
required subsequent to the date of death. See, however, paragraph (c) of
Sec. 1.6015(b)-1, relating to the making of an amended declaration by a
surviving spouse if a joint declaration was made before the death of the
decedent.
(5) The payment of any installment of the estimated tax shall be
considered payment on account of the tax for such taxable year. Hence,
upon the return for such taxable year, the aggregate amount of the
payments of estimated tax should be entered as payments to be applied
against the tax shown on such return.
(b) Farmers or fishermen. Special provisions are made with respect
to the filing of the declaration and the payment of the tax by an
individual whose estimated gross income from farming
[[Page 411]]
or, with respect to taxable years beginning after December 31, 1962,
from fishing is at least two-thirds of his total gross income from all
sources for the taxable year. As to what constitutes income from farming
or fishing within the meaning of this paragraph, see paragraph (b) of
Sec. 1.6073-1. The declaration of such an individual may be filed on or
before January 15 of the succeeding taxable year in lieu of the time
prescribed for individuals generally. Where such an individual makes a
declaration of estimated tax after September 15 of the taxable year, the
estimated tax shall be paid in full at the time of the filing of the
declaration.
(c) Amendment of declaration. If any amendment of a declaration is
filed, the remaining installments, if any, shall be ratably increased or
decreased, as the case may be, to reflect the increase or decrease in
the estimated tax by reason of the amendment. If any amendment is made
after September 15 of the taxable year, any increase in the estimated
tax by reason thereof shall be paid at the time of making the amendment.
(d) Installments paid in advance. At the election of the taxpayer
any installment of the estimated tax may be paid prior to the date
prescribed for its payment.
[T.D. 6500, 25 FR 12139, Nov. 26, 1960, as amended by T.D. 6678, 28 FR
10517, Oct. 1, 1963]
Sec. 1.6153-2 Fiscal years.
In the case of an individual on the fiscal year basis, the dates
prescribed for payment of the estimated tax shall be the 15th day of the
4th month, the 15th day of the 6th month, and the 15th day of the 9th
month of the taxable year and the 15th day of the 1st month of the
succeeding taxable year. For example, if an individual having a fiscal
year ending on June 30, 1956, first meets the requirements of section
6015(a) on January 15, 1956, and the declaration is filed on or before
March 15, 1956, the estimated tax shall be paid in 2 equal installments,
one at the time of filing of such declaration and the other on or before
July 15, 1956.
[T.D. 6500, 25 FR 12139, Nov. 26, 1960]
Sec. 1.6153-3 Short taxable years.
In the case of a short taxable year of an individual for which a
declaration is required to be filed the estimated tax shall be paid in
equal installments, one at the time of filing the declaration, one on
the 15th day of the 6th month of the taxable year and another on the
15th day of the 9th month of such year unless the short taxable year
closed during or prior to such 6th or 9th month, and one on the 15th day
of the 1st month of the succeeding taxable year. For example, if the
short taxable year is the period of 10 months from January 1, 1955, to
October 31, 1955, and the declaration is required to be filed on or
before April 15, 1955, the estimated tax is payable in 4 equal
installments, one on the date of filing the declaration, and one each on
June 15, September 15, and November 15, 1955. If in such case the
declaration is required to be filed after April 15 but on or before June
15, the tax will be payable in 3 equal installments, one on the date of
filing the declaration, and one each on September 15, and November 15,
1955. The provisions of paragraph (a)(3) of Sec. 1.6153-1, relating to
payment of estimated tax in any case in which the declaration is filed
after the time prescribed in section 6073 and Sec. Sec. 1.6073-1 to
1.6073-4, inclusive, are equally applicable to the payment of the
estimated tax for short taxable years.
[T.D. 6500, 25 FR 12139, Nov. 26, 1960]
Sec. 1.6153-4 Extension of time for paying the estimated tax.
An extension of time granted an individual under section 6081 for
filing the declaration of estimated tax automatically extends the time
for paying the estimated tax (without interest) for the same period. See
Sec. 1.6073-4 for rules relating to extensions of time for filing
declarations of estimated tax by individuals. Except as provided in
paragraph (b) of Sec. 301.6091-1 (relating to hand-carried documents),
an application for an extension of time for paying a particular
installment of the estimated tax shall be addressed to the internal
revenue officer with whom the taxpayer files his declaration. Each
application must contain a full recital of
[[Page 412]]
the causes for the delay. Such extension may be for a reasonable period
not to exceed 6 months from the date fixed for payment thereof except in
the case of a taxpayer who is abroad. Such extension does not relieve
the taxpayer from the addition to the tax imposed by section 6654, and
the period of the underpayment will be determined under section 6654(c)
without regard to such extension.
[T.D. 6950, 33 FR 5357, Apr. 4, 1968]
Sec. 1.6154-1 Payment of estimated tax by corporations.
(a) Taxable years beginning on or before December 31, 1963--(1)
Amount required to be paid. Every corporation required to file a
declaration of estimated tax for a taxable year beginning on or before
December 31, 1963, shall pay the following percentage of its estimated
tax:
------------------------------------------------------------------------
The amount required to be
paid is the following
If the taxable year ends-- percentage of the estimated
tax
------------------------------------------------------------------------
On or after Dec. 31, 1955, and before Dec. 10
31, 1956..................................
On or after Dec. 31, 1956, and before Dec. 20
31, 1957..................................
On or after Dec. 31, 1957, and before Dec. 30
31, 1958..................................
On or after Dec. 31, 1958, and before Dec. 40
31, 1959..................................
On or after Dec. 31, 1959.................. 50
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(2) Time for payment. (i) In the case of a corporation on the
calendar year basis which files its declaration on or before September
15 of the taxable year, the percentage of the estimated tax required to
be paid is payable in two equal installments, one at the time of filing
the declaration, and the other on or before December 15 of the taxable
year. If the corporation files its declaration after September 15 of the
taxable year, the percentage of the estimated tax required to be paid is
payable in full on or before December 15 of the taxable year.
(ii) In the case of a corporation whose taxable year is a fiscal
year, the dates prescribed for payment of the estimated tax shall be the
15th day of the 9th month and the 15th day of the 12th month of such
taxable year. If the corporation files its declaration after the 15th
day of such 9th month, the percentage of the estimated tax required to
be paid is payable in full on or before the 15th day of such 12th month.
(3) Amendment of declaration. In the case of an amended declaration,
filed in accordance with section 6074, the installment payable on the
15th day of the 12th month of the taxable year shall be ratably
increased or decreased, as the case may be, to reflect the increase or
decrease in the estimated tax by reason of the amended declaration. For
example, X, a corporation on the calendar year basis, filed a
declaration on September 15, 1955, reporting an estimated tax in the
amount of $20,000. The first installment of $1,000 (5 percent of
$20,000) accompanied the declaration. However, X filed an amended
declaration on December 15, 1955, showing an estimated tax of $30,000.
Since X has already paid $1,000, it must make a payment in the amount of
$2,000 computed as follows:
Required amount of estimated tax which must be paid for $3,000
calendar year 1955 (10% of $30,000)........................
Amount paid with original estimate (5% of $20,000).......... 1,000
-----------
Balance to accompany amended declaration.................... 2,000
Had the amended declaration been filed on December 10, 1955, then only
the balance of the first installment ($500) otherwise due on September
15 would have been required to be paid with the declaration and the
installment required to be paid on or before December 15, 1955, would be
$1,500.
(b) Taxable years beginning after December 31, 1963--(1) Amount and
time for payment of each installment--(i) In general. Paragraphs (1)
through (4) of section 6154(a) contain four tables setting forth the
percentages of estimated tax for each taxable year beginning after
December 31, 1963, which shall be paid as installments of estimated tax
and the date on or before which each such installment shall be paid. The
date on or before which the declaration of estimated tax for a taxable
year is required, under the provisions of section 6074(a), to be filed
determines which of the four installment payment tables shall be used by
the corporation for that taxable year. Therefore, if the declaration is
required to be filed by the 15th day of the 4th, 6th, 9th, or 12th
month, the estimated tax will be required to be paid in four, three,
two, or
[[Page 413]]
one installment, respectively. However, see subdivision (iii) of this
subparagraph for the rules applicable in case of the late filing of a
declaration.
(ii) Examples. The application of the tables in section 6154(a) may
be illustrated by the following examples:
Example (1). X, a corporation reporting on a calendar year basis, is
required for the calendar year 1966 to file a declaration of estimated
tax on or before the 15th day of the 4th month thereof (April 15, 1966)
reporting an estimated tax liability of $250,000. Assuming that the
original declaration is filed on or before April 15, 1966, and is not
subsequently amended, X is required to pay its estimated tax in four
installments. The first and second installments, each in the amount of
$22,500 (9 percent of $250,000), are to be paid on or before April 15,
1966, and June 15, 1966, respectively, and the third and fourth
installments, each in the amount of $62,500 (25 percent of $250,000),
are to be paid on or before September 15, 1966, and December 15, 1966,
respectively.
