[Federal Register Volume 78, Number 75 (Thursday, April 18, 2013)]
[Rules and Regulations]
[Pages 23116-23134]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-09085]
[[Page 23116]]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
[TD 9616]
RIN 1545-BK05; RIN 1545-BL47
Basis Reporting by Securities Brokers and Basis Determination for
Debt Instruments and Options; Reporting for Premium
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final and temporary regulations.
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SUMMARY: This document contains final regulations relating to reporting
by brokers for transactions involving debt instruments and options.
These final regulations reflect changes in the law made by the Energy
Improvement and Extension Act of 2008 that require brokers when
reporting the sale of securities to the IRS to include the customer's
adjusted basis in the sold securities and to classify any gain or loss
as long-term or short-term. These final regulations also implement the
requirement that a broker report gross proceeds from a sale or closing
transaction with respect to certain options. In addition, this document
contains final regulations that implement reporting requirements for a
transfer of a debt instrument or an option to another broker and for an
organizational action that affects the basis of a debt instrument or an
option. Moreover, this document contains final regulations relating to
the filing of Form 8281, ``Information Return for Publicly Offered
Original Issue Discount Instruments,'' for certain debt instruments
with original issue discount and temporary regulations relating to
information reporting for premium. The text of the temporary
regulations in this document also serves as the text of the proposed
regulations (REG-154563-12) set forth in the Proposed Rules section in
this issue of the Federal Register.
DATES: Effective Date: These regulations are effective on April 18,
2013.
Applicability Dates: For dates of applicability, see Sec. Sec.
1.1275-3(c)(4), 1.6045-1(a)(15)(i)(C) through 1.6045-1(a)(15)(i)(F),
1.6045-1(a)(18), 1.6045-1(c)(3)(vii)(C) and (D), 1.6045-1(c)(3)(x),
1.6045-1(c)(3)(xiii), 1.6045-1(d)(2), 1.6045-1(d)(5), 1.6045-
1(d)(6)(ii)(A), 1.6045-1(m), 1.6045-1(n), 1.6045A-1(d), 1.6045B-1(j),
and 1.6049-9T(a).
FOR FURTHER INFORMATION CONTACT: Pamela Lew of the Office of Associate
Chief Counsel (Financial Institutions and Products) at (202) 622-3950
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in these final regulations
related to the furnishing of information in connection with the
transfer of securities has been reviewed and approved by the Office of
Management and Budget in accordance with the Paperwork Reduction Act of
1995 (44 U.S.C. 3507(d)) under control number 1545-2186. The collection
of information in these final regulations in Sec. Sec. 1.6045-
1(c)(3)(xi)(C) and 1.6045A-1 is necessary to allow brokers that effect
sales of transferred covered securities to determine and report the
adjusted basis of the securities and whether any gain or loss with
respect to the securities is long-term or short-term in compliance with
section 6045(g) of the Internal Revenue Code (Code). This collection of
information is required to comply with the provisions of section 403 of
the Energy Improvement and Extension Act of 2008, Division B of Public
Law 110-343 (122 Stat. 3765, 3854 (2008)) (the Act).
In addition, the collection of information contained in Sec.
1.6045-1(n)(5) of these final regulations related to the furnishing of
information in connection with the sale or transfer of a debt
instrument that is a covered security is an increase in the total
annual burden under control number 1545-2186. Under section 6045(g), a
broker is required to determine and report the adjusted basis upon the
sale or transfer of a debt instrument that is a covered security. If a
sale has occurred, a broker must also determine and report whether any
gain or loss with respect to the debt instrument is long-term or short-
term in compliance with section 6045(g). The holder of a debt
instrument is permitted to make a number of elections that affect how
basis is computed. To minimize the need for reconciliation between
information reported by a broker to both a customer and the IRS and the
amounts reported on the customer's tax return, a broker is required to
take into account certain specified elections in reporting information
to the customer. A customer, therefore, must provide certain
information concerning an election to the broker in a written
notification, which includes a writing in electronic format. The
adjusted basis information will be used for audit and examination
purposes. The likely respondents are recipients of Form 1099-B.
Estimated total annual reporting burden is 1,417 hours.
Estimated average annual burden per respondent is 0.12 hours.
Estimated average burden per response is 7 minutes.
Estimated number of respondents is 11,500.
Estimated total frequency of responses is 11,500.
This collection of information is required to comply with the
provisions of section 403 of the Act.
The burden for the collection of information contained in the
amendment to Sec. 1.1275-3 will be reflected in the burden on Form
8281, ``Information Return for Publicly Offered Original Issue Discount
Instruments,'' when revised to request the additional information in
the regulations. The burden for the collection of information contained
in the other amendments to Sec. 1.6045-1 will be reflected in the
burden on Form 1099-B, ``Proceeds from Broker and Barter Exchange
Transactions,'' when revised to request the additional information in
the regulations. The burden for the collection of information contained
in the amendments to Sec. 1.6045B-1 will be reflected in the burden on
Form 8937, ``Report of Organizational Actions Affecting Basis of
Securities,'' when revised to request the additional information in the
regulations. The burden for the collection of information contained in
Sec. 1.6049-9T will be reflected in the burdens on Form 1099-INT and
Form 1099-OID when revised to request the additional information in the
regulations. The information described in this paragraph is required to
enable the IRS to verify that a taxpayer is reporting the correct
amount of income or gain or claiming the correct amount of losses or
deductions.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a valid
control number assigned by the Office of Management and Budget.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Background
This document contains amendments to the Income Tax Regulations (26
CFR part 1) relating to information reporting by brokers and others as
required by section 6045 of the Code. This section
[[Page 23117]]
was amended by section 403 of the Act to require the reporting of
adjusted basis for a covered security and whether any gain or loss upon
the sale of the security is long-term or short-term if gross proceeds
reporting is required with respect to such security. The Act also
requires the reporting of gross proceeds for an option that is a
covered security. In addition, the Act added section 6045A, which
requires certain information to be reported in connection with a
transfer of a covered security to another broker, and section 6045B,
which requires an issuer of a specified security to file a return
relating to certain actions that affect the basis of the security.
Final regulations under these provisions relating to stock were
published in the Federal Register on October 18, 2010, in TD 9504 (the
2010 final regulations).
On November 25, 2011, the Treasury Department and the IRS published
in the Federal Register (76 FR 72652) proposed regulations (REG-102988-
11) relating to information reporting by brokers, transferors, and
issuers of securities under sections 6045, 6045A, and 6045B for debt
instruments and options. Written and electronic comments responding to
the notice of proposed rulemaking were received and are available for
public inspection at http://www.regulations.gov or upon request. A
public hearing was held on March 16, 2012.
After considering the comments, the Treasury Department and the IRS
adopt the proposed regulations as amended by this Treasury decision.
The comments and revisions are discussed in this preamble.
Summary of Comments
A. Effective Dates and Penalty Relief
The proposed regulations had a proposed effective date for both
debt instruments and options of January 1, 2013. The Treasury
Department and the IRS received numerous requests to delay the proposed
effective dates for both debt instruments and options. Brokers and
other interested parties maintained that the proposed effective date of
January 1, 2013, did not provide them sufficient time to build and test
the systems required to implement the reporting rules for debt
instruments and options. In response to these requests, Notice 2012-34
(2012-21 I.R.B. 937) was issued to announce that the effective dates in
the final regulations would be postponed to January 1, 2014.
A number of commenters also requested relief related to various
aspects of reporting under sections 6045, 6045A, and 6045B. One
commenter requested a 36-month general penalty relief period to allow
brokers to test and refine their reporting systems.
In response to these comments, as was announced in Notice 2012-34,
the effective date of these final regulations is postponed so that
basis reporting is required for debt instruments and options no earlier
than January 1, 2014. Moreover, these final regulations implement the
reporting requirements for debt instruments in phases, as described in
more detail later in this preamble. These final regulations also
implement transfer reporting in phases. These features of the
regulations are intended to give brokers ample time to develop and
implement reporting systems.
Another commenter requested a safe-harbor for good faith reliance
upon debt instrument data that is provided by third-party vendors for
purposes of both basis and transfer reporting. With respect to
information from third-party vendors, Sec. Sec. 1.6045-1(d)(2)(iv)(B)
and 1.6045A-1(b)(8)(ii) of the 2010 final regulations provide that a
broker is deemed to rely upon the information provided by a third party
in good faith if the broker neither knows nor has reason to know that
the information is incorrect (Sec. 1.6045A-1(b)(8)(ii) is redesignated
in these final regulations as Sec. 1.6045A-1(b)(11)(ii)). Therefore,
because the 2010 final regulations already address the concerns raised
by these comments, no change on this issue is needed in these final
regulations.
Several commenters requested a safe-harbor for purposes of both
basis and transfer reporting for good faith reliance upon information
received on a section 6045A transfer statement. With respect to basis
reporting, Sec. 1.6045-1(d)(2)(iv)(A) of the 2010 final regulations
provides for penalty relief if a broker relies upon transferred
information when preparing a return under section 6045. With respect to
transfer reporting, Sec. 1.6045A-1(b)(8)(i) of the 2010 final
regulations (redesignated in these final regulations as Sec. 1.6045A-
1(b)(11)(i)) provides for penalty relief if a broker relies upon
transferred information when preparing a transfer statement under
section 6045A. Because the 2010 final regulations already address the
concerns raised by these comments, no change on this issue is needed in
these final regulations.
B. Debt Instruments
1. Scope of Debt Instrument Reporting and Phased Implementation
The proposed regulations required basis reporting for all debt
instruments, other than a debt instrument subject to section 1272(a)(6)
(in general, a debt instrument with principal subject to acceleration).
Numerous commenters requested that the final regulations narrow the
scope of basis reporting for debt instruments. Many commenters
requested permanent exemptions from basis reporting for debt
instruments that the commenters believe present data collection or
computational difficulties, including convertible debt instruments,
debt instruments denominated in non-U.S. dollar currencies, contingent
payment debt instruments, variable rate debt instruments, municipal
obligations, tax credit bonds, payment-in-kind (PIK) bonds,
certificates of deposit, debt instruments issued by foreign persons,
U.S. Treasury strips and other stripped debt instruments, inflation-
indexed debt instruments, privately placed debt instruments, commercial
paper, hybrid securities, investment units, debt instruments subject to
put or call options, debt instruments with stepped interest rates,
factored bonds, and short-term debt instruments. Alternatively, some
commenters suggested that basis reporting be deferred for debt
instruments until data is more readily available for some of the
instruments described in the preceding sentence. One commenter renewed
a request for exempting corporate trustees from basis reporting for
registered debt instruments issued in a physical form. Some commenters
asked for a permanent exemption or deferred reporting for debt
instruments because, unlike the rules for equity, there are numerous
rules in the Code and regulations, including holder elections, that
affect the adjusted basis of a debt instrument, such as the rules
relating to original issue discount (OID), bond premium, market
discount, and acquisition premium.
Several commenters requested that the final regulations provide a
specific list of the debt instruments subject to basis reporting rather
than a list of the debt instruments not subject to basis reporting.
Other commenters suggested limiting basis reporting to a debt
instrument that has a fixed yield and fixed maturity date. One
commenter indicated that fixed yield, fixed maturity date debt
instruments comprise approximately 90% of the reportable debt
instrument transactions.
Section 6045(g) by its terms requires basis reporting by brokers
with respect to any note, bond, debenture, or other
[[Page 23118]]
evidence of indebtedness that is a covered security. After
consideration of the comments, however, the Treasury Department and the
IRS appreciate that the proper implementation of broker basis reporting
for debt instruments will require time to build and implement reporting
systems, especially for debt instruments with more complex features.
Thus, to facilitate an orderly transition to basis reporting for debt
instruments, these final regulations implement basis reporting for debt
instruments in phases.
For a debt instrument with less complex features, these final
regulations require basis reporting by a broker if the debt instrument
is acquired on or after January 1, 2014, consistent with Notice 2012-
34. This category of less complex debt instruments includes a debt
instrument that provides for a single fixed payment schedule for which
a yield and maturity can be determined for the instrument under Sec.
1.1272-1(b), a debt instrument that provides for alternate payment
schedules for which a yield and maturity can be determined for the
instrument under Sec. 1.1272-1(c) (such as a debt instrument with an
embedded put or call option), and a demand loan for which a yield can
be determined under Sec. 1.1272-1(d). Commenters requested delayed
reporting for any debt instrument with an embedded put or call option.
The Treasury Department and the IRS believe that brokers should be able
to implement reporting for a debt instrument with an embedded option
that entitles the issuer to call or the holder to put the debt
instrument prior to its scheduled maturity. Moreover, because an
embedded put or call option is a common feature of debt instruments,
delaying basis reporting for debt instruments with such a feature could
delay basis reporting for an unduly large proportion of debt
instruments.
