[Federal Register Volume 74, Number 241 (Thursday, December 17, 2009)]
[Proposed Rules]
[Pages 67009-67044]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-29855]



[[Page 67009]]

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Part II





Department of the Treasury





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Internal Revenue Service



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26 CFR Parts 1, 31 and 301



Basis Reporting by Securities Brokers and Basis Determination for 
Stock; Proposed Rule

Federal Register / Vol. 74, No. 241 / Thursday, December 17, 2009 / 
Proposed Rules

[[Page 67010]]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1, 31, and 301

[REG-101896-09]
RIN 1545-BI66


Basis Reporting by Securities Brokers and Basis Determination for 
Stock

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations relating to 
reporting sales of securities by brokers and determining the basis of 
securities. The proposed 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. This document also contains 
proposed regulations reflecting changes in the law that alter how 
taxpayers compute basis when averaging the basis of shares acquired at 
different prices and that expand the ability of taxpayers to compute 
basis by averaging. The document also proposes regulations that provide 
brokers and others until February 15 to furnish certain information 
statements to customers. This document also contains proposed 
regulations that implement new reporting requirements imposed upon 
persons that transfer custody of stock and upon issuers of stock 
regarding organizational actions that affect the basis of the issued 
stock. This document also contains proposed regulations reflecting 
changes in the law that alter how brokers report short sales of 
securities. Finally, this document provides for a notice of a public 
hearing on these proposed regulations.

DATES: Written or electronic comments must be received by February 8, 
2010. Outlines of topics to be discussed at the public hearing 
scheduled for February 17, 2010 must be received by February 8, 2010.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-101896-09), room 
5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
101896-09), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC, or sent electronically via the Federal 
eRulemaking Portal at http://www.regulations.gov (IRS REG-101896-09). 
The public hearing will be held in the auditorium of the IRS New 
Carrollton Federal Building, 5000 Ellin Road, Lanham, Maryland 20706.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations 
under section 1012, Edward C. Schwartz of the Office of Associate Chief 
Counsel (Income Tax and Accounting) at (202) 622-4960; concerning the 
proposed regulations under sections 3406, 6045, 6045A, 6045B, 6721, and 
6722, Stephen Schaeffer of the Office of Associate Chief Counsel 
(Procedure and Administration) at (202) 622-4910; concerning 
submissions of comments, the public hearing, and/or to be placed on the 
building access list to attend the public hearing, Funmi Taylor of the 
Office of Associate Chief Counsel (Procedure and Administration) at 
(202) 622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in this notice of proposed 
rulemaking related to the furnishing of information in connection with 
the transfer of securities has been submitted to the Office of 
Management and Budget in accordance with the Paperwork Reduction Act of 
1995 (44 U.S.C. 3507(d)). Comments on the collection of information 
should be sent to the Office of Management and Budget, Attn: Desk 
Officer for the Department of the Treasury, Office of Information and 
Regulatory Affairs, Washington, DC 20503, with copies to the Internal 
Revenue Service, Attn: IRS Reports Clearance Officer, 
SE:W:CAR:MP:T:T:SP, Washington, DC 20224. Comments on the collection of 
information should be received by February 16, 2010. Comments are 
specifically requested concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the IRS, including whether the 
information will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collection of information;
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden of complying with the proposed collection of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and
    Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    The collection of information in these proposed regulations in 
Sec. Sec.  1.6045-1(c)(3)(xi)(C) and 1.6045A-1 concerning furnishing 
information in connection with a transfer of securities 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). The 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 likely respondents are brokers of securities and issuers, 
transfer agents, and professional custodians of securities that do not 
effect sales.
    Estimated total annual reporting burden: 240,000 hours.
    Estimated average annual burden per respondent: 8 hours.
    Estimated average burden per response: 4 minutes.
    Estimated number of respondents: 30,000.
    Estimated frequency of responses: 4,000,000.
    The burden for the collection of information contained in proposed 
regulation Sec.  1.6045-1 except for Sec.  1.6045-1(c)(3)(xi)(C) 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 that proposed regulation. The burden for the collection 
of information contained in proposed regulation Sec.  1.6045B-1 will be 
reflected in the burden on the form that the IRS will create to request 
the information in that proposed regulation.
    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.

Background

    This document contains proposed amendments to the Income Tax 
Regulations (26 CFR part 1), the Regulations on Employment Tax and 
Collection of Income Tax at the Source (26 CFR part 31), and the 
Regulations on Procedure and Administration (26 CFR part 301) relating 
to information reporting by brokers and others as required by section 
6045. The document

[[Page 67011]]

also contains proposed amendments relating to the scope and computation 
of basis by the average basis method under section 1012 and to new 
information reporting requirements by brokers, custodians, and issuers 
of securities under sections 6045A and 6045B. These sections were 
amended or added by 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). These proposed regulations are proposed to be issued 
under the authority contained in sections 1012, 3406, 6045, 6045A, 
6045B, and 7805.