Example (2). Y, a corporation which reports on a calendar year
basis, is required for the calendar year 1967 to file a declaration of
estimated tax on or before the 15th day of the 6th month thereof (June
15, 1967) reporting an estimated tax liability of $100,000. Assuming
that the original declaration is filed on or before June 15, 1967, and
is not subsequently amended, Y is required to pay its estimated tax in
three installments. The first installment, in the amount of $18,666.67
(18\2/3\ percent of $100,000), is to be paid on or before June 15, 1967,
and the second and third installments, each in the amount of $29,666.67
(29\2/3\ percent of $100,000), are to be paid on or before September 15,
1967, and December 15, 1967, respectively.
Example (3). Z, a corporation which reports on a fiscal year basis
ending with June 30 of each year, is required for the fiscal year ended
June 30, 1968, to file a declaration of estimated tax on or before the
15th day of the fourth month thereof (October 15, 1967) reporting an
estimated tax liability of $200,000. Assuming that the original
declaration is filed on or before October 15, 1967, and is not
subsequently amended, Z is required to pay its estimated tax in four
installments. The first and second installments, each in the amount of
$28,000 (14 percent of $200,000), are to be paid on or before October
15, 1967, and December 15, 1967, respectively, and the third and fourth
installments, each in the amount of $50,000 (25 percent of $200,000),
are to be paid on or before March 15, 1968, and June 15, 1968,
respectively.
(iii) Late filing of declaration of estimated tax. If a declaration
of estimated tax is filed after the date prescribed by section 6074(a)
(determined without regard to any extension of time for filing the
declaration under section 6081), the tables set forth in paragraphs (2),
(3), and (4) of section 6154(a) do not apply except as provided in this
subdivision. In such a case, there shall be paid at the time of the
filing of the declaration all installments of the estimated tax which
would have been payable under the appropriate table in section 6154(a)
on or before such date of filing if the declaration had been timely
filed in accordance with the provisions of section 6074(a). The
remaining installments shall be paid at the times and in the amounts in
which they would have been payable if the declaration had been timely
filed. For example, Z, a corporation filing its returns on a calendar
year basis, fails to file a declaration of estimated tax on April 15,
1968, even though the requirements for filing a declaration were met
before April 1, 1968. However, Z does file its declaration of estimated
tax on July 1, 1968, disclosing an estimated tax of $75,000. As the
first two installment dates specified in paragraph (1) of section
6154(a) (the 15th days of the 4th and 6th months) have passed, Z is
required to pay $28,500 (2 installments, each in the amount of 19
percent of $75,000) when the declaration is filed on July 1, 1968. If
there are no subsequent amendments of the declaration for this year, Z
will be required to pay installments, each in the amount of $18,750 (25
percent of $75,000), on or before September 15, 1968, and December 15,
1968, respectively.
(2) Amendment of declaration--(i) In general. If any amendment of a
declaration is filed, the amount of each remaining installment
(including the installment due on the date of the filing of the
amendment where the amendment is filed on an installment date), if any,
is the amount which would have been payable as such installment if the
new estimate had been the original estimate, adjusted as provided in
this subdivision. The adjustment is for the difference between (a) the
amount of estimated tax required to be paid before the date of the
filing of the amendment and (b) the amount of estimated tax which would
have been required to have been paid before such date if the
[[Page 414]]
new estimate had been the original estimate. The difference is divided
by the number of remaining installments (including the installment due
on the date of the filing of the amendment where the amendment is filed
on an installment date), and the resulting amount is added to (if the
amended declaration increases the amount of estimated tax) or subtracted
from (if the amended declaration decreases the amount of the estimated
tax) the amount which would have been payable on each remaining
installment date if the new estimate had been the original estimate.
(ii) Examples. The application of the provisions of this
subparagraph may be illustrated by the following examples:
Example (1). X, a calendar year corporation, determines that its
estimated tax liability for the year 1967 is $100,000 and files a
declaration of estimated tax by April 15, 1967, with an installment
payment of $14,000. On June 15, 1967, the second installment payment of
$14,000 is made. On July 1, 1967, X discovers that its 1967 estimated
tax may reasonably be expected to be $150,000 and on September 15, 1967,
files an amended declaration in that amount. The amounts to be paid on
September 15, 1967, and December 15, 1967, are computed as follows:
Installment payments required to be made under the original $28,000
declaration before date of filing of amendment (14% of
$100,000 is $14,000x2).....................................
Installment payments which would have been required to be 42,000
made before date of filing of amendment if the original
declaration were in the amount of the amended declaration
(14% of $150,000 is $21,000x2).............................
-----------
Difference.................................................. 14,000
-----------
Amount of each installment payment due on September 15, $37,500
1967, and December 15, 1967, computed as if the original
declaration were in the amount of the amended declaration
(25% of $150,000)..........................................
Add: Amount of difference divided by number of remaining 7,000
installments ($14,000/2)...................................
-----------
Amount of each remaining installment (September 15, 1967, 44,500
and December 15, 1967).....................................
===========
Example (2). Assume the same facts as in example (1), except that
instead of filing the amended declaration on September 15, 1967, X files
an amended declaration on June 15, 1967, disclosing an estimated tax of
$70,000. The installment payments for June 15, 1967, September 15, 1967,
and December 15, 1967, are computed as follows:
Installment payment required to be made under the original $14,000
declaration before the date of filing of amendment (14% of
$100,000)..................................................
Installment payment which would have been required to be 9,800
made before date of filing of amendment if the original
declaration were in the amount of the amended declaration
(14% of $70,000)...........................................
-----------
Difference.................................................. 4,200
===========
June 15, 1967, installment computation:
Installment payment due on June 15, 1967, computed as if the 9,800
original declaration were in the amount of the amended
declaration (14% of $70,000)...............................
Less: Amount of difference divided by number of remaining 1,400
installments ($4,200/3)....................................
-----------
Amount to be paid as an installment on June 15, 1967........ 8,400
-----------
September 15, 1967, and December 15, 1967, installments
computation:
Amount of each installment payment due on September 15, 17,500
1967, and December 15, 1967, computed as if the original
declaration were in the amount of the amended declaration
(25% of $70,000)...........................................
Less: Amount of difference divided by number of remaining 1,400
installments ($4,200/3)....................................
-----------
Amount of each remaining installment (September 15, 1967, 16,100
and December 15, 1967).....................................
===========
(c) Installments paid in advance. A corporation may, at its
election, pay any installment of its estimated tax in advance of the due
date.
(d) Considered payment of income tax. Payments of estimated tax
shall be considered payments on account of the income tax liability for
the taxable year. Hence the amount of estimated tax paid shall be
entered on the income tax return and applied in payment of the tax
liability shown thereon.
[T.D. 6768, 29 FR 14924, Nov. 4, 1964]
Sec. 1.6154-2 Short taxable years.
(a) Taxable years beginning on or before December 31, 1963--(1) In
general. In the case of a corporation filing a declaration for a short
taxable year beginning on or before December 31, 1963, the amount of the
estimated tax required to be paid shall be paid as follows:
(i) If the short taxable year is a period of more than 9 months and
the declaration is required to be filed on or before the 15th day of the
9th month, the amount of the estimated tax required to be paid shall be
paid in 2 installments; the 1st on or before the 15th day of the 9th
month and the 2d on or before the 15th day of the last month of the
short taxable year.
[[Page 415]]
(ii) If the short taxable year is a period of 9 or more months and
the declaration is not required to be filed until the 15th day of the
last month of the short taxable year, the amount of the estimated tax
required to be paid shall be paid in full on or before the 15th day of
the last month of the short taxable year.
(2) Examples. The application of the provisions of subparagraph (1)
of this paragraph may be illustrated by the following examples:
Example (1). If a corporation changes from a calendar year to a
fiscal year beginning November 1, 1956, and ending October 31, 1957, a
declaration is required on or before September 15, 1956, for the short
taxable year January 1, 1956, to October 31, 1956, if such corporation
otherwise meets the requirements of section 6016(a) on or before August
31, 1956. In such case the first installment of the estimated tax must
be paid with the declaration filed on September 15, 1956. The second
installment must be paid on or before October 15, 1956, the 15th day of
the last month of the short taxable year.
Example (2). If, in the first example, the corporation did not meet
the requirements of section 6016(a) until after August 31, 1956, but
before October 1, 1956, the declaration would have been due on October
15, 1956. In such case the amount of the estimated tax required to be
paid must be paid in full with the declaration filed on October 15,
1956.