Some debt instruments with a fixed yield and a fixed maturity date
nevertheless pose challenges for information reporting. For these debt
instruments and for more complex debt instruments that do not have a
fixed yield and a fixed maturity date, these final regulations require
basis reporting for debt instruments acquired on or after January 1,
2016. The Treasury Department and the IRS believe that brokers may need
additional time to implement basis reporting for these debt instruments
because of their more complex features or the lack of public
information for the debt instruments. Fixed yield, fixed maturity debt
instruments that are subject to reporting if they are acquired on or
after January 1, 2016, include a debt instrument that provides for more
than one rate of stated interest (such as a debt instrument with
stepped interest rates), a convertible debt instrument, a stripped bond
or coupon, a debt instrument that requires payment of either interest
or principal in a non-U.S. dollar currency, certain tax credit bonds, a
debt instrument that provides for a PIK feature, a debt instrument
issued by a non-U.S. issuer, a debt instrument for which the terms of
the instrument are not reasonably available to the broker within 90
days of the date the debt instrument was acquired by the customer, a
debt instrument that is issued as part of an investment unit, and a
debt instrument evidenced by a physical certificate unless such
certificate is held (whether directly or through a nominee, agent, or
subsidiary) by a securities depository or by a clearing organization
described in Sec. 1.1471-1(b)(18). Other debt instruments that do not
have a fixed yield and fixed maturity date but are subject to reporting
if they are acquired on or after January 1, 2016, include a contingent
payment debt instrument, a variable rate debt instrument, and an
inflation-indexed debt instrument.
As noted earlier in this preamble, due to the difficulties in
implementing basis reporting, the proposed regulations provided that a
debt instrument described in section 1272(a)(6) (in general, a debt
instrument with principal subject to acceleration) would not be subject
to basis reporting. In response to favorable comments on this
exception, these final regulations retain this exception from basis
reporting.
A number of commenters requested delayed reporting or no basis
reporting for short-term debt instruments (that is, debt instruments
with a fixed maturity date not more than one year from the date of
issue). One commenter argued that the application of the OID, bond
premium, market discount, and acquisition premium rules to a short-term
debt instrument, including the numerous elections applicable to short-
term debt instruments, is complicated, that the effects on the basis of
a short-term debt instrument would be marginal, and that basis
reporting for short-term debt instruments may impose a significant
burden on brokers and provide little benefit to taxpayers or the IRS.
Because the Treasury Department and the IRS agree with this comment,
these final regulations except short-term debt instruments from basis
reporting.
Another commenter requested that the rules pertaining to short-term
debt instruments be extended to all debt instruments that are acquired
with a remaining term of one year or less. This exemption from
information reporting would apply to a debt instrument originally
issued with a term of greater than one year and acquired in a secondary
market purchase when there is a remaining term of one year or less. The
request to extend the short-term debt instrument rules to a long-term
debt instrument with one year or less until maturity is not adopted
because the rules that govern a debt instrument with a term over one
year do not change when the maturity has declined to one year or less.
While the potential for significant gain or loss on the debt instrument
usually diminishes in the final year, the reporting is useful to the
customer and the IRS, and all information required for reporting will
be available to the broker.
One commenter requested that the final regulations exempt from
reporting securities issued in connection with a bankruptcy
restructuring because it is not always clear if a particular security
is a debt instrument. After consideration of the comment, this request
was not adopted because these final regulations provide that a security
is treated as debt for reporting purposes only if the issuer has
classified the security as debt or, if the issuer has not classified
the security, if the broker knows that the security is reasonably
classified as debt under general Federal tax principles.
2. Lack of Industry Consistency Could Affect Reporting
A number of commenters raised concerns and suggestions about how to
make reporting more consistent, both between transferring and receiving
brokers and between brokers and customers. Many commenters expressed a
strong desire to ensure that a customer who transfers a security from
one broker to another will receive consistent reporting from the two
brokers. Many commenters also asked for assistance in minimizing the
amount of potential reconciliation between an amount reported by a
broker to a customer and the IRS and the amount reported by that
customer on a tax return.
a. Support of Taxpayer Elections
The proposed regulations attempted to simplify reporting
requirements by specifying the elections brokers were to assume to
compute OID, market discount, bond premium, and acquisition premium
reported to holders, and not permitting brokers to support alternative
customer elections. A number of commenters, however, indicated a desire
by brokers to support debt instrument elections made by their customers
rather than rely on assumptions provided in the
[[Page 23119]]
regulations. Some commenters stated that they already support some or
all elections for debt as a service to their customers, and these
commenters predict that similar customer service demands will
eventually require all brokers to support customer elections, just as
they support customer elections with respect to stock. Other commenters
pointed out that the default assumptions in the proposed regulations
might be preferred by most individual taxpayers, but other customers,
such as trusts or partnerships, might not prefer the default
assumptions. One commenter noted that the reporting rules provided in
the proposed regulations would make computations by brokers simpler,
but that educating customers about permissible elections, and the
computations that each election would entail if an election is made,
would become critical. This commenter recommended permitting a broker
to support customer elections in the future as systems are upgraded.
However, other commenters indicated that some of the statutory
defaults were generally simpler to apply and produced economic results
that were only negligibly different than the defaults prescribed by the
proposed regulations. For example, while the proposed regulations would
have required reporting of market discount using a constant yield
method, several commenters indicated a preference for reporting accrued
market discount using a straight line method.
The Treasury Department and the IRS also received comments
regarding the treatment of amortizable bond premium under section 171.
One commenter requested that the section 171 election not be mandatory
for reporting purposes because most taxpayers have not made the
election, but suggested that a broker be required to support the
section 171 election if a customer informs the broker that the election
was or will be made.
After consideration of all the comments, the Treasury Department
and the IRS have concluded that the best way to balance certainty and
flexibility is to require brokers to report information using the
default assumptions provided in the relevant statute and regulations,
except in the case of the section 171 election, but to require brokers
to accommodate elections by taxpayers that choose to depart from the
defaults. Under these final regulations, upon written notification by a
customer, a broker must take into account the following elections for
basis reporting purposes: the election to accrue market discount using
a constant yield; the election to include market discount in income
currently; the election to treat all interest as OID; and the spot rate
election for interest accruals with respect to a covered debt
instrument denominated in a currency other than the U.S. dollar. The
Treasury Department and the IRS do not anticipate that many taxpayers
will make these elections. As a practical matter, by removing short-
term debt instruments from the basis reporting rules, the number of
elections available for a covered security has been reduced to a
manageable number, and it is reasonable to require that the remaining
debt instrument elections be supported.
These final regulations make an exception to the general rule
requiring brokers to use the default elections provided in the statute
and regulations in the case of bond premium. Section 171 generally
requires taxpayers to affirmatively elect to amortize bond premium on
taxable bonds, which then offsets interest income on the bond. Except
in the rare case of a holder that prefers a capital loss, the election
to amortize bond premium generally will benefit the holder of a debt
instrument. Thus, consistent with the proposed regulations, these final
regulations require brokers to assume that customers have made the
election to amortize bond premium provided in section 171 when
reporting basis, unless the customer has notified the broker otherwise.
The rules regarding basis reporting for bond premium in the
proposed regulations prompted a number of commenters to request that
the rules for reporting interest income associated with a bond acquired
at a premium be conformed to the rules regarding basis reporting for
these same debt instruments. In response to these commenters, this
document contains temporary regulations addressing reporting of premium
under section 6049. See Part H of this preamble for additional
discussion of this issue.
The Treasury Department and the IRS considered making broker
support of debt instrument elections a permitted, but not required,
activity, but the additional administrative problems that can arise if
a transferring broker supports certain elections while the receiving
broker does not support the same elections made a permissive approach
problematic. For example, if the receiving broker did not support the
same elections as the transferring broker, and the customer properly
made one of the elections permitted with respect to a debt instrument
and notified the transferring broker of the election, the information
provided by the receiving broker on the relevant Form 1099 would not
reflect the customer's election, requiring the customer to provide a
reconciliation on the customer's income tax return. These
administrative problems lead to the conclusion that brokers should be
required to support either all of the permitted elections for debt
instruments or none of them. Given the numerous requests to support
customer elections, coupled with requests to reduce the need for a
customer to reconcile tax return data to the data provided by a broker,
the Treasury Department and the IRS decided that support for customer
debt instrument elections would be beneficial to taxpayers and would
not impose an undue burden on brokers. It should be noted that
supporting customer elections will require additional transfer
statement information to advise a receiving broker of any elections
that were used to compute the information provided.
b. Industry Conventions
Several commenters pointed out that brokers do not necessarily use
common terms or conventions for debt instrument computations. For
example, 30 days per month/360 days per year, actual days per month/360
days per year, and actual days per month/365 days per year are possible
interest computation day count conventions. Different brokers may use
different amortization and accretion assumptions, different accrual
periods, and different rounding conventions.
The proposed regulations prescribed conventions to determine the
accrual period to be used for reporting purposes. These final
regulations generally adopt the conventions in the proposed
regulations. Under these final regulations, a broker must use the same
accrual period that is used to report OID or stated interest to a
customer under section 6049. In any other situation, a broker is
required to use a semi-annual accrual period unless the debt instrument
provides for scheduled payments of principal or interest at regular
intervals of less than six months over its term, in which case a broker
must use an accrual period equal in length to this shorter interval. In
response to a comment, these final regulations use a semi-annual
accrual period rather than an annual accrual period as the default
accrual period.
These final regulations do not prescribe a particular day count
convention brokers must use for basis reporting. Instead, these final
regulations provide that a broker may use any reasonable day count
convention. The terms of a debt instrument, however, generally include
[[Page 23120]]
the day count convention that the issuer will use to compute interest
payments. The Treasury Department and the IRS expect that a broker
generally will choose to use this day count convention to determine the
accruals of interest and OID on the debt instrument and the related
basis adjustments, which will facilitate reconciliation of the accruals
with the amount of cash received by a broker and distributed to a
customer. These final regulations also do not prescribe a particular
rounding convention.
Commenters also indicated disagreement on the effect of puts and
calls on calculations associated with a debt instrument. One commenter
asked for clarification about whether issuer choice or holder choice
will govern the treatment of put and call dates and recommended
amortizing all callable debt instruments to their maturity dates rather
than call dates. Another commenter requested standardizing the deemed
maturity date and limiting the application of the put/call rules to
cases in which the broker has actual knowledge of payment terms that
could result in a different maturity date if the put/call rules are
applied.
These final regulations continue the approach taken in the proposed
regulations. The basis reporting rules are not intended to, and do not,
change the substantive rules applicable to debt instruments. Thus, when
assessing the effect of an embedded put or call option on a debt
instrument, a broker must apply the rules described in Sec. 1.1272-
1(c)(5) or Sec. 1.171-3(c)(4), whichever is applicable, to determine
the correct date to be used in accrual calculations. The rules
described in Sec. 1.1272-1(c)(5) have been in effect since 1994 and
the rules described in Sec. 1.171-3(c)(4) have been in effect since
1997. Both rules provide a clear and workable framework for determining
the effect, if any, of an embedded put or call option on a debt
instrument.
One commenter requested that, to the extent brokers are not
required to report using a single set of assumptions and computation
conventions, explicit language should be added to the regulations
covering transfer statements to require transfer of all information
needed for a receiving broker to compute adjustments in a manner
consistent with the transferor broker, including payment terms and
assumptions used by the transferor broker, as well as any taxpayer
elections that were supported by the transferor broker. These final
regulations adopt this comment by expanding the information that must
be included in a transfer statement for a debt instrument.
3. Other Issues
One commenter stated that there could be problems tracking the
adjustments for discount and premium if different measurement periods
are used (for example, a daily period versus a period ending on payment
dates), especially for a customer that has purchased debt from the same
issue at a discount and at a premium. The commenter indicated that
tracking OID, market discount, bond premium, and/or acquisition premium
adjustments for multiple lots of a single issue will be complex.
One commenter, noting that reporting to the IRS and taxpayers is
only required once a year, asked whether a duty exists to compute the
debt instrument accruals and display them more frequently than once
each year, such as for each accrual or payment period. Another
commenter indicated that to facilitate the preparation of transfer
statements at any time during a year, it may be necessary to compute
all debt instrument accruals each day.
These final regulations generally continue the approach taken in
the proposed regulations regarding computations that affect the basis
of a debt instrument. In particular, these final regulations do not
require a broker to compute debt instrument accruals more than once per
year unless a transfer takes place during a tax year, in which case the
transferring broker must provide a transfer statement to the receiving
broker. If a broker's systems generate more frequent computations to
support transfer statements, the broker is permitted to compute the
accruals more than once per tax year.
The proposed regulations require accrued market discount to be
reported upon the sale of a debt instrument. One commenter asked
whether accrued market discount should be reported at the time of a
call or at maturity. The commenter also noted that two rules in the
proposed regulations relating to market discount may have required the
filing of a Form 1099-INT and a Form 1099-B to report accrued market
discount. The commenter recommended that accrued market discount be
reported only on a Form 1099-B, ``Proceeds from Broker and Barter
Exchange Transactions,'' and associated with a specific sale.
For purposes of section 6045, Sec. 1.6045-1(a)(9) defines a sale
to include any disposition of a debt instrument, which includes a
retirement of a debt instrument at or prior to its stated maturity.
These final regulations do not change this definition of a sale with
respect to a debt instrument; however, these final regulations clarify
that a sale for purposes of section 6045 includes a partial principal
payment. Moreover, under these final regulations, in the case of a
sale, accrued market discount will be reported only on the Form 1099-B,
which would associate the accrued market discount with a specific sale
of a single security. In connection with this comment, these final
regulations amend the rule in Sec. 1.6045-1(d)(3) for reporting
accrued stated interest on a Form 1099-INT when a debt instrument is
sold between interest payment dates to make it clear that the rule does
not apply to accrued market discount.
A number of comments were received that address narrower issues.