1. Returns of Brokers

    Section 6045(g) provides that every broker that is required to file 
a return with the IRS under section 6045(a) showing the gross proceeds 
from the sale of a covered security must include in the return the 
customer's adjusted basis in the security and whether any gain or loss 
with respect to the security is long-term or short-term. Thus, a broker 
that is currently subject to gross proceeds reporting under section 
6045(a) with respect to the sale of a covered security is also subject 
to the reporting of adjusted basis of that security and whether any 
gain or loss with respect to that security is long-term or short-term 
under section 6045(g).
    Section 1.6045-1(a)(1) provides that the term broker generally 
means any U.S. or foreign person that, in the ordinary course of a 
trade or business, stands ready to effect sales to be made by others. 
However, with respect to a sale (including a redemption or retirement) 
effected at an office outside the United States, a broker includes only 
a person described as a U.S. payor or U.S. middleman in Sec.  1.6049-
5(c)(5). Additionally, under Sec.  1.6045-1(g)(1), reporting is not 
required with respect to certain holders of securities that are exempt 
foreign persons. U.S. and foreign brokers that are subject to gross 
proceeds reporting under the existing rules will also be subject to 
reporting under the rules of section 6045(g).
a. Covered Security
    For purposes of reporting under section 6045(g), section 
6045(g)(3)(A) provides that a covered security is any specified 
security acquired on or after the applicable date if the security: (1) 
Was acquired through a transaction in the account in which the security 
was held; or (2) was transferred to that account from an account in 
which the security was a covered security, but only if the broker 
receiving custody of the security receives a statement under section 
6045A (described later in this preamble) with respect to the transfer.
b. Specified Security
    Section 6045(g)(3)(B) provides that a specified security is any: 
(1) Share of stock in a corporation; (2) note, bond, debenture, or 
other evidence of indebtedness; (3) commodity, or a contract or a 
derivative with respect to the commodity, if the Secretary determines 
that adjusted basis reporting is appropriate; and (4) other financial 
instrument with respect to which the Secretary determines that adjusted 
basis reporting is appropriate.
c. Applicable Date
    The applicable date of the reporting requirements under section 
6045(g) depends on the type of specified security that is sold. For 
stock in or of a corporation (other than stock in a regulated 
investment company (RIC) or stock acquired in connection with a 
dividend reinvestment plan (DRP)), section 6045(g)(3)(C)(i) provides 
that the applicable date is January 1, 2011. For stock in a RIC (RIC 
stock) or stock acquired in connection with a DRP (DRP stock) (for 
which additional rules are described later in this preamble), section 
6045(g)(3)(C)(ii) provides that the applicable date is January 1, 2012. 
For any other specified security, section 6045(g)(3)(C)(iii) provides 
that the applicable date is January 1, 2013, or a later date determined 
by the Secretary. The reporting rules related to options transactions 
apply only to options granted or acquired on or after January 1, 2013, 
as provided in section 6045(h)(3).
d. Reporting Method
    A broker must report a customer's adjusted basis under the 
following statutory rules. Under section 6045(g)(2)(B)(i)(I), a broker 
must report the adjusted basis of any security (other than RIC stock or 
DRP stock) using the first-in, first-out (FIFO) basis determination 
method unless the customer notifies the broker of the specific stock to 
be sold or transferred by means of making an adequate identification of 
the stock sold or transferred at the time of sale or transfer. Under 
section 6045(g)(2)(B)(i)(II), a broker must report the adjusted basis 
of RIC stock or DRP stock in accordance with the broker's default 
method under section 1012 unless the customer notifies the broker that 
the customer elects another permitted method.

2. Determination of Basis

a. In General
    For any sale, exchange, or other disposition of a specified 
security on or after the applicable date, section 1012(c) provides that 
the conventions prescribed by regulations under section 1012 for 
determining adjusted basis apply on an account by account basis.
b. RIC Stock
    Section 1012(c)(2) provides that RIC stock acquired before January 
1, 2012, is treated as held in a separate account from RIC stock 
acquired on or after that date. However, a RIC may elect (at the time 
and in the form and manner prescribed by the Secretary), on a 
stockholder by stockholder basis, to treat all stock in the RIC held by 
the stockholder as one account without regard to when the stock was 
acquired (single-account election). When this election applies, the 
average basis of a customer's stock is computed by averaging the basis 
of shares of identical stock acquired before, on, and after January 1, 
2012, and all the shares are treated as covered securities. If a broker 
holds RIC stock as a nominee of the beneficial owner of the shares, the 
broker makes the election.
c. DRP Stock
    If stock is acquired on or after January 1, 2011, in connection 
with a DRP, section 1012(d)(1) provides that the basis of that stock is 
determined under one of the basis computation methods permissible for 
RIC stock. Accordingly, the average basis method may be used for 
determining the basis of DRP stock. This special rule for DRP stock, 
however, applies only while the stock is held as part of the DRP. If 
the stock is transferred to another account, under section 1012(d)(2), 
each share of stock has a cost basis in that other account equal to its 
basis in the DRP immediately before the transfer (with adjustment for 
charges connected with the transfer).
    Section 1012(d)(4)(A) provides that a DRP is any arrangement under 
which dividends on stock are reinvested in stock identical to the stock 
on which the dividends are paid. Stock is treated as acquired in 
connection with a DRP if the stock is acquired pursuant to the DRP or 
if the dividends paid on the stock are subject to the DRP. Under 
section 1012(d)(3), in determining basis under this rule, the account 
by account rules of section 1012(c), including the single-account 
election available to RICs, apply.