(b) Taxable years beginning after December 31, 1963--(1) In general.
In the case of a short taxable year which begins after December 31,
1963, and in respect of which a declaration of estimated tax is required
to be filed (see paragraph (b) of Sec. 1.6074-2), the amount of, and
time for payment of, each installment of estimated tax shall be
determined by paragraphs (1) to (4), inclusive, of section 6154(a),
except that in the case of a short taxable year ending after November
30, 1964, any estimated tax payable in installments which is not paid
before the 15th day of the last month of the short taxable year (whether
or not the date otherwise specified in section 6154(a) for payment has
arrived) shall be paid on such 15th day of the last month of the short
taxable year.
(2) Examples. The application of the provisions of subparagraph (1)
of this paragraph may be illustrated by the following examples:
Example (1). X, a corporation filing on a calendar year basis,
changes to a fiscal year beginning September 1, 1965, and ending August
31, 1966, and is required to file a declaration on or before April 15,
1965, for the short taxable year January 1, 1965, to August 31, 1965. X
must make two 4 percent installment payments of the estimated tax, the
first on or before April 15, 1965, and the second on or before June 15,
1965, and must pay 50 percent (25 percent for the 3d installment plus 25
percent for the 4th installment) of the estimated tax on or before
August 15, 1965 (the 15th day of the last month of the short taxable
year), as the last installment.
Example (2). If, in the first example, X does not meet the
requirements of section 6016(a) until June 15, 1965, the declaration is
due on or before August 15, 1965. X is required to pay 58 percent of the
estimated tax on or before August 15, 1965 (the 15th day of the last
month of the short taxable year).
(3) Late filing of declaration of estimated tax. In the case of a
declaration of estimated tax for a short taxable year beginning after
December 31, 1963, filed after the date prescribed by section 6074(a)
(determined without regard to any extension of time for filing the
declaration under section 6081), the provisions of paragraph (b)(1)(iii)
of Sec. 1.6154-1 shall be applied in determining the amount of and time
for payment of each installment. However, in the case of short taxable
years beginning after December 31, 1963, and ending after November 30,
1964, where, under the provisions of paragraph (b)(1)(iii) of Sec.
1.6154-1, installments are to be paid after the close of the short
taxable year, such installments shall be paid on or before the 15th day
of the last month of the short taxable year.
(4) Amended declarations. In the case of an amended declaration of
estimated tax for a short taxable year beginning after December 31,
1963, filed in accordance with section 6074(b), the provisions of
paragraph (b)(2) of Sec. 1.6154-1 shall apply to determine the amount
of each remaining installment. However, where, under the provisions of
such paragraph (b)(2), installments are to be paid after the close of
the short taxable year, such installments shall be paid on or before the
15th day of the last month of the short taxable year.
[T.D. 6768, 29 FR 14925, Nov. 4, 1964]
[[Page 416]]
Sec. 1.6154-3 Extension of time for paying estimated tax.
An extension of time granted a corporation under section 6081 for
filing the declaration of estimated tax automatically extends the time
for paying the estimated tax (without interest) for the same period. See
Sec. 1.6074-3 for rules relating to extensions of time for filing
declarations of estimated tax by corporations. Except as provided in
paragraph (b) of Sec. 301.6091-1 (relating to hand-carried documents),
an application for an extension of time for paying an installment of the
estimated tax shall be addressed to the internal revenue officer with
whom the taxpayer files its declaration. Each application must contain a
full recital of the causes for the delay. Any such extension will not
relieve the taxpayer from the addition to the tax imposed by section
6655, and the period of the underpayment will be determined under
section 6655(c) without regard to such extension.
[T.D. 6950, 33 FR 5357, Apr. 4, 1968]
Sec. 1.6154-4 Use of Government depositaries.
For provisions relating to the use of Federal Reserve banks and
authorized financial institutions in depositing the taxes see Sec.
1.6302-1.
(Approved by the Office of Management and Budget under control number
1545-0257)
[T.D. 6914, 32 FR 3819, Mar. 8, 1967, as amended by T.D. 7953, 49 FR
19644, May 9, 1984]
Sec. 1.6154-5 Definition of estimated tax.
For taxable years beginning after December 31, 1976, the term
estimated tax means the excess of--
(a) The amount which the corporation estimates as its income tax
liability for the taxable year under section 11 or 1201(a), or
subchapter L of chapter 1 of the Code, whichever is applicable, over
(b) The sum of--
(1) Any estimated credits against tax provided by part IV of
subchapter A of chapter 1 of the Code, plus
(2) For taxable years ending after February 29, 1980, the amount
which the corporation estimates will be the amount of such corporation's
overpayment of windfall profit tax imposed by section 4986 of the Code
for the taxable year. For this purpose, the amount of such overpayment
is the amount by which such corporation's aggregate windfall profit tax
liability for the taxable year as a producer of crude oil is reasonably
expected to be exceeded by withholding of windfall profit tax for the
taxable year.
(Secs. 6015, 6154, 6654, 6655, and 7805, Internal Revenue Code of 1954
(96 Stat. 2395 and 2396, 68A Stat. 917; 26 U.S.C. 6015, 6154, 6654,
6655, and 7805))
[T.D. 8016, 50 FR 11855, Mar. 26, 1985]
Extensions of Time for Payment
Source: Sections 1.6161-1 through 1.6165-1 contained in T.D. 6500,
25 FR 12140, Nov. 26, 1960, unless otherwise noted.
Sec. 1.6161-1 Extension of time for paying tax or deficiency.
(a) In general--(1) Tax shown or required to be shown on return. A
reasonable extension of the time for payment of the amount of any tax
imposed by subtitle A of the Code and shown or required to be shown on
any return, or for payment of the amount of any installment of such tax,
may be granted by the district directors (including the Director of
International Operations) at the request of the taxpayer. The period of
such extension shall not be in excess of six months from the date fixed
for payment of such tax or installment, except that if the taxpayer is
abroad the period of the extension may be in excess of six months.
(2) Deficiency. The time for payment of any amount determined as a
deficiency in respect of tax imposed by chapter 1 of the Code, or for
the payment of any part thereof, may, at the request of the taxpayer, be
extended by the internal revenue officer to whom the tax is required to
be paid for a period not to exceed 18 months from the date fixed for
payment of the deficiency, as shown on the notice and demand, and, in
exceptional cases, for a further period not in excess of 12 months. No
extension of the time for payment of a deficiency shall be granted if
the deficiency is due to negligence, to intentional disregard of rules
and regulations, or to fraud with intent to evade tax.
[[Page 417]]
(b) Undue hardship required for extension. An extension of the time
for payment shall be granted only upon a satisfactory showing that
payment on the due date of the amount with respect to which the
extension is desired will result in an undue hardship. The extension
will not be granted upon a general statement of hardship. The term
``undue hardship'' means more than an inconvenience to the taxpayer. It
must appear that substantial financial loss, for example, loss due to
the sale of property at a sacrifice price, will result to the taxpayer
for making payment on the due date of the amount with respect to which
the extension is desired. If a market exists, the sale of property at
the current market price is not ordinarily considered as resulting in an
undue hardship.
(c) Application for extension. An application for an extension of
the time for payment of the tax shown or required to be shown on any
return, or for the payment of any installment thereof, or for the
payment of any amount determined as a deficiency shall be made on Form
1127 and shall be accompanied by evidence showing the undue hardship
that would result to the taxpayer if the extension were refused. Such
application shall also be accompanied by a statement of the assets and
liabilities of the taxpayer and an itemized statement showing all
receipts and disbursements for each of the 3 months immediately
preceding the due date of the amount to which the application relates.
The application, with supporting documents, must be filed on or before
the date prescribed for payment of the amount with respect to which the
extension is desired. If the tax is required to be paid to the Director
of International Operations, such application must be filed with him,
otherwise, the application must be filed with the applicable district
director referred to in paragraph (a) or (b) of Sec. 1.6091-2,
regardless of whether the return is to be filed with, or tax is to be
paid to, such district director. The application will be examined, and
within 30 days, if possible, will be denied, granted, or tentatively
granted subject to certain conditions of which the taxpayer will be
notified. If an additional extension is desired, the request therefor
must be made on or before the expiration of the period for which the
prior extension is granted.
(d) Payment pursuant to extension. If an extension of time for
payment is granted, the amount the time for payment of which is so
extended shall be paid on or before the expiration of the period of the
extension without the necessity of notice and demand. The granting of an
extension of the time for payment of the tax or deficiency does not
relieve the taxpayer from liability for the payment of interest thereon
during the period of the extension. See section 6601 and Sec. 301.6601-
1 of this chapter (Regulations on Procedure and Administration).