One commenter requested guidance about how to determine and translate
interest income or expense (including OID) on certain non-functional
currency debt. Rules regarding the determination and translation of
interest income and expense on certain debt instruments denominated in
a non-functional currency are explicitly addressed in the regulations
under section 988. See, for example, Sec. 1.988-2(b).
During the preparation of these final regulations, the Treasury
Department and the IRS reviewed the existing reporting requirements for
short-term debt instruments. Based on this review, these final
regulations exempt from gross proceeds reporting all short-term debt
instruments. This exemption is consistent with the existing exemption
from reporting for certain short-term debt instruments in Sec. 1.6045-
1(c)(3)(vii)(C), and the provisions in these final regulations that
exempt short-term debt instruments from basis reporting. Moreover,
almost all income related to short-term debt instruments is captured
through the income reporting rules under section 6049 and any capital
gain or loss related to a short-term debt instrument is expected to be
very small.
C. Comments on Option Transactions
1. Scope of Option Reporting
In general, under the proposed regulations, basis and gross
proceeds reporting applied to the following options granted or acquired
on or after January 1, 2013: an option on one or more specified
securities, including an option on an index substantially all the
components of which are specified securities; an option on financial
attributes of specified securities, such as interest rates or dividend
yields; and a warrant or a stock right on a specified security. The
scope provisions in these final regulations are generally the same as
the scope provisions in the proposed regulations, except that these
final
[[Page 23121]]
regulations explicitly exclude a compensatory option. As announced in
Notice 2012-34, these final regulations generally apply to an option
granted or acquired on or after January 1, 2014.
One commenter asked for clarification of the concept of ``financial
attributes'' in the scope provision. After reviewing the proposed
language, the Treasury Department and the IRS believe that the list of
items provided in Sec. 1.6045-1(m)(2)(i)(B) provides adequate detail
to describe the concept.
Commenters also requested that the regulations not apply to options
that are subject to section 1256. As explained immediately below, this
comment was not adopted in these final regulations.
2. Option Transactions Subject to Section 1256
Numerous comments were received related to nonequity options that
are covered by section 1256(b)(1)(C) (``section 1256 options''), which
includes a listed option on a stock index that is not a narrow-based
security index. Several commenters noted that the substantive rules
that apply to section 1256 options are different from the rules that
apply to non-section 1256 options and asked for different reporting
treatment for the two types of options. Some commenters requested an
exemption from reporting for all section 1256 options. The commenters
suggested that if a blanket exemption from reporting is not provided,
the IRS should consider extending the reporting rules for regulated
futures contracts described in Sec. 1.6045-1(c)(5) to section 1256
options. One commenter noted that although the current rules only
require reporting for regulated futures contracts on Form 1099-B, some
brokers may already be reporting section 1256 options in a similar
manner.
The Treasury Department and the IRS agree that there should be
different reporting rules for section 1256 options and non-section 1256
options. In general, an option is subject to reporting under section
6045 only if the option references one or more specified securities.
For a nonequity option described in section 1256(b)(1)(C) on one or
more specified securities, a broker will apply the reporting rules that
apply to a regulated futures contract, which are described in Sec.
1.6045-1(c)(5). For an option on one or more specified securities that
is not described in section 1256(b)(1)(C), a broker will report gross
proceeds and basis in accordance with the rules in these final
regulations for a non-section 1256 option, which are described later in
this preamble.
a. Scope Issues Related to Section 1256 Options
A number of comments focused on potential difficulties in
distinguishing between an option on a broad-based index, which would be
covered by section 1256, and an option on a narrow-based index, which
would be treated in the same manner as an option on a single equity.
Commenters requested guidance about how to determine whether an index
is broad-based or narrow-based, and some commenters requested that the
IRS annually publish a list of what constitutes a section 1256 option.
Alternatively, the commenters requested complete exclusion of all stock
index options. These final regulations do not provide substantive rules
on index options. Rather, to determine whether an index substantially
all the components of which are specified securities is a broad-based
index under section 1256(g)(6)(B), a broker must look to rules
established by the Securities Exchange Commission and the Commodities
Futures Trading Commission that determine which regulator has
jurisdiction over an option on the index. An option on a broad-based
index is a nonequity option described in section 1256(b)(1)(C).
Several commenters requested broker penalty relief for good faith
determinations of section 1256 status for index options. The Treasury
Department and the IRS appreciate the difficulty in making
determinations of section 1256 status. Therefore, these final
regulations grant relief under sections 6721 and 6722 if a broker
determines in good faith that an index is, or is not, a narrow-based
index described in section 1256(g)(6) and reports in a manner
consistent with that determination.
One commenter asked for an exemption from basis reporting for
options on foreign currency and suggested that foreign currency be
treated as a commodity. Because commodities and foreign currency are
not specified securities, basis reporting by a broker for an option on
foreign currency or an option on a commodity is not currently required
under section 6045. Accordingly, no change is made in these final
regulations in response to this comment.
b. Other Issues Related to Section 1256 Options
A number of commenters asserted that neither the wash sale rules
under section 1091 nor the short sale rules described in section 1233
should apply to a section 1256 option. One commenter asked for
clarification about how holding period adjustments due to application
of the wash sale provisions should be applied to section 1256 options.
These comments have not been adopted because the changes requested are
substantive in nature and outside the scope of the reporting rules.
3. Non-Section 1256 Options
Comments were also received on the rules in the proposed
regulations relating to non-section 1256 options. Several commenters
asserted that there are administrative issues involved in reporting
over-the-counter (OTC) options and asked that OTC options be exempted
from reporting. One commenter suggested that if exemptions were not
granted, the IRS should create a ``best efforts'' safe harbor for OTC
options. The Treasury Department and the IRS believe that it is
reasonable to expect a broker to know the information required to
report on an OTC option when it is entered into or when it is
transferred into a customer's account. Moreover, the regulations under
section 6045A require the transferor of an OTC option to provide
detailed information to a receiving broker sufficient to describe the
option. This could include data about the underlying asset, contract
size, non-standardized strike price, and expiration date. These final
regulations therefore apply to any OTC option on a specified security.
For a cash settled non-section 1256 option, the proposed
regulations required a broker to adjust gross proceeds related to an
option transaction by increasing gross proceeds by the amount of any
payments received for issuing the option and decreasing gross proceeds
by the amount of any payments made on the option. A number of
commenters requested that, instead of decreasing gross proceeds by
amounts paid out, brokers be permitted to report gross amounts paid and
received with respect to the option. Under this approach, the gross
proceeds box on Form 1099-B would include all payments received, and
the basis box on Form 1099-B would reflect any payments made. These
commenters noted that some broker systems already deal with equity
options this way. This suggestion has not been adopted because it is
not consistent with the overall concept of gross proceeds and basis
reporting, which applies to all covered securities. The rules in these
final regulations for a cash settled option are based upon the basic
idea that costs related to the acquisition of a position affect basis,
while the costs related to the sale or closeout of a position affect
gross proceeds. This is consistent with the changes to the
[[Page 23122]]
definition of gross proceeds in the proposed regulations.
Under these final regulations, expenses related to the sale of an
asset must be deducted from gross proceeds and may not be added to
basis. For a purchased option, the basis in the option will include the
premium paid as well as any commissions, fees, or other transaction
costs related to the purchase. Gross proceeds on the cash settlement of
the purchased option should be adjusted to account for any commissions,
fees, or other transaction costs related to the cash settlement. In the
case of a written option, a broker must determine the amount of
reportable proceeds by subtracting from the amount of the premium
received for writing the option any settlement payments, commissions,
or other costs related to the close out or cash settlement. At the
suggestion of several commenters, a clarification has been added that
the basis under this scenario should be reported as $0.
One commenter requested that for cash-settled options, acquisition
costs be treated as adjustments to gross proceeds and that no
adjustments be made to basis for acquisition costs. This comment has
not been adopted because it is contrary to the requirements of Sec.
1.263(a)-4(c), which require that acquisition costs be treated as part
of basis.
One commenter requested that if multiple option contracts are
bundled into a single investment vehicle and the components cannot be
separately exercised, the investment will be treated as a single
instrument with a single basis. These final regulations do not adopt
this comment because the basis of each financial instrument is required
to be accounted for separately.
Another commenter asked that the regulations explicitly address
whether a broker must take into account the straddle rules under
section 1092, including the qualified covered call rules in section
1092(c)(4). Consistent with the approach taken for broker basis
reporting for stock, these final regulations explicitly provide that a
broker will not take section 1092 into consideration when determining
basis of an option that is a covered security.
Several comments were received asking for guidance in determining
which options would be considered substantially identical for the
purpose of applying the wash sale rules under section 1091. The 2010
final regulations only require a broker to apply the wash sale rules
when the transaction involves covered securities with the same CUSIP
number, and these final regulations do not change this rule.
4. Stock Acquired Through the Exercise of a Compensatory Option
The proposed regulations provided that a broker was permitted, but
not required, to increase a customer's initial basis in stock for
income recognized upon the exercise of a compensatory option or the
vesting or exercise of other equity-based compensation arrangement. The
preamble to the proposed regulations also stated that the IRS might add
a field to Form 1099-B to indicate when stock was acquired via the
exercise of a compensatory option. In response, commenters asked that
there be no change to the Form 1099-B to reflect compensation status
or, alternatively, that using the indicator be permitted, but not
required. These commenters indicated that compensation information is
not accessible to most brokers, and extensive reprogramming for both
the underlying database and the reporting process would be required.
The commenters also expressed concerns that, in many situations, a
broker would have to accept customer-provided information in order to
track the compensation-related status.
After consideration of the comments, the Treasury Department and
the IRS agree a compensation-related field should not be added to the
Form 1099-B. The lack of a mechanism to communicate whether the basis
of stock has been adjusted for the exercise of a compensatory option
coupled with a system involving discretionary broker adjustments for
compensatory options would, however, be unworkable. Therefore, these
final regulations provide that brokers are not permitted to adjust
basis to account for the exercise of a compensatory option that is
granted or acquired on or after January 1, 2014. This approach will
eliminate confusion and uncertainty for an employee who has exercised a
compensatory option. Under the permissive adjustment rule in the
proposed regulations, without an indicator on Form 1099-B, an employee
would not necessarily know whether the basis of the stock acquired
through the exercise of a compensatory option had been adjusted by a
broker to account for any income recognized by the employee due to the
option exercise. By prohibiting adjustment by a broker, an employee
will know that the basis number reported by the broker only reflects
the strike price paid for the stock and that a basis adjustment may be
necessary to reflect the full amount paid by the employee.
5. Backup Withholding for Option Transactions
One commenter asked for guidance on how to implement backup
withholding for option transactions. In particular, the commenter asked
for clarification about whether a rule similar to Sec. 31.3406(b)(3)-
2(b)(4) applies, permitting a broker to withhold at either the time of
sale or upon a closing transaction or lapse. The commenter also asked
how to apply backup withholding to several situations involving
physically settled options or when the taxpayer transfers an option or
ends up closing out an option transaction at a loss. This comment is
not adopted because backup withholding rules are outside the scope of
these final regulations.
6. Stock Rights and Warrants Under Sections 305 and 307
Several commenters requested that stock rights and warrants be
excluded from basis reporting. Several other commenters addressed
issues under sections 305 and 307. One commenter pointed out some
administrative problems with the taxpayer election to allocate basis
under section 307, including the fact that the election to allocate
basis can be made after a broker's Form 1099-B reporting window closes.
This commenter recommended requiring basis adjustments to reflect the
issuance of stock rights or warrants only when section 307 requires
allocation of basis because the value of the stock right or warrant
represents 15% or more of the fair market value of the old stock.
Another commenter noted that distributions of stock rights or warrants
representing 15% or more of the value of the old stock are uncommon and
recommended that brokers should not make an adjustment for the effects
of section 307.
One commenter requested a clarification of the rules for a stock
right or warrant that terminates other than by exercise or actual sale,
so that a closing transaction that results in $0 proceeds is not a sale
subject to reporting on a Form 1099-B. The commenter was concerned that
in many cases a broker would have to report a lapse of a stock right or
warrant by reporting $0 as proceeds on the Form 1099-B, even in
situations where there is no basis to report.
After consideration of the comments, these final regulations
provide that a broker is permitted, but not required, to apply the
rules of sections 305 and 307 when reporting the basis of a stock right
or warrant or any stock related to a stock right or warrant. This rule
will permit the industry to deploy its resources
[[Page 23123]]
most efficiently. A broker who already supports adjustments under
sections 305 and 307 will not need to reprogram its systems, while a
broker who does not currently support the adjustments can decide to do
so later, or not at all. Note that, under these final regulations, a
stock right or a warrant purchased from the original recipient is
treated as an option.
D. Other Financial Instruments Subject to Reporting
One commenter asked for an explicit exemption from reporting for
single stock futures that fall under section 1234B or for guidance on
how to apply section 1234B. This request was not adopted; instead,
these final regulations add section 1234B contracts to the definitions
of specified security and covered security. The Treasury Department and
the IRS believe that there is no reason to exclude single stock futures
on a specified security from information reporting when information
reporting is generally required on stock, options on stock, and
regulated futures contracts.
E. Transfer Reporting Under Section 6045A
Numerous comments were received related to transfer reporting for
debt instruments, as required by section 6045A. Many comments focused
on the information that was to be included on the transfer statement.