[[Page 67012]]

3. Other Broker Reporting Provisions

a. Wash Sales
    Section 6045(g)(2)(B)(ii) provides that, unless the Secretary 
provides otherwise, a customer's adjusted basis in a covered security 
generally is determined for reporting purposes without taking into 
account the effect on basis of the wash sale rules of section 1091 
unless the purchase and sale transactions resulting in a wash sale 
occur in the same account and are in identical securities (rather than 
substantially identical securities as required by section 1091).
b. S Corporations
    Section 6045(g)(4) provides that, for purposes of section 6045, an 
S corporation (other than a financial institution) is treated in the 
same manner as a partnership. This rule applies to any sale of a 
covered security acquired by an S corporation (other than a financial 
institution) after December 31, 2011. When this rule takes effect, 
brokers generally will be required to report gross proceeds and basis 
information to customers that are S corporations for securities 
purchased on or after January 1, 2012.
c. Short Sales
    In the case of a short sale, section 6045(g)(5) provides that gross 
proceeds and basis reporting under section 6045 generally is required 
for the year in which the short sale is closed (rather than, as under 
the present rule for gross proceeds reporting, the year in which the 
short sale is entered into).
d. Options
    Section 6045(h)(1) provides that if a covered security is acquired 
or disposed of pursuant to the exercise of an option that was granted 
or acquired in the same account as the covered security, the amount 
received with respect to the grant or paid with respect to the 
acquisition of such option must be treated for reporting purposes as an 
adjustment to gross proceeds or as an adjustment to basis, as the case 
may be. Section 6045(h)(2) provides that gross proceeds and basis 
reporting is required when there is a lapse of, or a closing 
transaction with respect to, an option on a specified security or an 
exercise of a cash-settled option on a specified security. Section 
6045(h)(3) provides that section 6045(h)(1) and (h)(2) do not apply to 
any option granted or acquired before January 1, 2013.
e. Time for Furnishing Statements
    The Act amended section 6045(b) to extend the due date from January 
31 to February 15 for furnishing certain information statements to 
customers, effective for statements required to be furnished after 
December 31, 2008. Section 6045(b) provides that the statements to 
which the new February 15 due date applies are statements required 
under section 6045 and statements with respect to other reportable 
items that are furnished with these statements in a consolidated 
reporting statement (as defined in regulations under section 6045). See 
Notice 2009-11 (2009-5 IRB 420), providing that, with respect to 
reportable items from calendar year 2008, brokers had until February 
17, 2009, to report all items that they customarily reported on their 
annual composite form recipient statements. See Sec.  601.601(d)(2).

4. Transfer Statements

    The Act added section 6045A, which provides that a broker and any 
other person specified in Treasury regulations (applicable person) that 
transfers to a broker a security that is a covered security in the 
hands of the transferring person must furnish to the broker receiving 
custody of the security (receiving broker) a written statement that 
allows the receiving broker to satisfy the basis reporting requirements 
of section 6045(g). Section 6045A(c) provides that, unless the 
Secretary provides otherwise, the statement required by this rule must 
be furnished to the receiving broker not later than fifteen days after 
the transfer of the covered security.

5. Issuer Reporting

    The Act added section 6045B, which provides that an issuer of 
specified securities must file a return according to forms or 
regulations prescribed by the Secretary describing any organizational 
action (such as a stock split, merger, or acquisition) that affects the 
basis of the specified security, the quantitative effect on the basis 
of that specified security, and any other information the Secretary 
requires. Section 6045B(b) provides that this return must be filed 
within forty-five days after the date of the organizational action, 
unless the action occurs in December, in which case the return must be 
filed by January 15th of the following year.
    Section 6045B(c) provides that an issuer must furnish, according to 
forms or regulations prescribed by the Secretary, to each nominee with 
respect to that security (or to each certificate holder if there is no 
nominee) a written statement showing: (1) The name, address, and 
telephone number of the information contact of the person required to 
file the return; (2) the information required to be included on the 
return with respect to the security; and (3) any other information 
required by the Secretary. This statement must be furnished to the 
nominee or certificate holder on or before January 15th of the year 
following the calendar year in which the organizational action took 
place.
    Section 6045B(e) provides that the Secretary may waive the return 
filing and information statement requirements if the person to which 
the requirements apply makes publicly available, in the form and manner 
determined by the Secretary, the name, address, telephone number, and 
e-mail address of the information contact of that person, and the 
information about the organizational action and its effect on basis 
otherwise required to be included in the return.

6. Penalties

    The Act amended the list of returns and statements in section 
6724(d) for which sections 6721 and 6722 impose penalties for any 
failure to file or furnish complete and correct returns and statements. 
This section imposes a penalty on brokers for a failure to file returns 
or furnish complete and correct statements after a sale of securities 
as required by section 6045. Section 6724(d) now also imposes penalties 
with respect to the returns and statements required by sections 6045A 
and 6045B.

7. Request for Comments

    Notice 2009-17 (2009-8 IRB 575), published by the IRS on February 
23, 2009, invited public comments regarding guidance under the new 
reporting requirements in sections 6045, 6045A, and 6045B and for 
determining the basis of certain securities under section 1012. In 
particular, Notice 2009-17 requested comments on the applicability of 
the reporting requirements, basis method elections, DRPs, 
reconciliation with customer reporting, special rules and mechanical 
issues, transfer reporting, issuer reporting, and broker practices and 
procedures. Many comments were received in response to Notice 2009-17. 
The comments were considered in developing the proposed regulations. 
See Sec.  601.601(d)(2).