Further, the granting of an extension of the time for payment of one
installment of the tax does not extend the time for payment of
subsequent installments.
(e) Cross reference. For extensions of time for payment of estimated
tax, see Sec. Sec. 1.6073-4 and 1.6074-3.
[T.D. 6500, 25 FR 12140, Nov. 26, 1960, as amended by T.D. 6950, 33 FR
5357, Apr. 4, 1968; T.D. 7260, 38 FR 4259, Feb. 12, 1973]
Sec. 1.6162-1 Extension of time for payment of tax on gain
attributable to liquidation of personal holding companies.
(a) In general. (1) If it is shown to the satisfaction of the
district director that undue hardship to the taxpayer will result from
the payment of such portion of the amount determined as the tax under
chapter 1 of the Code by the taxpayer as is attributable to the short-
term or long-term capital gain derived by the taxpayer from the receipt
by him of property other than money on a complete liquidation of a
corporation to which section 331(a)(1) or 342 applies, the district
director may grant an extension of time for the payment of such portion
of the tax. For the meaning of the term ``undue hardship'', see
paragraph (b) of Sec. 1.6161-1.
(2) The extension of time for payment shall be for a period not in
excess of five years. The extension shall only be granted for a taxable
year beginning before January 1, 1956, and shall apply only if the
corporation, for its taxable year preceding the year in which occurred
the complete liquidation (or the first of the series of distributions in
[[Page 418]]
complete liquidation), was, under the law applicable to such taxable
year, a personal holding company or a foreign personal holding company.
(b) Requirement of bond. As a condition to the granting of an
extension of time for payment, the taxpayer will usually be required by
the district director to furnish a bond as provided in section 6165 and
the regulations thereunder. For other provisions with respect to bonds,
see section 7101 and the regulations in part 301 of this chapter
(Regulations on Procedure and Administration).
Sec. 1.6164-1 Extensions of time for payment of taxes by corporations
expecting carrybacks.
(a) In general. If a corporation in any taxable year files a
statement with respect to an expected net operating loss carryback from
such taxable year, such corporation may extend the time for the payment
of all or part of any tax imposed by subtitle A of the Code for the
taxable year immediately preceding such taxable year to the extent and
subject to the limitations provided in section 6164. A corporation may
extend the time for payment with respect to only such taxes as meet the
following requirements:
(1) The tax must be one imposed by subtitle A of the Code;
(2) The tax must be for the taxable year immediately preceding the
taxable year of the expected net operating loss;
(3) The tax must be shown on the return or must be assessed within
the taxable year of the expected net operating loss; and
(4) The tax must not have been paid or required to have been paid
prior to the filing of the statement.
(b) Statement for purpose of extending time for payment. (1) The
time for payment of the tax is automatically extended upon the filing of
a statement on Form 1138 by the corporation with the district director
for the district where the tax is payable. The statement on Form 1138
must be filled out in accordance with the instructions accompanying the
form, and all information required by the form and the instructions must
be furnished by the taxpayer. The district director, upon request, will
furnish a receipt for any statement filed. Such receipt will show the
date the statement was filed.
(2) The period of extension is that provided in section 6164(d) and
Sec. 1.6164-5 unless sooner terminated by action of either the district
director or the corporation.
Sec. 1.6164-2 Amount of tax the time for payment of which may be
extended.
(a) Total amount to which extension may relate. The total amount of
tax the time for payment of which may be extended under section 6164 may
not exceed the amount of the reduction of the taxes previously
determined attributable to the expected carryback.
(b) Amount of tax to which extension may relate. (1) The taxpayer
shall specify on Form 1138 the kind of tax and the amount thereof the
time for payment of which is to be extended. The amount of tax to which
an extension may relate shall not exceed the amount of such tax shown on
the return as filed, increased by any amount assessed as a deficiency
(or as interest or addition to the tax) prior to the date of filing the
statement and decreased by any amount paid or required to be paid prior
to such date. In determining the amount of tax required to be paid prior
to the date of filing the statement, only the following amounts shall be
taken into consideration:
(i) The amount of the tax shown on the return as filed; and
(ii) Any amount assessed as a deficiency (or as interest or addition
to the tax) if the tenth day after notice and demand for its payment
occurs prior to the date of the filing of the statement.
(2) Delinquent installments are to be considered amounts required to
be paid prior to the date of filing the statement. In the case of any
authorized extension of time under sections 6161 and 6162, the amount of
tax the time for payment of which is so extended is not to be considered
required to be paid prior to the end of such extension. Similarly, any
amount assessed as a deficiency (or as interest or addition to the tax)
is not to be considered required to be paid prior to the date of the
filing of the statement unless the tenth day after notice and demand for
[[Page 419]]
its payment falls prior to the date of the filing of the statement.
(3) The taxpayer may choose to extend the time for payment of all of
one or more taxes, or it may choose to extend the time for payment of
portions of several taxes. The taxes chosen by the taxpayer need not be
those taxes which are affected by the carryback.
Sec. 1.6164-3 Computation of the amount of reduction of the tax
previously determined.
(a) Tax previously determined. The taxpayer is to determine the
amount of the reduction, attributable to the expected carryback, in the
aggregate of the taxes previously determined for taxable years prior to
the taxable year of the expected net operating loss. The tax previously
determined is to be ascertained in accordance with the method prescribed
in section 1314(a). Thus, the tax previously determined will be the tax
shown on the return as filed, increased by any amounts assessed (or
collected without assessment) as deficiencies prior to the date of the
filing of the statement, and decreased by any amounts abated, credited,
refunded, or otherwise repaid prior to such date. Any items as to which
the Internal Revenue Service and the taxpayer are in disagreement at the
time of the filing of the statement shall be taken into account in
ascertaining the tax previously determined only if, and to the extent
that, they were reported in the return, or were reflected in any amounts
assessed (or collected without assessment) as deficiencies, or in any
amounts abated, credited, refunded, or otherwise repaid, prior to the
date of the filing of the statement. The tax previously determined will
reflect the foreign tax credit and the credit for tax withheld at source
provided in section 32.
(b) Reduction attributable to the expected carryback. The reduction,
attributable to the expected carryback or related adjustments, in any
tax previously determined is to be ascertained by applying the expected
carryback as if it were a determined net operating loss carryback, in
accordance with the provisions of section 172 and the regulations
thereunder. Items must be taken into account only to the extent that
such items were included in the return, or were reflected in amounts
assessed (or collected without assessment) as deficiencies, or in
amounts abated, credited, refunded, or otherwise repaid, prior to the
date of the filing of the statement. Thus, for example, if the taxpayer
claims a deduction for depreciation of $10,000 in its return and the
Internal Revenue Service asserts that only $4,000 is properly
deductible, no change is to be made in the $10,000 depreciation
deduction as shown by the taxpayer on his return unless a deficiency has
been assessed, or an amount collected without assessment, prior to the
date of filing of the statement as a result of a change in the
depreciation deduction, or unless such change in the depreciation
deduction was reflected in an amount abated, credited, refunded, or
otherwise repaid prior to such date.
[T.D. 6500, 25 FR 12140, Nov. 26, 1960, as amended by T.D. 6862, 30 FR
14432, Nov. 18, 1965]
Sec. 1.6164-4 Payment of remainder of tax where extension relates
to only part of the tax.
(a) Time for payment. If an extension of time relates to only part
of the tax, the time for payment of the remainder of the tax shall be
considered to be the dates on which payments would have been required if
such remainder had been the tax and the taxpayer had elected to pay the
tax in installments as provided in section 6152(a).
(b) Example. The provisions of this section may be illustrated by
the following example:
Example. Corporation X, which keeps its books and makes its tax
returns on the calendar year basis, filed its income tax return for 1956
on March 15, 1957. The corporation showed a tax of $1,000 on its return
and paid 50 percent of such tax, or $500 on March 15, 1957. On June 3,
1957, Corporation X, pursuant to the provisions of section 6164,
extended the time for payment of $400 of such tax. The remainder of the
tax the time for payment of which was not so extended, i.e., $600, is to
be considered the tax for purposes of determining when it is to be paid.
The remainder is considered to be due on the dates on which payment
would have been required if such remainder had been the tax. Since the
taxable year ended on December 31, 1956, the tax is payable in two equal
installments of $300 each on March 15, 1957, and June 17, 1957.
[[Page 420]]
The taxpayer, having paid $500 on March 15, 1957, will have $100 to pay
on June 17, 1957.
Sec. 1.6164-5 Period of extension.