Some commenters argued for the transfer of original purchase
information related to debt instruments because some brokers will
recompute OID, market discount, bond premium, and acquisition premium
through the transfer date and will use the recomputed numbers, instead
of the numbers provided by the prior broker, to populate their data
systems. Other commenters argued that only adjusted basis needs to be
transferred to provide for subsequent accrual computations; these
commenters point out that some adjustments, such as wash sale loss
deferrals and holding period adjustments, will be reported accurately
if adjusted basis is reported on a transfer statement, but may not be
reflected if basis is recomputed based on original purchase
information. Further, to the extent that a transferor broker might have
used a computational method that is different from the method used by
the receiving broker, as long as each broker is internally consistent
in reporting income and adjusting basis, permitting the receiving
broker to start from adjusted basis will help ensure that there is no
duplication or omission of income and adjustments. Another commenter
argued that the market discount, acquisition premium, and bond premium
amounts should be implicit in the combination of adjusted issue price
and adjusted cost basis, and transfer of the details is not needed. One
commenter suggested treating each transfer as though it were a new
purchase. This would entail comparing the reported adjusted basis to
the adjusted issue price, determining new amounts of bond premium,
market discount, or acquisition premium, and then basing all further
accruals on these numbers.
After consideration of the comments, the Treasury Department and
the IRS believe that brokers and customers are better served when all
relevant information is provided when a security is transferred. These
final regulations therefore generally require the information specified
in the proposed regulations, and have expanded the list of information
that must be provided to support the new requirement that a broker
support customer debt instrument elections. It is not anticipated that
a particular receiving broker will necessarily use all of the
information received. For example, if a receiving broker's systems are
set up to recompute debt instrument accruals from the issue date, that
broker may not find the data for adjusted issue price as of the
transfer date to be useful.
Several commenters also expressed concerns about transferring data
purchased from third-party vendors. One commenter suggested that
communicating the CUSIP identifier for a debt instrument might be
sufficient to enable a receiving broker to retrieve information that
applies to all debt instruments in a particular issue, such that some
of the data described in the proposed regulations might not be
necessary. Another commenter argued that data specific to a customer,
such as initial purchase price and date, and the CUSIP should provide a
receiving broker with all information needed to properly compute debt
instrument accruals.
These final regulations, like the proposed regulations, require
that a transferor broker provide all information necessary to allow a
receiving broker to comply with its information reporting obligations.
Consistent with the comments, if providing a CUSIP number or similar
security identifier is adequate to enable the receiving broker to
obtain some of the required information, a transferring broker is
permitted to supply the CUSIP number or security identifier as a
substitute for that information. For example, data that applies to all
debt instruments in an issue, such as issuer name, issue date, coupon
rate, coupon payment dates, or issue price, might be data that could be
derived from a CUSIP or other security identifier. However, under these
final regulations, like the proposed regulations, a receiving broker
may request to receive the information specified in the regulations
from the transferor broker. Further, data specific to a customer, such
as price paid by the customer, the acquisition date, or yield, must be
transmitted separately as these data will be different for each
customer and cannot be derived from the CUSIP number.
A few commenters focused specifically on the list of debt
instrument-specific data that was included in proposed Sec. 1.6045A-
1(b)(3). One commenter asked if the amount of acquisition premium
already amortized should be added to the list, pointing out that
accrued market discount and amortized bond premium are already
reportable. One commenter asked that the date through which the
transferor broker made adjustments be added to the list. These final
regulations adopt these comments and add these data to the list of
transfer statement items.
One commenter asked whether, when complying with the transfer
statement rules under section 6045A for a section 1256 option, a broker
may report the adjusted basis instead of the original basis for a
position that has been marked to market. Section 1.6045A-1(b)(1)(vii)
of the 2010 final regulations requires a broker to report the adjusted
basis of a specified security. Therefore, no change is needed to
address this comment.
One commenter asked for penalty relief for transfer reporting
analogous to the relief that was provided for transfer reporting for
stock in Notice 2010-67, 2010-43 I.R.B. 529. Under Notice 2010-67,
although broker reporting for basis began for some stock acquired on or
after January 1, 2011, transferring brokers were given penalty relief
if they did not provide transfer statements for transfers occurring
during 2011, and receiving brokers were instructed to treat a transfer
during 2011 for which no transfer statement was received as the
transfer of a noncovered security. Instead of penalty relief, the
Treasury Department and the IRS believe that it is appropriate to
provide additional time for brokers to phase in transfer reporting for
transfers of debt instruments, options, and securities futures
contracts, and the final regulations provide that transfer reporting
for debt instruments, options, and securities futures contracts will be
[[Page 23124]]
applicable no earlier than January 1, 2015.
F. Issuer Reporting Under Section 6045B
A number of comments were received concerning returns relating to
issuer actions affecting the basis of securities under section 6045B.
Several commenters asked whether certain types of events would be
reportable under section 6045B, including the issuance of a debt
instrument, a reissuance of a debt instrument, and a reorganization in
bankruptcy where new debt instruments are issued for old debt
instruments. Section 6045B only applies to an issuer action that
affects basis. The issuance of a debt instrument generally is not an
issuer action affecting the basis of a debt instrument. Accordingly, in
many cases, the issuance of a debt instrument is not subject to section
6045B. The legislative history, however, indicates that
reorganizations, such as mergers and acquisitions, are among the
organizational actions that can trigger reporting under section 6045B.
Thus, for example, the issuance of a debt instrument in a
recapitalization, including a recapitalization resulting from a
significant modification or a bankruptcy reorganization, can be an
issuer action affecting the basis of a debt instrument for purposes of
section 6045B.
One commenter pointed out that a REMIC regular interest is excluded
from being a covered security, but is not excluded from being a
specified security. With respect to reporting under section 6045B, the
commenter requested that if a specified security is not subject to
basis reporting, issuer reporting under section 6045B should not be
required. These final regulations clarify that a REMIC regular interest
is not a specified security and, therefore, is not subject to reporting
under section 6045B.
Section 1.6045B-1(a)(3) of the 2010 final regulations provides that
an issuer may meet its reporting obligation under section 6045B by
posting a copy of Form 8937 to its public Web site. One commenter
renewed a request that the IRS permit an issuer to provide the
information required by section 6045B on a Web site without posting a
copy of Form 8937. The regulations do not adopt this suggestion because
posting a copy of Form 8937 ensures consistent presentation of the
reported information. Another commenter noted that posting a copy of
Form 8937 could facilitate identity theft because the written signature
of the certifying company official would be widely available. These
final regulations allow an issuer to publicly post a Form 8937 with an
electronic signature as an alternative to a written signature.
One commenter requested that a clearing organization involved in
clearing exchange-traded options be treated as an issuer rather than a
writer for purposes of section 6045B. Other commenters suggested
language to clarify the identification of the party responsible for
reporting in the case of an OTC option. In response to the commenters,
these final regulations specify that a clearing organization that is
the counterparty to an exchange-traded option is the issuer of the
option for purposes of section 6045B, and the writer of an OTC option
is the issuer for purposes of section 6045B.
One commenter pointed out that currently there is no safe harbor
for modifications to non-debt instruments, so any modification of an
option technically might result in a taxable event. The commenter
recommended providing an assumption for brokers that changes to option
terms do not result in a taxable event if section 1001 does not apply.
This request is outside the scope of the current project and so no
changes were made to these final regulations in response to this
comment. It should be noted, however, that under these final
regulations, an option issuer only needs to comply with Sec. 1.6045B-1
if the change in the underlying asset results in a different number of
option contracts. If the terms of the option are changed to reflect a
corporate event, but the number of option contracts does not change, a
section 6045B event has not occurred.
G. Foreign Intermediaries
One commenter requested that foreign entities that are not U.S.
payors and are either qualified intermediaries or participating foreign
financial institutions be excluded from basis reporting requirements.
The Treasury Department and the IRS intend to issue future guidance
coordinating the reporting requirements applicable to qualified
intermediaries and participating foreign financial institutions under
chapter 61 (including section 6045) with the applicable chapter 4
reporting requirements.
H. Temporary Regulations Related to Reporting of Bond Premium and
Acquisition Premium
As noted earlier in this preamble, a number of commenters requested
that the rules for reporting interest income associated with a debt
instrument acquired at a premium be conformed to the rules regarding
basis reporting for these same debt instruments. Under the current
information reporting rules under section 6049, interest income is
reported without adjustment for bond premium or acquisition premium.
Under section 171(e) (which was added to the Code in 1988) and
Sec. 1.171-1 (which was amended in 1997 to reflect the addition of
section 171(e)), amortized bond premium offsets stated interest
payments. As a result, only the portion of a stated interest payment
that is not offset by the amortized premium is treated as interest for
federal income tax purposes. Under section 6049(a), the Secretary can
prescribe regulations to implement the reporting of interest payments,
which includes the determination of the amount of a payment that is
reportable interest. Similarly, notwithstanding section
6049(d)(6)(A)(i), under section 6049(a), the Secretary can prescribe
regulations to implement the reporting of OID, which includes the
determination of the amount reportable as OID (interest).
The Treasury Department and the IRS believe that the income
reporting and basis reporting rules should be consistent. Therefore, to
improve consistency between income reporting and basis reporting and to
provide immediate guidance to brokers and investors, this document adds
temporary regulations under section 6049 to require broker reporting of
interest (OID) income to reflect amounts of amortized bond premium or
acquisition premium for a covered debt instrument.
Under the temporary regulations, for purposes of section 6049, a
broker will assume that a customer has elected to amortize bond premium
unless the broker has been notified that the customer has not made the
election. It should be noted that this change applies only to the
information reported by the broker to its customer. Thus, a customer
that does not prefer to make the section 171 election can report
interest on the customer's income tax return unadjusted for bond
premium because the information reporting rules do not change the
substantive rules affecting bond premium (or any of the other rules
pertaining to OID, market discount, or acquisition premium). Moreover,
a customer can notify a broker that the customer has not made or has
revoked a section 171 election, and the broker is required to reflect
this fact on the Form 1099-INT and the Form 1099-B. If a broker is
required to report amounts reflecting amortization of bond premium, the
temporary regulations allow a broker to report either a gross amount
for both stated interest and amortized bond premium or a net amount of
stated interest that reflects the offset of the stated interest payment
[[Page 23125]]
by the amount of amortized bond premium allocable to the payment.
In addition, under the temporary regulations, for purposes of
section 6049, a broker must report OID adjusted for acquisition premium
in accordance with Sec. 1.1272-2 by assuming that a customer has not
elected to amortize acquisition premium based on a constant yield.
However, if the broker has been notified that the customer has made an
election to amortize acquisition premium based on a constant yield, the
broker is required to reflect this fact on the Form 1099-OID and the
Form 1099-B. The temporary regulations allow a broker to report either
a gross amount for both OID and acquisition premium, or a net amount of
OID that reflects the offset of the OID by the amount of amortized
acquisition premium allocable to the OID.
I. Form 8281
Under Sec. 1.1275-3(c) of the current final regulations, an issuer
of a publicly offered debt instrument issued with OID must file a Form
8281, ``Information Return for Publicly Offered Original Issue Discount
Instruments,'' within 30 days after the issue date of the debt
instrument. The information from Form 8281 is used to develop the
tables of OID information that are part of Publication 1212, ``Guide to
Original Issue Discount (OID) Instruments.'' To be publicly offered, a
debt instrument generally must be registered with the Securities and
Exchange Commission as of the instrument's issue date. In many
instances, a debt instrument issued in a private placement is
registered with the Securities and Exchange Commission after the issue
date. As a result, a Form 8281 is not required to be filed with the IRS
and, therefore, the OID information generally does not appear in the
Publication 1212 tables. A number of commenters on the proposed
regulations asked that OID information on more debt instruments be
provided in the tables to Publication 1212. In response to these
comments, the regulations under Sec. 1.1275-3(c) are amended to
require the filing of a Form 8281 for a debt instrument that is part of
an issue the offering of which is registered with the Securities and
Exchange Commission after the issue date of the debt instrument. The
Form 8281 is required to be filed within 30 days of the date the
offering is registered with the Securities and Exchange Commission.
J. Consideration of Administrative Burdens Related to Basis Reporting
A number of commenters indicated that compliance with basis
reporting requirements and the use of basis and other information
reported by brokers will require considerable resources and effort on
the part of return preparers and information recipients. The Treasury
Department and the IRS are continuing to review all aspects of the
information reporting process and are exploring ways to reduce the
compliance burden for both brokers and for information recipients.
Effective/Applicability Dates
These regulations are effective when published in the Federal
Register as final regulations. In general, the regulations regarding
reporting of basis and whether any gain or loss on a sale is long-term
or short-term under section 6045(g) apply to certain debt instruments
acquired on or after January 1, 2014. See Sec. 1.6045-1(n)(2). In
general, for all other debt instruments, the regulations apply to debt
instruments acquired on or after January 1, 2016. See Sec. 1.6045-
1(n)(3). The regulations regarding reporting of gross proceeds, basis,
and whether gain or loss on a sale is long-term or short-term under
section 6045(h) apply to options granted or acquired on or after
January 1, 2014. The regulations regarding reporting of basis and
whether any gain or loss on a sale is long-term or short-term apply to
securities futures contracts entered into on or after January 1, 2014.