Explanation of the Provisions and Summary of Comments

    The proposed regulations provide rules for determining basis and 
for reporting adjusted basis and whether any gain or loss on a sale is 
long-term or short-term. The proposed regulations also address the new 
reporting requirements imposed upon persons

[[Page 67013]]

transferring custody of stock and upon issuers of stock.
    The proposed regulations do not address rules regarding reporting 
for options, compensatory options, or other equity-based compensation 
arrangements, or reporting of adjusted basis for indebtedness, because 
indebtedness is only subject to the requirements of section 6045(g) if 
acquired on or after January 1, 2013, and options are only subject to 
the requirements of section 6045(g) and (h) if granted or acquired on 
or after January 1, 2013. These rules are expected to be addressed in 
future guidance.
    The proposed regulations generally are limited to the amendments to 
the Internal Revenue Code (Code) under the Act in sections 1012, 6045, 
6045A, 6045B, and 6724 and do not address requests from commentators 
regarding changes to substantive rules in other areas such as the rules 
regarding allocation of a return of capital. The proposed regulations 
also do not address technical issues related to information reporting 
such as electronic delivery of returns by brokers to customers. These 
comments are outside the scope of the proposed regulations.

1. Returns of Brokers

    Section 1.6045-1(c) requires brokers to make a return of 
information with respect to each sale by a customer of the broker 
effected by the broker in the ordinary course of a trade or business in 
which the broker stands ready to effect sales to be made by others. 
Section 1.6045-1(d) sets forth the information that the broker must 
include on the return.
    The proposed regulations amend the definition of broker in Sec.  
1.6045-1(a)(1) to modify the exception for non-U.S. payors and non-U.S. 
middlemen. Under the revised rule, a non-U.S. payor or non-U.S. 
middleman would be a broker to the extent provided in a withholding 
agreement described in Sec.  1.1441-1(e)(5)(iii) between a qualified 
intermediary and the IRS or similar agreement with the IRS. The 
Treasury Department and IRS expect that such agreements generally will 
provide that the broker that is party to such agreement will be subject 
to the broker reporting requirements under section 6045 to the same 
extent as U.S. payors and U.S. middlemen. The Treasury Department and 
IRS request comments regarding the usefulness of information received 
from non-U.S. payors and non-U.S. middlemen, the costs to non-U.S. 
payors and non-U.S. middlemen of complying with such a requirement, and 
other potential effects of such a requirement in a withholding or 
reporting agreement with the IRS.
a. Form and Manner of New Broker Reporting Requirements
    The proposed regulations provide that brokers must report adjusted 
basis and whether any gain or loss with respect to the security is 
long-term or short-term on Form 1099-B, ``Proceeds from Broker and 
Barter Exchange Transactions,'' or any successor form under section 
6045(a) when reporting the sale of a covered security. They clarify 
that the basis reported by a broker is the total amount paid by a 
customer or credited against a customer's account as a result of the 
acquisition of securities adjusted for commissions and the effects of 
other transactions occurring within the account. The proposed 
regulations also require brokers to adjust the basis they report to 
take into account the information received on a transfer statement in 
connection with the transfer of a covered security (including transfers 
from a decedent and gift transfers) as well as information received 
from issuers of stock about the quantitative effect on basis from 
corporate actions. The proposed regulations generally do not require a 
broker to adjust the reported basis for transactions, elections, or 
events occurring outside the account. For example, with respect to wash 
sales (discussed in more detail later in this preamble), the proposed 
regulations require that a broker adjust the reported basis in 
accordance with section 1091 if both the purchase and sale transactions 
occur with respect to identical securities in the same account.
    Commentators suggested that brokers be required to report certain 
warnings or indicators to a customer about potential discrepancies 
between the broker-reported basis and the basis the customer must 
report on the customer's income tax return. For example, commentators 
suggested that a flag be added to the information return that would 
alert a customer that a foreign issuer may not have reported to the 
broker all issuer actions affecting basis. The proposed regulations do 
not adopt these suggestions but, as discussed with respect to wash 
sales later in this preamble, require a broker to report to customers 
engaging in wash sales the amount of any disallowed loss. Brokers may 
communicate additional information on other statements furnished to 
customers if desired. The Treasury Department and IRS request further 
comments regarding whether additional information items should be 
required on the information return. A draft of the 2011 Form 1099-B is 
available for viewing and comment on the IRS Web site at http://www.irs.gov/pub/irs-dft/f1099k-dft.pdf.
    For a sale of securities that were acquired on different dates or 
at different prices, some commentators requested that brokers be 
permitted to report the sale on a single information return. Other 
commentators asked that the proposed regulations require separate 
reporting of the sale of securities acquired on different dates or at 
different prices. The proposed regulations generally maintain the 
current requirement that brokers report a sale of securities within an 
account on one return, even if the sale involves multiple acquisitions, 
to limit the number of separate returns filed with the IRS and 
statements furnished to customers. However, because brokers must report 
whether any gain or loss on the sale of a covered security is short-
term or long-term, and because noncovered securities must be reported 
separately from covered securities to avoid treatment as covered 
securities, a single sale in an account could necessitate as many as 
three returns if the sale included covered securities held more than a 
year, covered securities held one year or less, and noncovered 
securities.
b. Scope of Covered Securities and Treatment of Noncovered Securities
    The proposed regulations clarify that a broker is not required to 
report adjusted basis and whether any gain or loss on a sale is long-
term or short-term for securities that are excepted from all reporting 
under section 6045 at the time of their acquisition. For example, the 
new basis reporting requirements do not apply to a security purchased 
by an organization that is tax-exempt even if the organization later 
loses its tax-exempt status and becomes subject to gross proceeds 
reporting on the sale of securities under section 6045(a).
    With respect to a security transferred into an account in a non-
sale transaction, the security is a covered security under the proposed 
regulations if it was a covered security prior to transfer and the 
broker receives the statement required under section 6045A for the 
transfer (the transfer statement, discussed in more detail later in 
this preamble) indicating that the security is a covered security. 
Conversely, a security is a noncovered security if the broker receives 
a transfer statement indicating that the security is a noncovered 
security. A transferred security will be presumed to be a covered 
security unless the transfer statement expressly states that the 
security is a noncovered security.