If the time for the payment of any tax has been extended pursuant to
section 6164, such extension shall expire:
(a) On the last day of the month in which falls the last date
prescribed by law (including any extension of time granted the taxpayer)
for the filing of the return for the taxable year of the expected net
operating loss; or
(b) If an application for a tentative carryback adjustment provided
in section 6411 with respect to such loss is filed before the expiration
of the period specified in paragraph (a) of this section, on the date on
which notice is mailed by registered mail prior to September 3, 1958,
and by either registered or certified mail on and after September 3,
1958, to the taxpayer that such application is allowed or disallowed in
whole or in part.
Sec. 1.6164-6 Revised statements.
(a) Requirements and effect. A corporation may file more than one
statement under section 6164 with respect to any one taxable year. Each
statement is to be considered a new statement and not an amendment of
any prior statement. Each such new statement is to be in lieu of the
last statement previously filed with respect to the taxable year. The
new statement may extend the time for payment of a greater or lesser
amount of tax than was extended under the prior statement or may change
the kind of tax the time for payment of which is to be extended. The
extension may not relate to any amount of tax which was paid or required
to be paid prior to the date of filing the new statement. Any amount of
tax the time for payment of which was extended under a prior statement,
however, may continue to be extended under the new statement. If the
amount the time for payment of which is extended under the new statement
is less than the amount so extended under the last statement previously
filed, the extension of time shall be terminated on the date the new
statement is filed as to the difference between the two amounts. See
Sec. 1.6164-8 for the dates on which such difference must be paid. If a
corporation pays any amount of tax, the time for payment of which was
extended, prior to the date the extension would otherwise terminate, the
extension with respect to such amount shall be deemed terminated,
without regard to whether a new statement is filed, on the date such
amount is paid. The corporation shall indicate on each new statement
filed that it has already filed one or more prior statements with
respect to the taxable year. The corporation shall likewise indicate the
date each prior statement was filed and the amount of each tax the time
for payment of which was extended under each prior statement.
(b) Example. The provisions of this section may be illustrated by
the following example:
Example. Corporation Y, which keeps its books and makes its tax
returns on the calendar year basis, filed its income tax return for 1956
on March 15, 1957, showing a tax of $100,000. At the same time it filed
a statement under section 6164 in which it stated that it expected to
have a net operating loss of $75,000 in 1957 and that the reduction in
the tax previously determined for 1955 (the second taxable year
preceding the year of the expected net operating loss) attributable to
the expected net operating loss carryback resulting from such expected
loss, would be $39,000. The corporation accordingly extended the time
for payment of $39,000 of its income tax for 1956, and paid $30,500 (50
percent of the excess of $100,000 over $39,000) of such tax on March 15,
1957 (see section 6164(c) and Sec. 1.6164-4). As a result of its
operations during the next several months, the corporation filed a
second statement on June 3, 1957, in which it stated that its expected
net operating loss for 1957 would amount to $150,000 and that the
corresponding reduction in the tax for 1955 would amount to $78,000.
Corporation Y under the new statement may extend the time for payment of
$30,500, the installment due on June 17, 1957, and the time for payment
of the $39,000 extended under the first statement filed on March 15,
1957, may continue to be extended under the second statement. The
$30,500 which was paid on March 15, 1957, will not be affected by the
second statement filed on June 3, 1957.
Sec. 1.6164-7 Termination by district director.
(a) After an examination of the statement filed by the corporation
is made. The district director is authorized to make such examination of
the statements filed as he deems necessary and
[[Page 421]]
practicable. If, upon such examination as he may make, the district
director believes that, as of the time he makes the examination, all or
any part of the statement is in a material respect erroneous or
unreasonable, he will terminate the extension as to any part of the
amount to which such extension relates which he deems should be
terminated.
(b) Jeopardy. If the district director believes that the collection
of any amount to which an extension under section 6164 relates is in
jeopardy, he will immediately terminate the extension. In the case of
such a termination, notice and demand shall be made by the district
director for payment of such amount, and there may be no further
extension of time under section 6164 with respect to such amount.
Sec. 1.6164-8 Payments on termination.
(a) In general. If an extension of time under section 6164 is
terminated with respect to any amount either (1) by the filing of a new
statement by the taxpayer under section 6164(e) extending the time for
payment of a lesser amount than was extended in a prior statement, or
(2) by action of the district director under section 6164(f) after
making an examination of the statement filed by the corporation, no
further extension of time may be made under section 6164 with respect to
such amount. The time for payment of such amount shall be the dates on
which payments would have been required if there had been no extension
with respect to such amount and the taxpayer had elected under section
6152(a) to pay the tax in installments.
(b) Example. The provisions of this section may be illustrated by
the following example:
Example. Corporation Z, which keeps its books and makes its tax
returns on the calendar year basis, filed its income tax return for 1956
on March 15, 1957, showing a tax of $100,000. At the same time it filed
a statement under section 6164 extending the time for payment of the
entire $100,000 on the basis of an expected net operating loss carryback
from 1957. On April 10, 1957, the corporation filed a new statement
indicating that the reduction, attributable to the carryback from 1957,
in its income tax for 1956, would only be $80,000, and thus terminated
the above extension of $20,000. The time for payment of such $20,000 may
not be extended again, and such $20,000 is payable as if it were the tax
for 1956 and Corporation Z had elected to pay such tax in installments.
That is, $10,000 is payable on March 15, 1957, and $10,000 payable on
June 17, 1957. Inasmuch as the March 15 date had already passed when the
Corporation Z terminated the extension with respect to the $20,000,
$10,000 is payable immediately upon such termination, and the other
installment of $10,000 is payable on June 17, 1957. This example would
also apply if the extension of time for payment of the $20,000 were
terminated instead by the district director on April 10, 1957.
Sec. 1.6164-9 Cross references.
For provisions with respect to interest due on amounts the payment
of which is extended under section 6164, see section 6601 and paragraph
(e) of Sec. 301.6601-1 of this chapter (Regulations on Procedure and
Administration). For extensions of time under section 6164 in the case
of corporations making or required to make consolidated returns, see
Sec. 1. 1502-77(a).
[T.D. 6500, 25 FR 12140, Nov. 26, 1960, as amended by T.D. 7244, 37 FR
28897, Dec. 30, 1972]
Sec. 1.6165-1 Bonds where time to pay the tax or deficiency has
been extended.
The district director, including the Director of International
Operations, may, as a condition to the granting of an extension of time
within which to pay any tax or any deficiency therein, require the
taxpayer to furnish a bond in an amount not exceeding double the amount
of the tax with respect to which the extension is granted. Such bond
shall be furnished in accordance with the provisions contained in
section 7101 and the regulations in part 301 of this chapter
(Regulations on Procedure and Administration).
[[Page 422]]
COLLECTION
General Provisions
Sec. 1.6302-1 Use of Government depositaries in connection with
corporation income and estimated income taxes and certain taxes
of tax-exempt organizations.
(a) Requirement. A corporation (and, for taxable years beginning
after December 31, 1986, any organization subject to the tax imposed by
section 511, and any private foundation subject to the tax imposed by
section 4940) shall deposit with an authorized depositary of Federal
taxes all payments of tax imposed by chapter 1 of the Code (or treated
as so imposed by section 6154 (h)), including any payments of estimated
tax, on or before the date otherwise prescribed for paying such tax.
This paragraph does not apply to a foreign corporation or entity which
has no office or place of business in the United States.
(b) Manner of deposit--(1) Deposit by Federal tax deposit coupon. A
deposit required to be made by this section shall be made separately
from a deposit required by any other section. A corporation may make
one, or more than one, remittance of the amount required by this section
to be deposited. Each remittance shall be accompanied by a Federal Tax
Deposit form which shall be prepared in accordance with the instructions
applicable thereto. The remittance, together with the Federal Tax
Deposit form, shall be forwarded to a financial institution authorized
as a depositary for Federal taxes in accordance with 31 CFR part 203.
The timeliness of the deposit will be determined by the date stamped on
the Federal Tax Deposit form by the authorized financial institution or,
if section 7502(e) applies, by the date the deposit is treated as
received under section 7502(e). Each corporation making deposits under
this section shall report on the return, for the period with respect to
which such deposits are made, information regarding such deposits
according to the instructions that apply to such return. Amounts
deposited under this section shall be considered as payment of the tax.
(2) Deposits by electronic funds transfer. For the requirement to
deposit corporation income and estimated income taxes and certain taxes
of tax-exempt organizations by electronic funds transfer, see Sec.
31.6302-1(h) of this chapter. A taxpayer not required to deposit by
electronic funds transfer pursuant to Sec. 31.6302-1(h) of this chapter
remains subject to the rules of paragraph (b)(1) of this section.