In general, the regulations regarding transfer reporting for certain
debt instruments, options, and securities futures contracts apply to
transfers occurring on or after January 1, 2015. The regulations
regarding transfer reporting for more complex debt instruments apply to
transfers occurring on or after January 1, 2017. See Sec. 1.6045A-
1(d). The regulations regarding reporting for issuer actions that
affect the basis of certain debt instruments, options, and securities
futures contracts apply to issuer actions occurring on or after January
1, 2014. The regulations regarding reporting for issuer actions that
affect the basis of more complex debt instruments apply to issuer
actions occurring on or after January 1, 2016. See Sec. 1.6045B-1(j).
The final regulations regarding the filing of Form 8281 apply to a debt
instrument that is part of an issue the offering of which is registered
with the Securities and Exchange Commission on or after January 1,
2014. The temporary regulations under section 6049 relating to the
reporting of premium apply to covered securities acquired on or after
January 1, 2014.
Special Analyses
It has been determined that this rulemaking is not a significant
regulatory action as defined in Executive Order 12866, as supplemented
by Executive Order 13563. Therefore, a regulatory assessment is not
required. It also has been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to
these regulations, and because the temporary regulations do not impose
a collection of information on small entities, the Regulatory
Flexibility Act (5 U.S.C. chapter 6) does not apply to the temporary
regulations.
Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it
is hereby certified that the final regulations in this document will
not have a significant economic impact on a substantial number of small
entities. Any effect on small entities by the rules in the final
regulations flows directly from section 403 of the Act.
Section 403(a) of the Act modifies section 6045 to require that,
when reporting the sale of a covered security, brokers report the
adjusted basis of the security and whether any gain or loss with
respect to the security is long-term or short-term. The Act also
requires gross proceeds reporting for options. It is anticipated that
these statutory requirements will fall only on financial services firms
with annual receipts greater than $7 million and, therefore, on no
small entities. Further, in implementing the statutory requirements,
the final regulations generally limit reporting to information required
under the Act.
Section 403(a) of the Act requires a broker to report the adjusted
basis of a debt instrument that is a covered security. The holder of a
debt instrument is permitted to make a number of elections that affect
how basis is computed. To minimize the need for reconciliation between
information reported by a broker to both a customer and the IRS and the
amounts reported on the customer's tax return, the final regulations
require a broker to take into account certain specified elections in
reporting information to the customer. Therefore, under the final
regulations, a customer must provide certain information concerning an
election to the broker in a written notification, which includes a
writing in electronic format. It is anticipated that this collection of
information will not fall on a substantial number of small entities.
Further, the final regulations generally implement the statutory
requirements for reporting adjusted
[[Page 23126]]
basis. Moreover, any economic impact is expected to be minimal because
it should take a customer no more than seven minutes to satisfy the
information-sharing requirement in these final regulations.
Section 403(c) of the Act added section 6045A, which requires
applicable persons to furnish a transfer statement in connection with
the transfer of custody of a covered security. The modifications to
Sec. 1.6045A-1 effectuate the Act by giving the broker who receives
the transfer statement the information necessary to determine and
report adjusted basis and whether any gain or loss with respect to a
debt instrument or option is long-term or short-term as required by
section 6045 when the security is subsequently sold. Consequently, the
final regulations do not add to the impact on small entities imposed by
the statutory scheme. Instead, it limits the information to be reported
to only those items necessary to effectuate the statutory scheme.
Section 403(d) of the Act added section 6045B, which requires
issuer reporting by all issuers of specified securities regardless of
size and even when the securities are not publicly offered. The
modifications to Sec. 1.6045B-1 limit reporting to the additional
information for debt instruments and options necessary to meet the
Act's requirements. Additionally, the final regulations, as modified,
retain the rule that permits an issuer to report each action publicly
instead of filing a return and furnishing each nominee or holder a
statement about the action. The final regulations therefore do not add
to the statutory impact on small entities but instead eases this impact
to the extent the statute permits.
Therefore, because the final regulations in this document will not
have a significant economic impact on a substantial number of small
entities, a regulatory flexibility analysis is not required.
Pursuant to section 7805(f) of the Code, the proposed regulations
preceding the final regulations in this document were submitted to the
Chief Counsel for Advocacy of the Small Business Administration for
comment on their impact on small business, and no comments were
received. In addition, the proposed regulations accompanying the
section 6049 temporary regulations in this document have been submitted
to the Chief Counsel for Advocacy of the Small Business Administration
for comment on their impact on small business.
Drafting Information
The principal author of these regulations is Pamela Lew, Office of
Associate Chief Counsel (Financial Institutions and Products). However,
other personnel from the IRS and the Treasury Department participated
in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 is amended by adding an
entry in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.6049-9T also issued under 26 U.S.C. 6049(a). * * *
0
Par. 2. Section 1.1271-0(b) is amended by adding an entry for Sec.
1.1275-3(c)(4) to read as follows:
Sec. 1.1271-0 Original issue discount; effective date; table of
contents.
* * * * *
(b) * * *
* * * * *
Sec. 1.1275-3 OID information reporting requirements.
* * * * *
(c) * * *
(4) Subsequent registration.
* * * * *
0
Par. 3. Section 1.1275-3 is amended by adding paragraph (c)(4) to read
as follows:
Sec. 1.1275-3 OID information reporting requirements.
* * * * *
(c) * * *
(4) Subsequent registration. Except as provided in paragraph (c)(3)
or (d) of this section, the information reporting requirements of
paragraph (c)(1) of this section apply to any debt instrument that has
original issue discount if the instrument is part of an issue the
offering of which is registered with the Securities and Exchange
Commission (SEC) after the issue date of the debt instrument. For
example, this paragraph (c)(4) applies to a newly issued debt
instrument (B bond) exchanged for an otherwise identical non-SEC-
registered debt instrument (A bond) if the B bond is part of an issue
the offering of which is registered with the SEC and the B bond has an
issue date that is the same as the issue date of the A bond for federal
tax purposes because the exchange is not a realization event under
Sec. 1.1001-3. If a debt instrument is subject to this paragraph
(c)(4), the prescribed form (Form 8281 or any successor) must be filed
with the Internal Revenue Service within 30 days after the date the
offering is registered with the SEC. This paragraph (c)(4) applies to a
debt instrument that is part of an issue the offering of which is
registered with the SEC on or after January 1, 2014.
* * * * *
0
Par. 4. Section 1.6045-1 is amended by:
0
1. Revising paragraphs (a)(3)(v) and (a)(3)(vi) and adding paragraphs
(a)(3)(vii) and (a)(3)(viii).
0
2. Revising paragraphs (a)(8) and (a)(9).
0
3. Revising paragraphs (a)(14) and (a)(15)(i)(A).
0
4. Redesignating paragraph (a)(15)(i)(C) as paragraph (a)(15)(i)(G) and
adding new paragraphs (a)(15)(i)(C) through (a)(15)(i)(F).
0
5. Adding a new sentence at the end of paragraph (a)(15)(ii).
0
6. Adding new paragraphs (a)(17) and (a)(18).
0
7. Adding two new sentences at the end of paragraph (c)(3)(vii)(C) and
adding a new sentence at the end of paragraph (c)(3)(vii)(D).
0
8. Adding a new sentence at the end of paragraph (c)(3)(x) and revising
the first two sentences in paragraph (c)(3)(xi)(C).
0
9. Adding new paragraph (c)(3)(xiii).
0
10. Revising the last sentence of paragraph (c)(4) Example 9 (i).
0
11. Adding two new sentences at the end of paragraph (d)(2)(i) and
revising paragraph (d)(2)(ii) and the first sentence of paragraph
(d)(2)(iii).
0
12. Revising paragraph (d)(3).
0
13. Removing the first four sentences of paragraph (d)(5) and adding
six sentences in their place.
0
14. Revising the second sentence and adding two new sentences at the
end of paragraph (d)(6)(i).
0
15. Removing the first three sentences of paragraph (d)(6)(ii)(A) and
adding five sentences in their place.
0
16. Revising the heading for paragraph (d)(6)(ii)(B).
0
17. Revising the last sentence of paragraph (d)(6)(iii)(A).
0
18. Revising paragraph (d)(6)(iv).
0
19. Revising paragraph (d)(6)(vii) Example 4.
[[Page 23127]]
0
20. Revising the second sentence of paragraph (d)(7)(i).
0
21. Removing the first sentence of paragraph (d)(8)(i)(A) and adding a
sentence and a parenthetical phrase in its place.
0
22. Adding paragraphs (m) and (n).
The additions and revisions read as follows:
Sec. 1.6045-1 Returns of information of brokers and barter exchanges.
(a) * * *
(3) * * *
(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;
(vi) An interest in a security described in paragraph (a)(3)(i) or
(iv) of this section (but not including executory contracts that
require delivery of such type of security);
(vii) An option described in paragraph (m)(2) of this section; or
(viii) A securities futures contract.
* * * * *
(8) The term closing transaction means a lapse, expiration,
settlement, abandonment, or other termination of a position. For
purposes of the preceding sentence, a position includes a right or an
obligation under a forward contract, a regulated futures contract, a
securities futures contract, or an option.
(9) The term sale means any disposition of securities, commodities,
options, regulated futures contracts, securities futures contracts, or
forward contracts, and includes redemptions of stock, retirements of
debt instruments (including a partial retirement attributable to a
principal payment received on or after January 1, 2014), and enterings
into short sales, but only to the extent any of these actions are
conducted for cash. In the case of an option, a regulated futures
contract, a securities futures contract, or a forward contract, a sale
includes any closing transaction. When a closing transaction for a
contract described in section 1256(b)(1)(A) involves making or taking
delivery, there are two sales, one resulting in profit or loss on the
contract, and a separate sale on the delivery. When a closing
transaction for a contract described in section 988(c)(5) involves
making delivery, there are two sales, one resulting in profit or loss
on the contract, and a separate sale on the delivery. For purposes of
the preceding sentence, a broker may assume that any customer's
functional currency is the U.S. dollar. When a closing transaction in a
forward contract involves making or taking delivery, the broker may
treat the delivery as a sale without separating 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 entering into a contract that requires delivery of
personal property or an interest therein, the initial grant or purchase
of an option, or the exercise of a purchased call option for physical
delivery (except for a contract described in section 988(c)(5)). For
purposes of this section only, a constructive sale under section 1259
and a mark to fair market value under section 475 or 1296 are not
sales.
* * * * *
(14) The term specified security means:
(i) Any share of stock (or any interest treated as stock,
including, for example, an American Depositary Receipt) in an entity
organized as, or treated for Federal tax purposes as, a corporation,
either foreign or domestic (provided that, solely for purposes of this
paragraph (a)(14)(i), a security classified as stock by the issuer is
treated as stock, and if the issuer has not classified the security,
the security is not treated as stock unless the broker knows that the
security is reasonably classified as stock under general Federal tax
principles);
(ii) Any debt instrument described in paragraph (a)(17) of this
section, other than a debt instrument subject to section 1272(a)(6)
(certain interests in or mortgages held by a REMIC, certain other debt
instruments with payments subject to acceleration, and pools of debt
instruments the yield on which may be affected by prepayments) or a
short-term obligation described in section 1272(a)(2)(C);
(iii) Any option described in paragraph (m)(2) of this section; or
(iv) Any securities futures contract.
(15) * * *
(i) * * *
(A) A specified security described in paragraph (a)(14)(i) of this
section acquired for cash in an account on or after January 1, 2011,
except stock for which the average basis method is available under
Sec. 1.1012-1(e).
* * * * *
(C) A specified security described in paragraphs (a)(14)(ii) and
(n)(2)(i) of this section (not including the debt instruments described
in paragraph (n)(2)(ii) of this section) acquired for cash in an
account on or after January 1, 2014.
(D) A specified security described in paragraphs (a)(14)(ii) and
(n)(3) of this section acquired for cash in an account on or after
January 1, 2016.
(E) An option described in paragraph (a)(14)(iii) of this section
granted or acquired for cash in an account on or after January 1, 2014.
(F) A securities futures contract described in paragraph
(a)(14)(iv) of this section entered into in an account on or after
January 1, 2014.
* * * * *
(ii) * * * Acquiring a security in an account includes granting an
option and entering into a short sale.
* * * * *
(17) For purposes of this section, the terms debt instrument, bond,
debt obligation, and obligation mean a debt instrument as defined in
Sec. 1.1275-1(d) and any instrument or position that is treated as a
debt instrument under a specific provision of the Internal Revenue Code
(for example, a regular interest in a REMIC as defined in section
860G(a)(1) and Sec. 1.860G-1). Solely for purposes of this section, a
security classified as debt by the issuer is treated as debt. If the
issuer has not classified the security, the security is not treated as
debt unless the broker knows that the security is reasonably classified
as debt under general Federal tax principles or that the instrument or
position is treated as a debt instrument under a specific provision of
the Internal Revenue Code.
(18) For purposes of this section, the term securities futures
contract means a contract described in section 1234B(c) whose
underlying asset is described in paragraph (a)(14)(i) of this section
and which is entered into on or after January 1, 2014.
* * * * *
(c) * * *
(3) * * *
(vii) * * *
(C) * * * The preceding sentence does not apply to a debt
instrument issued on or after January 1, 2014. For a short-term
obligation issued on or after January 1, 2014, see paragraph
(c)(3)(xiii) of this section.
(D) * * * The preceding sentence does not apply to a debt
instrument issued on or after January 1, 2014.
* * * * *
(x) Certain retirements. * * * The preceding sentence does not
apply to a debt instrument issued on or after January 1, 2014.