[[Page 67014]]

    If the receiving broker does not receive a transfer statement or 
receives a transfer statement that does not contain all of the required 
information, the proposed regulations permit the broker to treat the 
security as a noncovered security if, as suggested by commentators, the 
broker notifies the person that effected the transfer and requests a 
complete statement, and no complete statement is provided in response 
to this request before the broker reports the sale or subsequent 
transfer of the security. The proposed regulations do not require 
brokers to make this request more than once.
    If a broker receives the information required on the transfer 
statement after reporting the sale of the security, the proposed 
regulations require the broker to file a corrected Form 1099-B if the 
reporting was incorrect or incomplete. Similarly, if an issuer 
furnishes the return required by section 6045B concerning corporate 
organizational actions (the issuer statement, discussed in more detail 
later in this preamble) after the broker has reported the sale of the 
security, the proposed regulations require the broker to file a 
corrected Form 1099-B to report any adjustments to basis not reflected 
previously. Commentators requested that corrected reporting not be 
required for de minimis adjustments or for statements furnished beyond 
a specific period after the close of the calendar year. The proposed 
regulations do not adopt either suggestion. The Treasury Department and 
IRS request further comments regarding corrected reporting.
    Commentators expressed concern regarding the difficulty, in some 
cases, of determining whether a security is stock (for which basis must 
be reported for acquisitions beginning in January 2011 or January 2012) 
or indebtedness or another financial instrument (for which basis does 
not need to be reported for acquisitions in 2011 or 2012). Some 
commentators suggested that the proposed regulations classify each 
security or require issuers to file a classification report with the 
IRS to permit the IRS to publish a report identifying each security. 
The proposed regulations do not adopt this approach. Instead, the 
proposed regulations provide that, solely for purposes of determining 
the applicable date for basis reporting, any security an issuer 
classifies as stock is treated as stock. If no issuer classification 
has been made, the security is not treated as stock unless the broker 
knows, or has reason to know, that the security is reasonably 
classified as stock under general tax principles.
    Some commentators expressed a desire to report adjusted basis and 
whether any gain or loss on a sale is long-term or short-term for 
noncovered securities. Other commentators requested that the 
regulations prohibit such reporting on Form 1099-B and permit reporting 
only of adjusted basis and whether any gain or loss on a sale is long-
term or short-term to the customer on statements not filed with the 
IRS. In order to encourage more reporting of information and simplify 
reporting by taxpayers on their income tax returns, the proposed 
regulations allow brokers the option of reporting adjusted basis and 
whether any gain or loss on a sale is long-term or short-term for 
noncovered securities on a security by security basis. Therefore, a 
broker may choose to report this information for any given noncovered 
security. The proposed regulations also provide that a broker that 
chooses to report this information with respect to a noncovered 
security is not subject to penalties under section 6721 or 6722 for any 
failure to report such information correctly, provided that the broker 
indicates on Form 1099-B that the sale reported is a sale of a 
noncovered security. The instructions to the tax return will inform 
taxpayers of their duty to verify the information reported by brokers 
and to adjust the reported information when necessary to reflect the 
taxpayer's correct information. This duty applies equally to covered 
and noncovered securities.
c. Determination of Basis Required To Be Reported
    Section 6045(g)(2)(B)(i)(I) provides that, except for RIC stock or 
DRP stock, a broker must report using the FIFO basis determination 
method unless the customer notifies the broker of the specific security 
to be sold or transferred by means of making an adequate identification 
of the security sold or transferred at the time of sale or transfer. 
With respect to RIC stock or DRP stock, section 6045(g)(2)(B)(i)(II) 
provides that a broker must report adjusted basis in accordance with 
the broker's default method under section 1012 unless the customer 
notifies the broker that the customer elects another permitted method.
    The proposed regulations clarify that, when a customer sells less 
than the entire position of a security in an account, the selling 
broker must follow the customer's instruction, if any, adequately 
identifying the security sold or, when applicable, requesting that 
average basis be used to compute the basis of eligible stock. Thus, 
under the proposed regulations, a broker must report basis using any 
permitted lot identification and basis determination method the 
customer chooses when the customer provides a valid instruction 
(discussed in more detail later in this preamble). Absent a valid 
instruction from the customer, the proposed regulations clarify that a 
broker must report basis of a security (other than stock eligible for 
averaging) using the FIFO basis determination method when reporting the 
sale. The proposed regulations also clarify that, absent a valid 
instruction to use another method, a broker must report basis for stock 
eligible for averaging using the broker's default basis determination 
method.
    Commentators requested that brokers and customers be permitted to 
report basis by different methods and that brokers be permitted to 
report basis for all sales using only one of the permitted basis 
determination methods, for example, the average basis method. The 
proposed regulations do not adopt these requests because section 1012 
permits customers to report basis by a different permissible method 
than the default method selected by the broker and section 6045 
requires brokers to follow instructions from customers regarding this 
selection. The requested rules are inconsistent with the goal of 
conforming broker reporting with taxpayer basis determination method 
elections to facilitate and promote compliance in taxpayer reporting of 
income.