(c) Procurement of the prescribed forms. Copies of the Federal Tax
Deposit form will so far as possible be furnished corporations. A
corporation will not be excused from making a deposit, however, by the
fact that no form has been furnished to it. Corporations not supplied
with the proper form should make application therefor in ample time to
make the required deposits within the time prescribed. The corporation
may secure the form or additional forms by applying therefor and
supplying its name, identification number, address and the taxable year
to which the deposits will relate.
(d) Failure to deposit. For provisions relating to the penalty for
failure to make a deposit within the prescribed time, see section 6656.
[T.D. 6914, 32 FR 3820, Mar. 8, 1967, as amended by T.D. 6941, 32 FR
18040, Dec. 16, 1967; T.D. 7293, 38 FR 32804, Nov. 28, 1973; T.D. 7953,
49 FR 19644, May 9, 1984; T.D. 8157, 52 FR 33809, Sept. 9, 1987; T.D.
8723, 62 FR 37492, July 14, 1997, T.D. 8947, 66 FR 32542, June 15, 2001;
T.D. 8952, 66 FR 33831, June 26, 2001; T.D. 9239, 71 FR 13, Jan. 3,
2006]
Sec. 1.6302-2 Use of Government depositaries for payment of tax
withheld on nonresident aliens and foreign corporations.
(a) Time for making deposits--(1) Deposits for 1973 and subsequent
years--(i) Monthly deposits. Except as provided in subdivisions (ii) and
(iv) of this subparagraph, every withholding agent who, pursuant to
chapter 3 of the Code, has accumulated at the close of any calendar
month beginning on or after January 1, 1973, an aggregate amount of
undeposited taxes of $200 or more shall deposit such aggregate amount
with an authorized financial institution (see paragraph (b)(1)(ii) of
this section) within 15 days after the close of such calendar month.
However, the preceding sentence shall not apply if the withholding agent
has made a deposit of taxes pursuant to subdivision
[[Page 423]]
(ii) of this subparagraph with respect to a quarter-monthly period which
occurred during such month.
(ii) Quarter-monthly deposits. If at the close of any quarter-
monthly period within a calendar month beginning on or after January 1,
1973, the aggregate amount of undeposited taxes required to be withheld
pursuant to chapter 3 of the Code is $2,000 or more, the withholding
agent shall deposit such aggregate amount in an authorized financial
institution within 3 banking days after the close of such quarter-
monthly period. For purposes of determining the amount of undeposited
taxes at the close of a quarter-monthly period, undeposited taxes
withheld with respect to items paid during a prior quarter-monthly
period shall not be taken into account if the withholding agent made a
deposit with respect to such prior quarter-monthly period. A withholding
agent will be considered to have complied with the requirements of this
subdivision with respect to the close of a quarter-monthly period if:
(a) His deposit is not less than 90 percent of the aggregate amount
of the taxes required to be withheld during the period for which the
deposit is made, and
(b) If such quarter-monthly period occurs in a month other than
December, he deposits any underpayment with his first deposit which is
otherwise required by this subparagraph to be made after the 15th day of
the following month. Any underpayment of $200 or more for a quarter-
monthly period closing during December must be deposited on or before
the following January 31.
For purposes of this subparagraph, the term ``quarter-monthly period''
means the first 7 days of a calendar month, the 8th day through the 15th
day of a calendar month, the 16th day through the 22d day of a calendar
month, or the portion of a calendar month following the 22d day of such
month.
(iii) Excess deposits. The excess (if any) of a deposit over the
actual taxes for a monthly or quarter-monthly deposit period shall be
applied in order of time to each of the withholding agent's succeeding
deposits with respect to the same calendar year, until exhausted, to the
extent that the amount by which the taxes for a subsequent deposit
period exceed the deposit for such subsequent deposit period.
(iv) Annual deposits. If at the close of the month of December of
each calendar year beginning on or after January 1, 1973, the aggregate
amount of undeposited taxes required to be withheld pursuant to chapter
3 of the Code is less than $200, the withholding agent may deposit such
aggregate amount in an authorized financial institution on or before
March 15 of the following calendar year. If such aggregate amount is not
so deposited, it shall be remitted in accordance with paragraph (a)(2)
of Sec. 1.1461-3.
(2) Cross reference. For rules relating to the adjustment of
deposits, see Sec. 1.1461-4(b) and Sec. 1.6414-1. For rules requiring
payment of any undeposited tax, see Sec. 1.1461-3.
(b) Deposits by Federal tax deposit coupon--(1) Remittances. Each
remittance of amounts required to be deposited by paragraph (a) of this
section shall be accompanied by a Federal Tax Deposit form which shall
be prepared in accordance with the instructions applicable thereto. The
remittance, together with the Federal Tax Deposit form, shall be
forwarded to a financial institution authorized as a depositary for
Federal taxes in accordance with 31 CFR part 203. The timeliness of the
deposit will be determined by the date stamped on the Federal Tax
Deposit form by the authorized financial institution or, if section
7502(e) applies, by the date the deposit is treated as received under
section 7502(e). Each withholding agent making deposits under this
section shall report on the return, for the period with respect to which
such deposits are made, information regarding such deposits according to
the instructions that apply to such return.
(2) Voluntary deposits. An amount of tax which is not required to be
deposited may nevertheless be deposited if the withholding agent so
desires.
(3) Separation of deposits. A deposit required by paragraph (a) of
this section for any period occurring in one calendar year shall be made
separately from any deposit for any period occurring in another calendar
year. In addition, a deposit required to be made by paragraph (a) of
this section shall be
[[Page 424]]
made separately from a deposit required by any other section.
(4) Multiple remittances. A withholding agent may make one, or more
than one, remittance of the amount required to be deposited if each
remittance is accompanied by the applicable deposit form.
(5) Time deemed paid. In general amounts deposited under this
section shall be considered as paid on the last day prescribed for
filing the return (Form 1042) in respect of such tax (determined without
regard to any extension of time for filing such return), or at the time
deposited, whichever is later. For purposes of section 6511 and the
regulations thereunder, relating to period of limitation on credit or
refund, if an amount is so deposited prior to April 15th of a calendar
year immediately succeeding the calendar year in which occurs the period
for which such amount was so deposited, such amount shall be considered
as paid on such April 15th.
(6) Procurement of Federal Tax Deposit form. Copies of the Federal
Tax Deposit form will so far as possible be furnished withholding
agents. A withholding agent will not be excused from making a deposit,
however, by the fact that no form has been furnished to it. A
withholding agent not supplied with the form should make application
therefor in ample time to make the required deposits within the time
prescribed. The withholding agent may secure the form or additional
forms by applying therefor and supplying its name, identification
number, address, and the taxable period to which the deposit will
relate. Copies of the Federal Tax Deposit form may be secured by
application therefor.
(c) Deposits by electronic funds transfer. For the requirement to
deposit taxes withheld on nonresident aliens and foreign corporations by
electronic funds transfer, see Sec. 31.6302-1(h) of this chapter. A
taxpayer not required to deposit by electronic funds transfer pursuant
to Sec. 31.6302-1(h) of this chapter remains subject to the rules of
paragraph (b) of this section.
(d) Penalties for failure to make deposits. For provisions relating
to the penalty for failure to make a deposit within the prescribed time,
see section 6656.
(e) Saturday, Sunday, or legal holidays. For provisions relating to
the time for performance of acts where the last day falls on Saturday,
Sunday, or a legal holiday, see Sec. 301.7503-1 of this chapter
(Procedure and Administration Regulations).
(f) Employer identification number. For the definition of the term
``employer identification number'', see Sec. 301.7701-12 of this
chapter (Procedure and Administration Regulations). For provisions
relating to the penalty for failure to include the employer
identification number in a return, statement, or other document, see
Sec. 301.6676-1 of such chapter.
(g) Effective date. Except as otherwise provided, this section shall
apply to tax required to be withheld under chapter 3 of the Code after
1966.
[T.D. 6922, 32 FR 8713, June 17, 1967, as amended by T.D. 6941, 32 FR
18040, Dec. 16, 1967; T.D. 7243, 38 FR 22, Jan. 3, 1973; T.D. 7953, 49
FR 19644, May 9, 1984; T.D. 8723, 62 FR 37492, July 14, 1997; T.D. 8947,
66 FR 32542, June 15, 2001; T.D. 8952, 66 FR 33831, June 26, 2001; T.D.
9239, 71 FR 13, Jan. 3, 2006]
Sec. 1.6302-3 Use of Government depositaries in connection with
estimated taxes of certain trusts.
(a) Requirement. A bank or other financial institution described in
paragraph (b) of this section shall deposit in its Treasury Tax & Loan
account described in 31 CFR 203 all payments of estimated tax required
to be paid on or after September 15, 1988, under section 6654(l) with
respect to trusts for which such institution acts as a fiduciary on or
before the date otherwise prescribed for paying such tax.