(xi) * * *
(C) Short sale obligation transferred to another account. If a
short sale obligation is satisfied by delivery of a security
transferred into a customer's account accompanied by a transfer
statement (as described in Sec. 1.6045A-1(b)(7)) indicating that the
security was borrowed, the broker receiving custody of the security may
not file a return of information under this section. The
[[Page 23128]]
receiving broker must furnish a statement to the transferor that
reports the amount of gross proceeds received from the short sale, the
date of the sale, the quantity of shares, units, or amounts sold, and
the Committee on Uniform Security Identification Procedures (CUSIP)
number of the sold security (if applicable) or other security
identifier number that the Secretary may designate by publication in
the Federal Register or in the Internal Revenue Bulletin (see Sec.
601.601(d)(2) of this chapter). * * *
* * * * *
(xiii) Short-term obligations issued on or after January 1, 2014.
No return of information is required under this section with respect to
a sale (including a retirement) of a short-term obligation, as
described in section 1272(a)(2)(C), that is issued on or after January
1, 2014.
(4) * * *
Example 9. (i) * * * N indicates on the transfer statement that
the transferred stock was borrowed in accordance with Sec. 1.6045A-
1(b)(7).
* * * * *
(d) * * *
(2) Transactional reporting--(i) Required information. * * * In
addition, for a sale of a covered security on or after January 1, 2014,
a broker must report on Form 1099-B whether any gain or loss is
ordinary. See paragraph (m) of this section for additional rules
related to options and paragraph (n) of this section for additional
rules related to debt instruments.
(ii) Specific identification of securities. Except as provided in
Sec. 1.1012-1(e)(7)(ii), for a specified security described in
paragraph (a)(14)(i) of this section sold on or after January 1, 2011,
or for a specified security described in paragraph (a)(14)(ii) of this
section sold on or after January 1, 2014, a broker must report a sale
of less than the entire position in an account of a specified security
that was acquired on different dates or at different prices
consistently with a customer's adequate and timely identification of
the security to be sold. See Sec. 1.1012-1(c). If the customer does
not provide an adequate and timely identification for the sale, the
broker must first report the sale of securities in the account for
which the broker does not know the acquisition or purchase date
followed by the earliest securities purchased or acquired, whether
covered securities or noncovered securities.
(iii) Sales of noncovered securities. A broker is not required to
report adjusted basis and the character of any gain or loss for the
sale of a noncovered security if the return identifies the sale as a
sale of a noncovered security. * * *
* * * * *
(3) Sales between interest payment dates. For each sale of a debt
instrument prior to maturity with respect to which a broker is required
to make a return of information under this section, a broker must show
separately on Form 1099 the amount of accrued and unpaid qualified
stated interest as of the sale date that must be reported by the
customer as interest income under Sec. 1.61-7(d). See Sec. 1.1273-
1(c) for the definition of qualified stated interest. Such interest
information must be shown in the manner and at the time required by
Form 1099 and section 6049.
* * * * *
(5) Gross proceeds. For purposes of this section, gross proceeds on
a sale are the total amount paid to the customer or credited to the
customer's account as a result of the sale reduced by the amount of any
qualified stated interest reported under paragraph (d)(3) of this
section and increased by any amount not paid or credited by reason of
repayment of margin loans. In the case of a closing transaction (other
than a closing transaction related to an option) that results in a
loss, gross proceeds are the amount debited from the customer's
account. For sales before January 1, 2014, a broker may, but is not
required to, reduce gross proceeds by the amount of commissions and
transfer taxes, provided the treatment chosen is consistent with the
books of the broker. For sales on or after January 1, 2014, a broker
must reduce gross proceeds by the amount of commissions and transfer
taxes related to the sale of the security. For securities sold pursuant
to the exercise of an option granted or acquired before January 1,
2014, a broker may, but is not required to, take the option premiums
into account in determining the gross proceeds of the securities sold,
provided the treatment chosen is consistent with the books of the
broker. For securities sold pursuant to the exercise of an option
granted or acquired on or after January 1, 2014, or for the treatment
of an option granted or acquired on or after January 1, 2014, see
paragraph (m) of this section. * * *
(6) Adjusted basis--(i) In general. * * * A broker is not required
to consider transactions or events occurring outside the account except
for an organizational action taken by an issuer during the period the
broker holds custody of the security (beginning with the date that the
broker receives a transferred security) reported on an issuer statement
(as described in Sec. 1.6045B-1) furnished or deemed furnished to the
broker. Except as otherwise provided in paragraph (n) of this section,
a broker is not required to consider customer elections. For rules
related to the adjusted basis of a debt instrument, see paragraph (n)
of this section.
(ii) Initial basis--(A) Cost basis. For a security acquired for
cash, the initial basis generally is the total amount of cash paid by
the customer or credited against the customer's account for the
security, increased by the commissions and transfer taxes related to
its acquisition. A broker may, but is not required to, take option
premiums into account in determining the initial basis of securities
purchased or acquired pursuant to the exercise of an option granted or
acquired before January 1, 2014. For rules related to options granted
or acquired on or after January 1, 2014, see paragraph (m) of this
section. A broker may, but is not required to, increase initial basis
for income recognized upon the exercise of a compensatory option or the
vesting or exercise of other equity-based compensation arrangements,
granted or acquired before January 1, 2014. A broker may not increase
initial basis for income recognized upon the exercise of a compensatory
option or the vesting or exercise of other equity-based compensation
arrangements, granted or acquired on or after January 1, 2014. * * *
(B) Basis of transferred securities * * *
* * * * *
(iii) Adjustments for wash sales--(A) In general. * * * The broker
must increase the basis of the purchased security by the amount of loss
disallowed on the sale transaction.
* * * * *
(iv) Certain adjustments not taken into account. A broker is not
required to apply section 1259 (regarding constructive sales), section
475 (regarding the mark-to-market method of accounting), section 1296
(regarding the mark-to-market method of accounting for marketable stock
in a passive foreign investment company), or section 1092 (regarding
straddles) when reporting adjusted basis.
* * * * *
(vii) * * *
Example 4. R, an employee of C, a corporation, participates in
C's stock option plan. On April 2, 2014, C grants R a nonstatutory
option under the plan to buy 100 shares of stock. The option becomes
substantially vested on April 2, 2015. On October 2, 2015, R
exercises the option and purchases 100 shares. On December 2, 2015,
[[Page 23129]]
R sells the 100 shares. Under paragraph (d)(6)(ii)(A) of this
section, C is required to determine adjusted basis from the amount R
pays under the terms of the option. Under paragraph (d)(6)(ii)(A) of
this section, C is not permitted to adjust basis for any amount R
must include as wage income with respect to the October 2, 2015,
stock purchase.
(7) Long-term or short-term gain or loss--(i) In general. * * * A
broker is not required to consider transactions, elections, or events
occurring outside the account except for an organizational action taken
by an issuer during the period the broker holds custody of the security
(beginning with the date that the broker receives a transferred
security) reported on an issuer statement (as described in Sec.
1.6045B-1) furnished or deemed furnished to the broker.
* * * * *
(8) Conversion into United States dollars of amounts paid or
received in foreign currency--(i) Conversion rules--(A) When a payment
other than a payment of interest is made in a foreign currency, a
broker must determine the U.S. dollar amount of the payment by
converting the foreign currency into U.S. dollars on the date it
receives, credits, or makes the payment, as applicable, at the spot
rate (as defined in Sec. 1.988-1(d)(1)) or pursuant to a reasonable
spot rate convention. (For interest payments, see paragraph (n)(4)(v)
of this section concerning a customer's spot rate election.) * * *
* * * * *
(m) Additional rules for option transactions--(1) In general. This
paragraph (m) provides rules for a broker to determine and report the
information required under this section for an option that is a covered
security under paragraph (a)(15)(i)(E) of this section.
(2) Scope--(i) In general. Paragraph (m) of this section applies to
the following types of options granted or acquired on or after January
1, 2014:
(A) An option on one or more specified securities (which includes
an index substantially all the components of which are specified
securities);
(B) An option on financial attributes of specified securities, such
as interest rates or dividend yields; or
(C) A warrant or a stock right.
(ii) Delayed effective date for certain options. Notwithstanding
paragraph (m)(2)(i) of this section, if an option, stock right, or
warrant is issued as part of an investment unit described in Sec.
1.1273-2(h), paragraph (m) of this section applies to the option, stock
right, or warrant if it is acquired on or after January 1, 2016.
(iii) Compensatory option. Notwithstanding paragraphs (m)(2)(i) and
(m)(2)(ii) of this section, paragraph (m) of this section does not
apply to compensatory options.
(3) Option subject to section 1256. If an option described in
paragraph (m)(2) of this section is also described in section 1256(b),
a broker must apply the rules described in paragraph (c)(5) of this
section by treating the option as if it were a regulated futures
contract and must report the information required under paragraph
(c)(5) of this section. A broker is permitted, but not required, to
report the amounts for options and the amounts for regulated futures
contracts determined under paragraph (c)(5) of this section as a net
amount for each reportable item.
(4) Option not subject to section 1256. The following rules apply
to an option that is described in paragraph (m)(2) of this section but
is not also described in paragraph (m)(3) of this section:
(i) Physical settlement. For purposes of paragraph (d) of this
section, if a specified security (other than an option) is acquired or
disposed of pursuant to the exercise of an option, the broker must
adjust the basis of the acquired asset or the gross proceeds amount as
appropriate to account for any payment related to the option, including
the premium.
(ii) Cash settlement. For purposes of paragraph (d) of this
section, for an option that is settled for cash, a broker must reflect
on Form 1099-B all payments made or received on the option. For a
purchased option, a broker must report as basis the premium paid plus
any costs (for example, commissions) related to the acquisition of the
option and must report as proceeds the gross proceeds from settlement
minus any costs related to the settlement of the option. For a written
option, a broker must report as proceeds the premium received decreased
by any amounts paid on the option and report $0 as the basis of the
option.
(iii) Rules for warrants and stock rights acquired in a section 305
distribution. For a right (including a warrant) to acquire stock
received in the same account as the underlying security in a
distribution that is described in section 305(a), a broker is
permitted, but not required, to apply the rules described in sections
305 and 307 when reporting or accounting for the basis of the option
and the underlying equity. If a stock right or warrant is acquired from
the initial distributee, the buyer or transferee must treat it as an
option covered by either paragraph (m)(4)(i) or (m)(4)(ii) of this
section.
(iv) Examples. The following examples illustrate the rules in this
paragraph (m)(4):
Example 1. (i) On January 15, 2014, C, an individual who is
neither a dealer nor a trader in securities, writes a 2-year
exchange-traded option on 100 shares of Company X through Broker D.
C receives a premium for the option of $100 and pays no commission.
In C's hands, the option produces capital gain or loss and Company X
stock is a capital asset. On December 16, 2014, C pays $110 to close
out the option.
(ii) D is required to report information about the closing
transaction because the option is a covered security as described in
paragraph (a)(15)(i)(E) of this section and was part of a closing
transaction described in paragraph (a)(8) of this section. Under
paragraph (m)(4)(ii) of this section, D must report as gross
proceeds on C's Form 1099-B -$10 (the $100 received as option
premium minus the $110 C paid to close out the option) and report $0
in the basis box on the Form 1099-B. Under section 1234(b)(1) and
paragraph (d)(2) of this section, D must also report the loss on the
closing transaction as a short-term capital loss.
Example 2. (i) On January 15, 2014, E, an individual who is
neither a dealer nor a trader in securities, buys a 2-year exchange-
traded option on 100 shares of Company X through Broker F. E pays a
premium of $100 for the option and pays no commission. In E's hands,
both the option and Company X stock are capital assets. On December
16, 2014, E receives $110 to close out the option.
(ii) F is required to report information about the closing
transaction because the option is a covered security as described in
paragraph (a)(15)(i)(E) of this section and was part of a closing
transaction described in paragraph (a)(8) of this section. Because
the option is on the shares of a single company, it is an equity
option described in section 1256(g)(6) and is not described in
section 1256(b)(1)(C). Therefore, the rules of paragraph (m)(3) of
this section do not apply, and F must report under paragraph (m)(4)
of this section. Under paragraph (m)(4)(ii) of this section, F must
report $110 as gross proceeds on the Form 1099-B for the gross
proceeds E received and $100 in the basis box on the Form 1099-B to
reflect the $100 option premium paid. Under section 1234(b)(1) and
paragraph (d)(2) of this section, F must also report the gain on the
closing transaction as a short-term capital gain.
(5) Multiple options documented in a single contract. If more than
one option described in paragraph (m)(2) of this section is documented
in a single contract, a broker must separately report the required
information for each option as that option is sold.
(6) Determination of index status. Penalties will not be asserted
under sections 6721 and 6722 if a broker in good faith determines that
an index is, or is not, a narrow-based index described in section
1256(g)(6) and
[[Page 23130]]
reports in a manner consistent with this determination.
(n) Reporting for debt instrument transactions--(1) In general. For
purposes of this section, this paragraph (n) provides rules for a
broker to determine and report information for a debt instrument that
is a covered security under paragraph (a)(15)(i)(C) or (D) of this
section. Neither a debt instrument subject to section 1272(a)(6) nor a
short-term obligation described in section 1272(a)(2)(C) is subject to
this paragraph (n) because neither is a specified security under
paragraph (a)(14)(ii) of this section (a requirement for a debt
instrument to be a covered security).