2. Average Basis Method

    Section 1.1012-1(e) provides rules for computing the basis of RIC 
stock by averaging the cost of all shares in the account (the average 
basis method). Taxpayers may elect to use the average basis method for 
RIC stock acquired at different prices and maintained by a custodian or 
agent in an account for the periodic acquisition, redemption, sale, or 
other disposition of the stock.
    Consistent with section 1012(d)(1), the proposed regulations extend 
the average basis method to shares of stock acquired after December 31, 
2010, in connection with a DRP, and clarify that shares are eligible 
for averaging only if they are identical.
    Commentators suggested that stock should be eligible for averaging 
together if it has the same Committee on Uniform Security 
Identification Procedures (CUSIP) number. The proposed regulations 
adopt this suggestion and define identical shares of stock as stock 
with the same CUSIP number (or other security identifier number as 
permitted in additional guidance of general applicability, see Sec.  
601.601(d)(2)). However, for purposes of defining a DRP, the proposed 
regulations provide

[[Page 67015]]

that the stock of a successor entity or entities that result from 
certain corporate actions such as mergers, consolidations, split-offs, 
or spinoffs, is identical to the stock of the predecessor entity. Thus, 
corporate actions will not cause stock acquired in connection with a 
DRP to become ineligible for averaging because, for example, a dividend 
declared before the action and paid after the action is completed is 
not reinvested in stock with the same CUSIP number. The proposed 
regulations further provide, however, that shares of stock acquired in 
connection with a DRP are not identical to shares of stock with the 
same CUSIP number that are not acquired in connection with a DRP.

3. Broker's Default Basis Determination Method

    Consistent with section 6045(g)(2)(B)(i)(II), the proposed 
regulations provide that the basis of RIC stock and DRP stock is 
determined in accordance with a broker's default method, unless a 
taxpayer elects another permitted method.
a. Consistency in Use of Average Basis Method
    Commentators suggested that the proposed regulations should not 
require brokers to compute basis for a DRP using the average basis 
method for taxpayers electing this method. The proposed regulations do 
not adopt this recommendation because it is inconsistent with the 
statutory requirement that the average basis method be available to any 
taxpayer that desires to use it for a DRP, as well as with the goal of 
conforming broker reporting with taxpayer basis determination method 
elections to facilitate and promote compliance in taxpayer reporting of 
income. The proposed regulations specify that a broker must compute 
basis using the basis determination method the taxpayer elects. The 
proposed regulations also provide that the taxpayer must report gain or 
loss on its return using the method the taxpayer elects or, if the 
taxpayer fails to make an election, the broker's default method.
b. Default Method
    Commentators suggested that a broker should be allowed to determine 
a default basis determination method when a taxpayer fails to elect a 
method for determining the basis of RIC stock or DRP stock. Consistent 
with section 6045(g)(2)(B)(i)(II), the proposed regulations do not 
prescribe a broker default method, which each broker may determine.
c. Communicating Default Method to Taxpayers
    A commentator suggested that the proposed regulations should 
require that a broker notify a taxpayer of the broker's default method 
by the earlier of opening a new account or January 1 of the year the 
average basis method election is effective. Other commentators 
suggested, however, that the proposed regulations should not specify 
how brokers communicate their default basis determination method to 
taxpayers. The proposed regulations do not require a specific method or 
time for this communication.