(b) Banks and financial institutions subject to this requirement.
The requirement of paragraph (a) of this section applies to banks and
other financial institutions described in sections 581 and 591 that have
been designated as authorized Federal tax depositaries described in
section 6302(c) and that act as fiduciaries for at least 200 trusts to
which section 6654(l) applies that during the calendar year are required
to make installment payments of estimated tax with respect to such
trusts. For purposes of this section, a fiduciary is the person
responsible for filing the tax returns and paying the taxes with respect
to a trust.
[[Page 425]]
(c) Cross-references. For further guidance and instructions for
certain banks and financial institutions acting as fiduciaries with
respect to taxable trusts, see Rev. Proc. 89-49 (1989-2 C.B. 615), (see
Sec. 601.601(d)(2) of this chapter) or any successor revenue procedure.
For the requirement to deposit estimated tax payments of taxable trusts
by electronic funds transfer, see Sec. 31.6302-1(h) of this chapter.
[T.D. 8192, 53 FR 12008, Apr. 12, 1988; T.D. 8192, 53 FR 13464, Apr. 25,
1988, as amended by T.D. 8723, 62 FR 37492, July 14, 1997; T.D. 8952, 66
FR 33831, June 26, 2001]
Sec. 1.6302-4 Use of financial institutions in connection with income
taxes; voluntary payments by electronic funds transfer.
Any person may voluntarily remit by electronic funds transfer any
payment of tax imposed by subtitle A of the Internal Revenue Code,
including any payment of estimated tax. Such payment must be made in
accordance with procedures prescribed by the Commissioner.
[T.D. 8828, 64 FR 37676, July 13, 1999]
Sec. 1.6361-1 Collection and administration of qualified State
individual income taxes.
Except as otherwise provided in Sec. Sec. 301.6361-1 to 301.6365-2,
inclusive, of this chapter (Regulations on Procedure and
Administration), the provisions of this part under subtitle F of the
Internal Revenue Code of 1954 relating to the collection and
administration of the taxes imposed by chapter 1 of such Code on the
incomes of individuals (or relating to civil or criminal sanctions with
respect to such collection and administration) shall apply to the
collection and administration of qualified State individual income taxes
(as defined in section 6362 of such Code and the regulations thereunder)
as if such taxes were imposed by chapter 1.
[T.D. 7577, 43 FR 59358, Dec. 20, 1978]
ABATEMENTS, CREDITS, AND REFUNDS
Sec. 1.6411-1 Tentative carryback adjustments.
(a) In general. Any taypayer who has a net operating loss under
section 172, a net capital loss under section 1211(a) which is a
carryback under section 1212, an unused investment credit under section
46, or an unused work incentive program (WIN) credit under section 50A,
may file an application under section 6411 for a tentative carryback
adjustment of the taxes for taxable years prior to the taxable year of
the net operating or capital loss or the unused credit, whichever is
applicable, which are affected by the net operating loss carryback, the
capital loss carryback, the unused investment credit carryback, or the
unused WIN credit carryback, resulting from such loss or unused credit.
The regulations under section 6411 shall apply with respect to
investment credit carrybacks for taxable years ending after December 31,
1961, but only with respect to applications for tentative carryback
adjustments for investment credit carrybacks filed after November 2,
1966. The regulations under section 6411 shall apply with respect to WIN
credit carrybacks for taxable years beginning after December 31, 1971.
The right to file an application for a tentative carryback adjustment is
not limited to corporations, but is available to any taxpayer otherwise
entitled to carryback a loss or unused credit. A corporation may file an
application for a tentative carryback adjustment even though it has not
extended the time for payment of tax under section 6164. In determining
any decrease in tax under Sec. Sec. 1.6411-1 through 1.6411-4, the
decrease in tax is determined net of any increase in the tax imposed by
section 56 (relating to the minimum tax for tax preferences).
(b) Contents of application. (1) The application for a tentative
carryback adjustment shall be filed, in the case of a corporation, on
Form 1139, and in the case of taxpayers other than corporations, on Form
1045. The application shall be filled out in accordance with the
instructions accompanying the form, and all information required by the
form and the instructions must be furnished by the taxpayer.
(2) An application for a tentative carryback adjustment does not
constitute a claim for credit or refund. If such application is
disallowed by the district director or director of a service
[[Page 426]]
center in whole or in part, no suit may be maintained in any court for
the recovery of any tax based on such application. The filing of an
application for a tentative carryback adjustment will not constitute the
filing of a claim for credit or refund within the meaning of section
6511 for purposes of determining whether a claim for credit or refund
was filed prior to the expiration of the applicable period of
limitation. The taxpayer, however, may file a claim for credit or refund
under section 6402 at any time prior to the expiration of the applicable
period of limitation, and may maintain a suit based on such claim if it
is disallowed or if the district director or director of a service
center does not act on the claim within 6 months from the date it is
filed. Such claim may be filed before, simultaneously with, or after the
filing of the application for a tentative carryback adjustment. A claim
for credit or refund under section 6402 filed after the filing of an
application for a tentative carryback adjustment is not to be considered
an amendment of such application. Such claim, however, in proper cases
may constitute an amendment to a prior claim filed under section 6402.
(c) Time and place for filing application. Except as otherwise
provided in this paragraph the application for a tentative carryback
adjustment shall be filed on or after the date of the filing of the
return for the taxable year of the net operating loss, net capital loss,
unused investment credit, or unused WIN credit and shall be filed within
a period of twelve months from the end of such taxable year. With
respect to any portion of an investment credit carryback or a WIN credit
carryback from a taxable year attributable to a net operating loss
carryback or a capital loss carryback from a subsequent taxable year,
the twelve-month period shall be measured from the end of such
subsequent taxable year. In the case of an application for a tentative
carryback adjustment attributable to the carryback of an unused
investment credit, the twelve-month period for filing shall not expire
before the close of December 31, 1966. Any application filed prior to
the date on which the return for the taxable year of the loss or unused
credit is filed shall be considered to have been filed on the date such
return is filed. In the case of an application filed before April 15,
1968, the application shall be filed with the internal revenue officer
to whom the tax was paid or by whom the assessment was made. Except as
provided in paragraph (b) of Sec. 301.6091-1 (relating to hand-carried
documents), in the case of an application filed after April 14, 1968, if
the tax was paid to the Director of International Operations, the
application shall be filed with him; otherwise the application shall be
filed with the internal revenue office with which the return was filed.
[T.D. 6500, 25 FR 12144, Nov. 26, 1960, as amended by T.D. 6862, 30 FR
14432, Nov. 18, 1965; T.D. 6950, 33 FR 5357, Apr. 4, 1968; T.D. 7301, 39
FR 973, Jan. 4, 1974; T.D. 7564, 43 FR 40498, Sept. 12, 1978; T.D. 8107,
51 FR 43347, Dec. 2, 1986]
Sec. 1.6411-2 Computation of tentative carryback adjustment.
(a) Tax previously determined. The taxpayer is to determine the
amount of decrease, attributable to the carryback, in tax previously
determined for each taxable year before the taxable year of the net
operating loss, net capital loss, unused investment credit, or unused
WIN credit. The tax previously determined is to be ascertained in
accordance with the method prescribed in section 1314(a). Thus, the tax
previously determined will be the tax shown on the return as filed,
increased by any amounts assessed (or collected without assessment) as
deficiencies before the date of the filing of the application for a
tentative carryback adjustment, and decreased by any amounts abated,
credited, refunded, or otherwise repaid prior to such date. Any items as
to which the Internal Revenue Service and the taxpayer are in
disagreement at the time of the filing of the application shall be taken
into account in ascertaining the tax previously determined only if, and
to the extent that, they were reported in the return, or were reflected
in any amounts assessed (or collected without assessment) as
deficiencies, or in any amounts abated, credited, refunded, or otherwise
repaid, before the date of filing the application. The tax previously
determined,
[[Page 427]]
therefore, will reflect the foreign tax credit and the credit for tax
withheld at source provided in section 32.