(2) Debt instruments subject to January 1, 2014, reporting--(i) In
general. For purposes of paragraph (a)(15)(i)(C) of this section,
except as provided in paragraph (n)(2)(ii) of this section, a debt
instrument is described in this paragraph (n)(2)(i) if the debt
instrument is one of the following:
(A) A debt instrument that provides for a single fixed payment
schedule for which a yield and maturity can be determined for the
instrument under Sec. 1.1272-1(b);
(B) A debt instrument that provides for alternate payment schedules
for which a yield and maturity can be determined for the instrument
under Sec. 1.1272-1(c); or
(C) A debt instrument for which the yield of the debt instrument
can be determined under Sec. 1.1272-1(d).
(ii) Exceptions. A debt instrument is not described in paragraph
(n)(2)(i) of this section if the debt instrument is one of the
following:
(A) A debt instrument that provides for more than one rate of
stated interest (including a debt instrument that provides for stepped
interest rates);
(B) A convertible debt instrument described in Sec. 1.1272-1(e);
(C) A stripped bond or stripped coupon subject to section 1286;
(D) A debt instrument that requires payment of either interest or
principal in a currency other than the U.S. dollar;
(E) A debt instrument that, at one or more times in the future,
entitles a holder to a tax credit;
(F) A debt instrument that provides for a payment-in-kind (PIK)
feature (that is, under the terms of the debt instrument, a holder may
receive one or more additional debt instruments of the issuer);
(G) A debt instrument issued by a non-U.S. issuer;
(H) A debt instrument for which the terms of the instrument are not
reasonably available to the broker within 90 days of the date the debt
instrument was acquired by the customer;
(I) A debt instrument that is issued as part of an investment unit
described in Sec. 1.1273-2(h); or
(J) A debt instrument evidenced by a physical certificate unless
such certificate is held (whether directly or through a nominee, agent,
or subsidiary) by a securities depository or by a clearing organization
described in Sec. 1.1471-1(b)(18).
(iii) Remote or incidental. For purposes of paragraphs (n)(2)(i)
and (n)(2)(ii) of this section, a remote or incidental contingency (as
determined under Sec. 1.1275-2(h)) is ignored.
(iv) Penalty rate. For purposes of paragraph (n)(2)(ii)(A) of this
section, a debt instrument does not provide for more than one rate of
stated interest merely because the instrument provides for a penalty
interest rate or an adjustment to the stated interest rate in the event
of a default or similar event.
(3) Debt instruments subject to January 1, 2016, reporting. For
purposes of paragraph (a)(15)(i)(D) of this section, a debt instrument
is described in this paragraph (n)(3) if it is described in paragraph
(n)(2)(ii) of this section or it otherwise is not described in
paragraph (n)(2)(i) of this section. For example, this paragraph (n)(3)
applies to variable rate debt instruments, inflation-indexed debt
instruments, and contingent payment debt instruments because these
instruments are not described in paragraph (n)(2)(i) of this section.
(4) Holder elections. For purposes of this section, a broker is
required to take into account an election described in this paragraph
(n)(4), and the broker must take the election into account in
accordance with the rules in paragraph (n)(5) of this section. A
broker, however, may not take into account any other election.
(i) Election to amortize bond premium. An election under section
171 and Sec. 1.171-4 to amortize bond premium on a taxable debt
instrument (this election applies to all taxable debt instruments held
by a taxpayer during the taxable year the election is effective and
thereafter; this election may be revoked with the consent of the
Commissioner).
(ii) Election to currently include accrued market discount. An
election under section 1278(b) to include market discount in income as
it accrues (this election applies to all debt instruments acquired by a
taxpayer during the taxable year the election is effective and
thereafter; this election may be revoked with the consent of the
Commissioner).
(iii) Election to accrue market discount based on a constant yield.
An election under section 1276(b)(2) to compute accruals of market
discount using a constant yield method (this election is generally made
on an instrument-by-instrument basis and must be made for the earliest
taxable year for which the taxpayer is required to determine accrued
market discount on the debt instrument; this election may not be
revoked).
(iv) Election to treat all interest as OID. An election under Sec.
1.1272-3 to treat all interest on a taxable debt instrument (adjusted
for any acquisition premium or premium) as original issue discount
(this election is generally made on an instrument-by-instrument basis
and must be made for the taxable year the debt instrument is acquired
by the taxpayer; this election may be revoked with the consent of the
Commissioner).
(v) Election to translate interest income and expense at the spot
rate. An election under Sec. 1.988-2(b)(2)(iii)(B) to translate
interest income and expense at the spot rate on the last day of the
interest accrual period or, in the case of a partial accrual period,
the last day of the taxable year (this election applies to all taxable
debt instruments held by a taxpayer during the taxable year the
election is effective and thereafter; this election may be revoked with
the consent of the Commissioner).
(5) Broker assumptions and customer notice to brokers--(i) Broker
assumptions if the customer does not notify the broker. Except as
provided in paragraph (n)(5)(ii)(A) of this section, a broker must
report the information required under paragraph (d) of this section by
assuming that a customer has made the election to amortize bond premium
described in paragraph (n)(4)(i) of this section. In addition, except
as provided in paragraph (n)(5)(ii)(B) of this section, a broker must
report the information required under paragraph (d) of this section by
assuming that a customer has not made an election described in
paragraph (n)(4)(ii), (n)(4)(iii), (n)(4)(iv), or (n)(4)(v) of this
section.
(ii) Effect of customer notification of an election or revocation--
(A) Election to amortize bond premium. If a customer notifies a broker
in writing that the customer does not want the broker to take into
account the election to amortize bond premium, the broker must report
the information required under paragraph (d) of this section without
taking into account the election to amortize bond premium. The customer
must provide this notification to the broker by the end of the calendar
year for which the customer does not want to amortize bond premium. If
for a subsequent calendar year, the
[[Page 23131]]
customer wants the broker to take into account the election to amortize
bond premium, the customer must notify the broker in writing by the end
of the calendar year that the customer wants to amortize bond premium.
If the customer provides such notification, the broker must report the
information required under paragraph (d) of this section as if the
customer made the election to amortize bond premium for that year.
(B) Other debt elections. If a customer notifies a broker in
writing that the customer has made or will make an election described
in paragraph (n)(4)(ii), (iii), (iv), or (v) of this section, the
broker must report the information required under paragraph (d) of this
section by taking into account the election. A customer must notify the
broker in writing of the election by the end of the calendar year in
which a debt instrument subject to the election is acquired in, or
transferred into, an account with the broker or, if later, by the end
of the calendar year for which the election is effective. If a customer
has revoked or will revoke an election described in paragraph
(n)(4)(ii), (n)(4)(iv), or (n)(4)(v) of this section for a calendar
year, the customer must notify the broker of the revocation in writing
by the end of the calendar year for which the revocation is effective.
If the customer provides such notification, the broker must report the
information required under paragraph (d) of this section by taking into
account the revocation.
(iii) Electronic notification. For purposes of paragraph (n)(5)(ii)
of this section, the written notification to the broker includes a
writing in electronic format.
(6) Reporting of accrued market discount. In addition to the
information required to be reported under paragraph (d) of this
section, if a debt instrument is subject to the market discount rules
in sections 1276 through 1278, a broker also must report the
information described in paragraph (n)(6)(i) or (n)(6)(ii) of this
section, whichever is applicable. Such information must be shown in the
manner and at the time required by Form 1099 and section 6045.
(i) Sale. A broker must report the amount of market discount that
has accrued on a debt instrument as of the date of the instrument's
sale, as defined in paragraph (a)(9) of this section. See paragraph
(n)(5) of this section to determine whether the amount reported should
take into account a customer election under section 1276(b)(2). See
paragraph (n)(8) of this section to determine the accrual period to be
used to compute the accruals of market discount. This paragraph
(n)(6)(i) does not apply if the customer notifies the broker under the
rules in paragraph (n)(5) of this section that the customer elects
under section 1278(b) to include market discount in income as it
accrues.
(ii) Current inclusion election. If a customer notifies a broker
under the rules in paragraph (n)(5) of this section that the customer
elects under section 1278(b) to include market discount in income as it
accrues, the broker is required to report to the customer the amount of
market discount that accrued on a debt instrument during a taxable year
while held by the customer in the account. The broker also must adjust
basis in accordance with section 1278(b)(4). If a customer notifies a
broker under the rules in paragraph (n)(5) of this section that the
customer is revoking its election under section 1278(b), the broker
will not report the market discount accrued during the taxable year of
the revocation and thereafter and will cease to adjust basis in
accordance with section 1278(b)(4). See paragraph (n)(8) of this
section to determine the accrual period to be used to compute the
accruals of market discount.
(7) Adjusted basis. For purposes of this section, a broker must use
the rules in paragraph (n) of this section to determine the adjusted
basis of a debt instrument.
(i) Original issue discount. If a debt instrument is subject to the
original issue discount rules in sections 1271 through 1275, section
1286, or section 1288, a broker must increase a customer's basis in the
debt instrument by the amount of original issue discount that accrued
on the debt instrument while held by the customer in the account. See
paragraph (n)(8) of this section to determine the accrual period to be
used to compute the accruals of original issue discount.
(ii) Amortizable bond premium--(A) Taxable bond. A broker is
required to adjust the customer's basis for any taxable bond acquired
at a premium and held in the account in accordance with Sec. 1.1016-
5(b). If a customer, however, informs a broker under the rules in
paragraph (n)(5)(ii)(A) of this section that the customer does not want
to amortize bond premium, the broker must not adjust the customer's
basis for any premium.
(B) Tax-exempt bonds. A broker is required to adjust the customer's
basis for any tax-exempt obligation acquired at a premium and held in
the account in accordance with Sec. 1.1016-5(b).
(iii) Acquisition premium. If a debt instrument is acquired at an
acquisition premium (as determined under Sec. 1.1272-2(b)(3)), a
broker must decrease the customer's basis in the debt instrument by the
amount of acquisition premium that is taken into account each year to
reduce the amount of the original issue discount that is otherwise
includible in the customer's income for that year. See Sec. 1.1272-
2(b)(4) to determine the amount of the acquisition premium taken into
account each year. However, if a customer informs a broker under the
rules in paragraph (n)(5) of this section that the customer elects
under Sec. 1.1272-3 to use a constant yield to amortize the
acquisition premium, then the broker must decrease the customer's basis
in the debt instrument by the amount of acquisition premium that is
taken into account each year to reduce the amount of the original issue
discount that is otherwise includible in the customer's income for that
year in accordance with Sec. 1.1272-2(b)(5) and Sec. 1.1272-3.
(iv) Market discount. See paragraph (n)(6) of this section for
rules to determine the adjusted basis of a debt instrument with market
discount.
(v) Principal and certain other payments. A broker must decrease
the customer's basis in a debt instrument by the amount of any payment
made to the customer during the period the debt instrument is held in
the account, other than a payment of qualified stated interest as
defined in Sec. 1.1273-1(c).
(8) Accrual period. For purposes of this section, a broker
generally must use the same accrual period that is used to report any
original issue discount or stated interest to a customer under section
6049 for a debt instrument. In any other situation, a broker must use a
semi-annual accrual period or, if a debt instrument provides for
scheduled payments of principal or interest at regular intervals of
less than six months over the entire term of the debt instrument, a
broker must use an accrual period equal in length to this shorter
interval. For example, if a debt instrument provides for monthly
payments of interest over the entire term of the debt instrument, the
broker must use a monthly accrual period. The rules in Sec. 1.1272-
1(b)(4)(iii) apply for purposes of an initial short accrual period. In
computing the length of an accrual period, any reasonable counting
convention may be used (for example, 30 days per month/360 days per
year, or actual days per month/365 days per year).
(9) Premium on convertible bond. If a customer acquires a
convertible bond (as defined in Sec. 1.171-1(e)(1)(iii)(C)) at a
premium (as determined under Sec. 1.171-1(d)), then, solely for
purposes of this section and Sec. 1.6049-9T, a broker must
[[Page 23132]]
assume that the premium is attributable to the conversion feature.
Based on this assumption, no portion of the premium is amortizable for
purposes of this section and Sec. 1.6049-9T.
(10) Effect of broker assumptions on customer. The rules in this
paragraph (n) only apply for purposes of a broker's reporting
obligation under section 6045. A customer is not bound by the
assumptions that the broker uses to satisfy the broker's reporting
obligations under section 6045. In addition, a notification to the
broker under paragraph (n)(5) of this section does not constitute an
effective election or revocation under the applicable rules for the
election.
* * * * *
0
Par. 5. Section 1.6045A-1 is amended by:
0
1. Adding new paragraph (a)(1)(vi) and revising paragraph (b)(1)
introductory text and paragraph (b)(1)(v).
0
2. Revising the second sentence of paragraph (b)(1)(vii).
0
3. Redesignating paragraphs (b)(2) through (b)(9) as paragraphs (b)(5)
through (b)(12) respectively.
0
4. Redesignating paragraph (b)(1)(viii) as paragraph (b)(2).
0
5. Revising the introductory text to newly redesignated paragraph
(b)(2).
0
6. Adding new paragraphs (b)(3) and (b)(4).
0
7. Revising newly redesignated paragraph (b)(5).
0
8. Revising the first and last sentences of newly redesignated
paragraph (b)(6).