4. Definition of Dividend Reinvestment Plan

a. Issuer and Non-Issuer Plans
    A commentator requested that the proposed regulations broadly 
define dividend reinvestment plan to include both broker administered 
plans and issuer, or corporate, administered plans. Other commentators 
suggested, however, that if brokers are required to use the average 
basis method, the definition should include only issuer-administered 
plans. The proposed regulations define dividend reinvestment plan to 
include a written arrangement, plan, or program administered by an 
issuer or non-issuer of stock. Neither the statute nor the legislative 
history indicates any Congressional intent to limit the average basis 
method to issuer-administered plans.
b. Reinvestment of Dividends
    A commentator suggested that a plan requiring reinvestment of only 
a portion of the dividends paid should qualify as a DRP under the 
proposed regulations. The proposed regulations provide that a plan 
qualifies as a DRP if the plan documents require that at least 10 
percent of any dividend paid be reinvested in identical stock. Assuming 
this 10 percent requirement is met, a plan may reinvest different 
percentages of dividends in different stocks.
    A commentator opined that a plan should not be considered a DRP if 
the stock is not paying dividends when the issuer offers the plan. 
Another commentator verbally stated that the proposed regulations 
should provide that a plan may qualify as a DRP even if the stock has 
never issued dividends or ceases to pay dividends. This commentator 
noted that the stock of a start-up company may be included in a DRP in 
the expectation of paying dividends in the future, and that a company 
that traditionally pays dividends may be required to temporarily 
suspend dividends, for example in the case of bankruptcy 
reorganization. The proposed regulations provide that a stock may be 
held in a DRP even if no dividends have ever been declared or paid or 
the issuer has ceased paying dividends.
    A commentator suggested that the term dividends should include all 
income from stock for purposes of a DRP. The proposed regulations do 
not define dividends. Specific comments are requested on whether and 
how the regulations should define dividends, such as whether the 
regulations should define the term by reference to section 316, or more 
broadly to include any payment or distribution from stock, including 
ordinary dividends, capital gains dividends or distributions, non-
taxable returns of capital, and cash dividends in lieu of fractional 
shares. Comments may address industry practices that relate to this 
definition.
c. Acquired in Connection With a DRP
    Commentators suggested that subsequent additions to a DRP, such as 
purchases or transfers of stock, be eligible for the average basis 
method. A commentator recommended that subsequent additions be 
separated into separate averaging pools. Another commentator suggested 
that a single averaging pool should be allowed for all post-effective 
date identical stock. One commentator stated that brokers have 
difficulty distinguishing non-DRP purchases of stock from purchases of 
stock with the same CUSIP number in a DRP, and therefore brokers should 
be allowed to apply the same basis determination method to all stock 
with the same CUSIP number in an account.
    Consistent with section 1012(d)(4), the proposed regulations 
provide that stock is acquired in connection with a DRP if the stock is 
acquired under the DRP or the dividends paid are subject to the DRP. 
Stock acquired in connection with a DRP includes the initial purchase 
of stock in the DRP, subsequent transfers of identical stock into the 
DRP, additional periodic purchases of identical stock through the DRP, 
and all identical stock acquired through reinvestment of dividends paid 
under the DRP.
d. Withdrawal From or Termination of a DRP
    A commentator asked about the consequences if a DRP is terminated 
or a taxpayer transfers shares from a DRP at one broker to a broker 
that does not offer a DRP. The proposed regulations provide that, if a 
taxpayer withdraws from a DRP or the plan administrator terminates the 
DRP, shares of identical

[[Page 67016]]

stock acquired after the withdrawal or termination are not acquired in 
connection with a DRP. After the withdrawal or termination, the 
taxpayer may no longer use the average basis method for the stock, but 
the basis of each share of stock immediately after the change is the 
same as the basis immediately before the change.

5. Computing Average Basis

a. Elimination of Double-Category Method
    Under Sec.  1.1012-1(e)(3) and (4), taxpayers compute average basis 
using either a double-category method, which divides stock by holding 
period and averages long-term shares separately from short-term shares, 
or a single-category method, which averages all shares together 
regardless of holding period.
    Commentators suggested that the proposed regulations eliminate the 
double-category method and noted that it is not widely used. One 
commentator stated that problems may occur when shares are transferred 
between accounts that use different methods. The proposed regulations 
adopt this suggestion and eliminate the double-category method. The 
proposed regulations provide that average basis is computed by 
averaging the basis of all identical stock in an account regardless of 
holding period and include a transition rule that requires taxpayers 
using the double-category method to average the basis of all identical 
stock in an account on the date of publication of final regulations. 
Specific comments are requested on whether the double-category method 
should be retained.
    Section 1.1012-1(e)(4)(iii) provides that the single-category 
method may not be used if it appears that the taxpayer's purpose is to 
convert long-term gain or loss into short-term gain or loss, or vice 
versa. Consistent with the elimination of the double-category method, 
the proposed regulations remove this provision. The proposed 
regulations include ordering rules that specify that the holding period 
of stock to which the average basis method applies is determined on a 
FIFO basis.
b. Wash Sales
    Section 1.1012-1(e)(4)(iv) provides that section 1091(d) and the 
associated regulations apply to wash sales of stock from an account 
using the single-category method of computing average basis. 
Commentators suggested that brokers should not be required to apply 
these rules to stock held in separate accounts.
    Section 6045(g)(2)(B)(ii) provides that, for purposes of reporting, 
brokers must apply the wash sale rules only to acquisition and sale 
transactions in the same account and for identical securities. The 
rules for brokers are discussed later in this preamble.
    For a taxpayer using the average basis method, the proposed 
regulations provide that the taxpayer must apply section 1091 and the 
associated regulations (dealing with wash sales of substantially 
identical securities) in computing average basis regardless of whether 
the stock or security sold or otherwise disposed of and the stock 
acquired are in the same account or in different accounts.
c. Basis After Change From Average Basis Method
    The proposed regulations provide that, except for a revocation of 
the average basis method election (discussed later in this preamble), 
if a taxpayer changes from the average basis method to another basis 
determination method for any reason, the basis of each share of stock 
immediately after the change is the same as the basis immediately 
before the change.