(b) Decrease attributable to carryback. The decrease in tax
previously determined which is affected by the carryback or any related
adjustments, is to be determined, except for such carryback and related
adjustments, on the basis of the items which entered into the
computation of such tax as previously determined; the tax previously
determined being ascertained in the manner described in this section. In
determining any such decrease, items shall be taken into account only to
the extent that they were reported in the return, or were reflected in
amounts assessed (or collected without assessment) as deficiencies, or
in amounts abated, credited, refunded, or otherwise repaid, before the
date of filing the application for a tentative carryback adjustment. If
the Internal Revenue Service and the taxpayer are in disagreement as to
the proper treatment of any item, it shall be assumed for purposes of
determining the decrease in the tax previously determined that such item
was correctly reported by the taxpayer unless, and to the extent that,
the disagreement has resulted in the assessment of a deficiency (or the
collection of an amount without an assessment), or the allowing or
making of an abatement, credit, refund, or other repayment, before the
date of filing the application. Thus, if the taxpayer claimed a
deduction on its return of $50,000 for salaries paid its officers but
the district director asserts that such deduction should not exceed
$20,000, and the Internal Revenue Service and the taxpayer have not
agreed on the amount properly deductible before the date the application
for a tentative carryback adjustment is filed, $50,000 shall be
considered as the amount properly deductible for purposes of determining
the decrease in tax previously determined in respect of the application
for a tentative carryback adjustment. In determining the decrease in tax
previously determined, any items which are affected by the carryback
must be adjusted to reflect such carryback. Thus, unless otherwise
provided, any deduction limited, for example, by adjusted gross income,
such as the deduction for medical, dental, etc., expenses is to be
recomputed on the basis of the adjusted gross income as affected by the
carryback.
[T.D. 6500, 25 FR 12144, Nov. 26, 1960, as amended by T.D. 7301, 39 FR
973, Jan. 4, 1974]
Sec. 1.6411-3 Allowance of adjustments.
(a) Time prescribed. The district director or director of a service
center (either of whom are sometimes hereinafter referred to in this
section as internal revenue officer) shall act upon any application for
a tentative carryback adjustment filed under section 6411(a) within a
period of 90 days from whichever of the following two dates is the
later:
(1) The date the application is filed; or
(2) The last day of the month in which falls the last date
prescribed by law (including any extension of time granted the taxpayer)
for filing the return for the taxable year of the net operating loss,
net capital loss, unused investment credit, or unused WIN credit from
which the carryback results.
(b) Examination. Within the 90-day period described in paragraph (a)
of this section, the district director or director of a service center
shall make, to the extent he deems practicable in such period, an
examination of the application to discover omissions and errors of
computation. He shall determine within such period the decrease in tax
previously determined, affected by the carryback or any related
adjustments, upon the basis of the application and such examination.
Such decrease shall be determined in the same manner as that provided in
section 1314(a) for the determination by the taxpayer of the decrease in
taxes previously determined which must be set forth in the application
for a tentative carryback adjustment. Such internal revenue officer,
however, may correct any errors of computation or omissions he may
discover upon examination of the application. In determining the
decrease in tax previously determined which is affected by the carryback
or any related adjustment, he accordingly may correct any mathematical
error appearing on the application and he may likewise correct any
modification required by the law and incorrectly made by the
[[Page 428]]
taxpayer in computing the net operating loss, net capital loss, unused
investment credit, or unused WIN credit, the resulting carrybacks, or
the net operating loss deduction, capital loss deduction, investment
credit or WIN credit allowable. If the required modification has not
been made by the taxpayer and such internal revenue officer has
available the necessary information to make such modification within the
90-day period, he may, in his discretion, make such modification. In
determining such decrease, however, such internal revenue officer will
not, for example, change the amount claimed on the return as a deduction
for depreciation because he believes that the taxpayer has claimed an
excessive amount; likewise, he will not include in gross income any
amount not so included by the taxpayer, even though such officer
believes that such amount is subject to tax and properly should be
included in gross income.
(c) Disallowance in whole or in part. If the district director or
director of a service center finds that an application for a tentative
carryback adjustment contains materials omissions or errors of
computation, he may disallow such application in whole or in part
without further action. If, however, he deems that any error of
computation can be corrected by him within the 90-day period, he may do
so and allow the application in whole or in part. Such internal revenue
officer's determination as to whether he can correct any error of
computation within the 90-day period shall be conclusive. Similarly, his
action in disallowing, in whole or in part, any application for a
tentative carryback adjustment shall be final and may not be challenged
in any proceeding. The taxpayer in such case, however, may file a claim
for credit or refund under section 6402, and may maintain a suit based
on such claim if it is disallowed or if such internal revenue officer
does not act upon the claim within 6 months from the date it is filed.
(d) Application of decrease. (1) Each decrease determined by the
district director or director of a service center in any previously
determined tax which is affected by the carryback or any related
adjustments shall first be applied against any unpaid amount of the tax
with respect to which such decrease was determined. Such unpaid amount
of tax may include one or more of the following:
(i) An amount with respect to which the taxpayer is delinquent;
(ii) An amount the time for payment of which has been extended under
section 6164 and which is due and payable on or after the date of the
allowance of the decrease; and
(iii) An amount (including an amount the time for payment of which
has been extended under section 6162, but not including an amount the
time for payment of which has been extended under section 6164) which is
due and payable on or after the date of the allowance of the decrease.
(2) In case the unpaid amount of tax includes more than one of such
amounts, the district director, or director of a service center in his
discretion, shall determine against which amount or amounts, and in what
proportion, the decrease is to be applied. In general, however, the
decrease will be applied against any amounts described in subparagraph
(1) (i), (ii), and (iii) of this paragraph in the order named. If there
are several amounts of the type described in subparagraph (1)(iii) of
this paragraph, any amount of the decrease which is to be applied
against such amount will be applied by assuming that the tax previously
determined minus the amount of the decrease to be so applied is ``the
tax'' and that the taxpayer had elected to pay such tax in installments.
The unpaid amount of tax against which a decrease may be applied under
subparagraph (1) of this paragraph may not include any amount of tax for
any taxable year other than the year of the decrease. After making such
application, such internal revenue officer will credit any remainder of
the decrease against any unsatisfied amount of any tax for the taxable
year immediately preceding the taxable year of the net operating loss,
capital loss, unused investment credit, or unused WIN credit, the time
for payment of which has been extended under section 6164.
(3) Any remainder of the decrease after such application and credits
may,
[[Page 429]]
within the 90-day period, in the discretion of the district director or
director of a service center, be credited against any tax or installment
thereof then due from the taxpayer, and, if not so credited, shall be
refunded to the taxpayer within such 90-day period.
[T.D. 6950, 33 FR 5358, Apr. 4, 1968, as amended by T.D. 7301, 39 FR
973, Jan. 4, 1974]
Sec. 1.6411-4 Consolidated groups.
For further rules applicable to consolidated groups, see Sec.
1.1502-78. For further rules applicable to consolidated groups that
include insolvent financial institutions, see Sec. 301.6402-7 of this
chapter.
[T.D. 8446, 57 FR 53034, Nov. 6, 1992]
Sec. 1.6414-1 Credit or refund of tax withheld on nonresident
aliens and foreign corporations.
(a) In general. Any withholding agent who for the calendar year pays
more than the correct amount of:
(1) Tax required to be withheld under chapter 3 of the Code, or
(2) Interest, addition to the tax, additional amount, or penalty
with respect to such tax,
may file a claim for credit or refund of the overpayment in the manner
and subject to the conditions stated in the Procedure and Administration
Regulations (Part 301 of this chapter) under section 6402, or may claim
credit for the overpayment as provided in paragraph (b) of this section.
(b) Claim for credit on Form 1042. The withholding agent may claim
credit of an overpayment described in paragraph (a) of this section for
any calendar year by showing the amount of overpayment on the return on
Form 1042 for such calendar year, which shall constitute a claim for
credit under this paragraph. The claim for credit shall be evidenced by
a statement on the return setting forth the amount determined as an
overpayment and showing such other information as may be required by the
instructions relating to the return. The amount so claimed as a credit
may be applied, to the extent it has not been applied under paragraph
(b) of Sec. 1.1461-4, by the withholding agent to reduce the amount of
a payment or deposit of tax required by Sec. 1.1461-3 or paragraph (a)
of Sec. 1.6302-2 for any payment period occurring in the calendar year
following the calendar year of overwithholding. The amount so claimed as
a credit shall also be entered on the annual return on Form 1042 for the
calendar year following the calendar year of overwithholding and shall
be applied as a payment on account of the tax shown on such form. If the
withholding agent files a claim for credit or refund of the overpayment
on Form 843 in accordance with Sec. 301.6402-2 of this chapter
(Procedure and Administration Regulations), or a claim for refund of the
overpayment on Form 1042 in accordance with Sec. 301.6402-3 of such
chapter, he may not claim credit for the overpayment under this
paragraph.
(c) Overpayment of amounts actually withheld. No credit or refund to
the withholding agent shall be allowed for the amount of any overpayment
of tax which, after taking into account paragraph (b) of Sec. 1.1464-1,
the withholding agent has actually withheld from an item of income under
chapter 3 of the Code.
[T.D. 6922, 32 FR 8714, June 17, 1967]