0
9. Revising newly redesignated paragraph (b)(8)(ii).
0
10. Revising the first sentence of newly redesignated paragraph
(b)(9)(ii).
0
11. Revising the introductory text to newly redesignated paragraph
(b)(9)(iii), the fifth sentence of paragraph (b)(9)(iii) Example 1, and
the second sentence of paragraph (b)(9)(iii) Example 2.
0
12. Revising the last sentence of newly redesignated paragraph (b)(10).
0
13. Redesignating the text of newly redesignated paragraph (b)(12) as
paragraph (b)(12)(i), adding a heading for newly redesignated paragraph
(b)(12)(i), and adding new paragraph (b)(12)(ii).
0
14. Revising paragraph (d).
The additions and revisions read as follows:
Sec. 1.6045A-1 Statements of information required in connection with
transfers of securities.
(a) * * *
(1) * * *
(vi) Section 1256 options. A transferor of an option described in
Sec. 1.6045-1(m)(3) is not required to furnish a transfer statement.
(b) Information required--(1) In general. For all specified
securities, each transfer statement must include the information
described in this paragraph (b)(1).
* * * * *
(v) Security identifiers. The Committee on Uniform Security
Identification Procedures (CUSIP) number of the security transferred
(if applicable) or other security identifier number that the Secretary
may designate by publication in the Federal Register or in the Internal
Revenue Bulletin (see Sec. 601.601(d)(2) of this chapter), quantity of
shares, units, or amounts, and classification of the security (such as
stock or debt).
* * * * *
(vii) Adjusted basis and acquisition date.* * * The transferor must
determine this information as provided under Sec. Sec. 1.6045-1(d),
1.6045-1(m), and 1.6045-1(n), including reporting the adjusted basis of
the security in U.S. dollars.* * *
(2) Examples. The following examples illustrate the rules of
paragraph (b)(1) of this section:
* * * * *
(3) Additional information required for a transfer of a debt
instrument. In addition to the information required in paragraph (b)(1)
of this section, for a transfer of a debt instrument that is a covered
security, the following additional information is required:
(i) A description of the payment terms used by the broker to
compute any basis adjustments under Sec. 1.6045-1(n);
(ii) The issue price of the debt instrument;
(iii) The issue date of the debt instrument (if different from the
original acquisition date of the debt instrument);
(iv) The adjusted issue price of the debt instrument as of the
transfer date;
(v) The customer's initial basis in the debt instrument;
(vi) Any market discount that has accrued as of the transfer date
(as determined under Sec. 1.6045-1(n));
(vii) Any bond premium that has been amortized as of the transfer
date (as determined under Sec. 1.6045-1(n));
(viii) Any acquisition premium that has been amortized as of the
transfer date (as determined under Sec. 1.6045-1(n)); and
(ix) Whether the transferring broker has computed any of the
information described in this paragraph (b)(3) by taking into account
one or more elections described in Sec. 1.6045-1(n), and, if so, which
election or elections were taken into account by the transferring
broker.
(4) Additional information required for option transfers. In
addition to the information required in paragraph (b)(1) of this
section, for a transfer of an option that is a covered security, the
following additional information is required:
(i) The date of grant or acquisition of the option;
(ii) The amount of premium paid or received; and
(iii) Any other information required to fully describe the option,
which may include a security identifier used by option exchanges, or
details about the underlying asset, quantity covered, exercise type,
strike price, and maturity date.
(5) Format of identification. An applicable person furnishing a
transfer statement and a broker receiving the transfer statement may
agree to combine the information required in paragraphs (b)(1), (b)(3),
and (b)(4) of this section in any format or to use a code in place of
one or more required items. For example, a transferor and a receiving
broker may agree to use a single code to represent the broker instead
of the broker's name, address, and telephone number, or may use a
security symbol or other identification number or scheme instead of the
security identifier required by paragraphs (b)(1), (b)(3), and (b)(4)
of this section. As another example, a transferor and a receiving
broker may agree to use a security identifier for an exchange-traded
option if that information would be sufficient to inform the receiving
broker of the terms for that option.
(6) Transfers of noncovered securities. The information described
in paragraphs (b)(1)(vii), (b)(3), (b)(4), (b)(8), and (b)(9) of this
section is not required for a transfer of a noncovered security if the
transfer statement identifies the security as a noncovered security. *
* * For purposes of this paragraph (b)(6), a transferor must treat a
security for which a broker makes a single-account election described
in Sec. 1.1012-1(e)(11)(i) as a covered security.
* * * * *
(8) * * *
(ii) Transfers of securities to satisfy a cash legacy. If a
security is transferred from a decedent or a decedent's estate to
satisfy a cash legacy, paragraphs (b)(1), (b)(3), and (b)(4) of this
section apply and paragraph (b)(8)(i) of this section does not apply.
* * * * *
(9) * * *
(ii) Subsequent transfers of gifts by the same customer. If a
transferor transfers to a different account of the same customer a
security that a prior transfer statement reported as a gifted security,
the transferor must include on the
[[Page 23133]]
transfer statement the information described in paragraph (b)(9)(i) of
this section for the date of the gift to the customer. * * *
(iii) Examples. The following examples illustrate the rules of this
paragraph (b)(9):
Example 1. * * * Under paragraph (b)(9)(i) of this section, S
must provide a transfer statement to T that identifies the
securities as gifted securities and indicates X's adjusted basis and
original acquisition date. * * *
Example 2. * * * Under paragraph (b)(9)(ii) of this section, T
must provide a transfer statement to U that identifies the
securities as gifted securities and indicates X's adjusted basis and
original acquisition date of the stock. * * *
(10) * * * If the customer does not provide an adequate and timely
identification for the transfer, a transferor must first report the
transfer of any securities in the account for which the transferor does
not know the acquisition or purchase date followed by the earliest
securities purchased or acquired, whether covered securities or
noncovered securities.
* * * * *
(12) Failure to receive a complete transfer statement--(i) In
general. * * *
(ii) Transition rules for transfers of debt instruments, options,
and securities futures contracts. If an option described in Sec.
1.6045-1(a)(14)(iii), a securities futures contract described in Sec.
1.6045-1(a)(14)(iv), or a debt instrument described in Sec. 1.6045-
1(a)(15)(i)(C) is transferred in 2014 and no transfer statement is
received, the receiving broker is not required to request a transfer
statement from the transferor and may treat the security as a
noncovered security. If a debt instrument described in Sec. 1.6045-
1(a)(15)(i)(D) is transferred in 2016 and no transfer statement is
received, the receiving broker is not required to request a transfer
statement from the transferor and may treat the security as a
noncovered security.
* * * * *
(d) Effective/applicability dates. This section applies to:
(1) A transfer on or after January 1, 2011, of stock other than
stock in a regulated investment company within the meaning of Sec.
1.1012-1(e)(5);
(2) A transfer on or after January 1, 2012, of stock in a regulated
investment company;
(3) A transfer on or after January 1, 2015, of an option described
in Sec. 1.6045-1(a)(14)(iii), a securities futures contract described
in Sec. 1.6045-1(a)(14)(iv), or a debt instrument described in Sec.
1.6045-1(a)(15)(i)(C); and
(4) A transfer on or after January 1, 2017, of a debt instrument
described in Sec. 1.6045-1(a)(15)(i)(D).
0
Par. 6. Section 1.6045B-1 is amended by:
0
1. Adding two new sentences at the end of paragraph (a)(3).
0
2. Redesignating paragraph (h) as paragraph (j), adding new paragraph
(h), adding and reserving paragraph (i), and revising newly-designated
paragraph (j).
The additions and revisions read as follows:
Sec. 1.6045B-1 Returns relating to actions affecting basis of
securities.
(a) * * *
(3) Exception for public reporting. * * * An issuer may
electronically sign a return that is publicly reported in accordance
with this paragraph (a)(3). The electronic signature must identify the
individual who attests to the declaration in the jurat.
* * * * *
(h) Rule for options--(1) In general. For an option granted or
acquired on or after January 1, 2014, if the original contract is
replaced by a different number of option contracts, the following rules
apply:
(i) If the option is an exchange-traded option, any clearinghouse
or clearing facility that serves as a counterparty is treated as the
issuer of the option for purposes of section 6045B.
(ii) If the option is not an exchange-traded option, the option
writer is treated as the issuer of the option for purposes of section
6045B.
(2) Examples. The following examples illustrate the rules of
paragraph (h)(1) of this section:
Example 1. On January 15, 2014, F, an individual, purchases a
one-year exchange-traded call option on 100 shares of Company X
stock, with a strike price of $110. The call option is cleared
through Clearinghouse G. Company X executes a 2-for-1 stock split as
of April 1, 2014. Due to the stock split, the terms of F's option
are altered, resulting in two option contracts, each on 100 shares
of Company X stock with a strike price of $55. All other terms
remain the same. Under paragraph (h)(1)(i) of this section,
Clearinghouse G is required to prepare an issuer report for F.
Example 2. On January 31, 2014, J, an individual, purchases from
K a non-exchange traded 7-month call option on 100 shares of Company
X stock, with a strike price of $110. Company X executes a 2-for-1
stock split as of April 1, 2014. Due to the stock split, the terms
of J's option are altered, resulting in one option contract on 200
shares of Company X stock with a strike price of $55. All other
terms of the option remain the same. Under paragraph (h)(1) of this
section, because the number of option contracts did not change, K is
not required to prepare an issuer report for J.
(i) [Reserved]
(j) Effective/applicability dates. This section applies to--
(1) Organizational actions occurring on or after January 1, 2011,
that affect the basis of specified securities within the meaning of
Sec. 1.6045-1(a)(14)(i) other than stock in a regulated investment
company within the meaning of Sec. 1.1012-1(e)(5);
(2) Organizational actions occurring on or after January 1, 2012,
that affect the basis of stock in a regulated investment company;
(3) Organizational actions occurring on or after January 1, 2014,
that affect the basis of debt instruments described in Sec. 1.6045-
1(n)(2)(i) (not including the debt instruments described in Sec.
1.6045-1(n)(2)(ii));
(4) Organizational actions occurring on or after January 1, 2016,
that affect the basis of debt instruments described in Sec. 1.6045-
1(n)(3);
(5) Organizational actions occurring on or after January 1, 2014,
that affect the basis of options described in Sec. 1.6045-
1(a)(14)(iii); and
(6) Organizational actions occurring on or after January 1, 2014,
that affect the basis of securities futures contracts described in
Sec. 1.6045-1(a)(14)(iv).
0
Par. 7. Section 1.6049-9T is added to read as follows:
Sec. 1.6049-9T Premium subject to reporting for a debt instrument
acquired on or after January 1, 2014 (temporary).
(a) General rule. Notwithstanding Sec. 1.6049-5(f), for a debt
instrument acquired on or after January 1, 2014, if a broker (as
defined in Sec. 1.6045-1(a)(1)) is required to file a statement for a
debt instrument under Sec. 1.6049-6, the broker generally must report
any bond premium (as defined in Sec. 1.171-1(d)) or acquisition
premium (as defined in Sec. 1.1272-2(b)(3)) for the calendar year.
This section, however, only applies to a debt instrument that is a
covered security as defined in Sec. 1.6045-1(a)(15).
(b) Reporting of bond premium amortization. Unless a broker has
been notified in writing in accordance with Sec. 1.6045-1(n)(5) that a
customer does not want to amortize bond premium under section 171, the
broker must report the amount of any amortizable bond premium allocable
to a stated interest payment made to the customer during the calendar
year. See Sec. Sec. 1.171-2 and 1.171-3 to determine the amount of
amortizable bond premium allocable to a stated interest payment.
Instead of reporting a gross amount for both stated interest and
amortizable bond premium, a broker may report a net amount of stated
interest that reflects the offset of the stated interest payment by the
[[Page 23134]]
amount of amortizable bond premium allocable to the payment. In this
case, the broker must not report the amortizable bond premium as a
separate item. This paragraph (b) also applies to amortizable bond
premium on a tax-exempt obligation, which is required to be amortized
under section 171.
(c) Reporting of acquisition premium amortization. A broker must
report the amount of any acquisition premium that reduces the amount of
original issue discount includible in income by the customer during a
calendar year. Unless a broker has been notified in writing in
accordance with Sec. 1.6045-1(n)(5) that a customer has made an
election under Sec. 1.1272-3 to use a constant yield to amortize the
acquisition premium, the broker must use the rules in Sec. 1.1272-
2(b)(4) to determine the amount of acquisition premium. Instead of
reporting a gross amount for both original issue discount and
acquisition premium, a broker may report a net amount of original issue
discount that reflects the offset of the original issue discount
includible in income by the customer for the calendar year by the
amount of acquisition premium allocable to the original issue discount.
In this case, the broker must not report the acquisition premium as a
separate item. This paragraph (c) does not apply to a tax-exempt
obligation.
(d) Expiration date. The applicability of this section expires on
or before April 15, 2016.
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
0
Par. 8. The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
0
Par. 9. In Sec. 602.101, paragraph (b) is amended by adding the
following entry in numerical order to the table to read as follows:
Sec. 602.101 OMB Control numbers.
* * * * *
(b) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described control No.
------------------------------------------------------------------------
* * * * *
1.6045-1(n)(5).......................................... 1545-2186
* * * * *
------------------------------------------------------------------------
Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
Approved: April 11, 2013.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2013-09085 Filed 4-17-13; 8:45 am]
BILLING CODE 4830-01-P