6. Time and Manner of Making the Average Basis Method Election

    Section 1.1012-1(e)(6) provides that a taxpayer elects to use the 
average basis method on an income tax return for the first taxable year 
the taxpayer wants the election to apply.
a. Manner of Making the Average Basis Method Election
    Under the proposed regulations, a taxpayer elects the average basis 
method for covered securities by notifying the custodian or other agent 
for the taxpayer's account in writing. The taxpayer makes a separate 
election for each account holding stock for which the average basis 
method is permissible. A taxpayer uses the procedures under the current 
regulations to elect the average basis method for noncovered 
securities.
    Commentators requested that the proposed regulations provide 
guidance on how taxpayers must inform brokers of their basis 
determination method. Commentators suggested that brokers may obtain 
this information through documents provided to a taxpayer opening an 
account and urged that the rules be flexible and allow electronic 
communication. The proposed regulations require that a taxpayer must 
notify a custodian or agent in writing of an average basis method 
election, but otherwise do not specify how a taxpayer must communicate 
a basis determination method.
b. Time for Making the Average Basis Method Election
    Some commentators suggested that taxpayers should be allowed or 
required to choose a basis determination method when opening an account 
or when acquiring stock for which the average basis method is 
permitted. Other commentators stated that taxpayers should choose a 
method by the date of a sale. The proposed regulations provide that 
taxpayers may elect the average basis method at any time, effective for 
sales after the date of the election.
c. Revocation of Average Basis Method Election
    A commentator asked for clarification on how long brokers must 
retain basis information. Another commentator suggested that any 
revocation period should end by the earlier of the date of first sale, 
the end of the calendar year, or one year from the first purchase of 
stock.
    In order to minimize broker recordkeeping requirements, the 
proposed regulations provide that a taxpayer may revoke the average 
basis method election by the earlier of one year from the date of 
making the election or the first sale or other disposition of the stock 
following the election. A broker may extend the one-year period but no 
longer than the first sale. A revocation applies to all identical stock 
in an account and is effective when the taxpayer notifies the broker or 
other custodian of the revocation. If a taxpayer revokes the election, 
the basis of each share of stock in the account is determined using 
another permissible method.
d. Change From Average Basis Method
    Section 1.1012-1(e)(6)(ii) provides that a taxpayer that elects to 
use the average basis method may not revoke the election without the 
consent of the Commissioner. Under Rev. Proc. 2008-52 (2008-36 IRB 
587), Section 30 of the Appendix, a taxpayer within the scope of Rev. 
Proc. 2008-52 uses the automatic consent procedures to change to the 
basis determination method described in Sec.  1.1012-1(c)(1) (FIFO or 
specific identification, discussed later in this preamble). The revenue 
procedure provides that the automatic consent procedures do not apply 
to RIC stock or to a change from FIFO to specific identification or 
vice versa, which is not a change in method of accounting. See Sec.  
601.601(d)(2).
    A commentator recommended that taxpayers should not be able to 
change

[[Page 67017]]

from the average basis method except by opening a new account. Other 
commentators opined that taxpayers should have broad discretion to 
change from the average basis method. Several commentators suggested 
that brokers should not be required to recreate a stock's original 
basis if a taxpayer changes from the average basis method.
    The proposed regulations provide that a taxpayer may change from 
the average basis method to another permissible method at any time. A 
taxpayer's change in basis determination method applies to stock 
acquired on or after January 1, 2012, in a different manner than to 
stock acquired before January 1, 2012. Consistent with the account by 
account rules, discussed later in this preamble, a change in basis 
determination method applies to identical stock a taxpayer acquires on 
or after January 1, 2012, that the taxpayer holds in the same account. 
By contrast, a taxpayer's change in basis determination method applies 
to all identical stock the taxpayer acquires before January 1, 2012, 
that the taxpayer holds in any account. Unless the taxpayer revokes the 
average basis method election, discussed earlier in this preamble, the 
taxpayer must change from the average basis method prospectively. Thus, 
the basis of each share of stock to which the change applies is the 
basis immediately before the change.
    A commentator requested clarification on how often a taxpayer may 
change a basis method election. Commentators suggested that changes 
should be limited, for example to once per year. The proposed 
regulations do not limit the number of times or frequency a taxpayer 
may change basis determination methods.
    A commentator suggested that the proposed regulations should 
require taxpayers to obtain the Commissioner's permission to change 
basis determination methods. Another commentator recommended that 
taxpayers be allowed to change from the average basis method without 
the Commissioner's permission. The proposed regulations clarify that a 
change in basis determination method is a change in method of 
accounting to which the provisions of sections 446 and 481 and the 
associated regulations apply. A taxpayer may change its basis 
determination method by obtaining the consent of the Commissioner under 
applicable administrative procedures. The IRS may publish additional 
guidance of general applicability, see Sec.  601.601(d)(2), that 
provides broad consent for taxpayers to change basis determination 
methods.

7. Applying Average Basis Method Account by Account

    Section 1.1012-1(e)(2) provides that a taxpayer must use the same 
basis determination method for all of the taxpayer's accounts in the 
same RIC. Section 1.1012-1(e)(6)(ii) provides that a taxpayer must 
apply an average basis method election to all shares (except certain 
gift shares) of a particular RIC that the taxpayer holds in any 
account.
a. Definition of Account
    Commentators requested that the proposed regulations define the 
term ``account.'' Commentators noted that each fund of a RIC is treated 
as a single account, while a broker may hold other securities with 
different CUSIP numbers in a single account. Commentators suggested 
that accounts should be treated as separate accounts if they have 
different account numbers, and that subaccounts such as cash and margin 
accounts should not be treated as separate accounts.
    The proposed regulations do not define the term account. Instead, 
the proposed regulations provide rules prescribing when stock must be 
treated as held in separate accounts and the result of that treatment.
b. Basis Determination Methods Applied Account by Account
    Commentators suggested that the proposed regulations allow a 
taxpayer to make separate basis calculations for the same stock held in 
two separate accounts, even if held by the same broker. The proposed 
regulations adopt this suggestion. Consistent with section 1012(c), the 
proposed regulations provide that the average basis method election 
applies to all identical RIC stock or DRP stock in an account. For 
sales or other dispositions of stock after 2011, a taxpayer may use 
different basis determination methods for identical stock held in two 
separate accounts, even if held by the same broker. A taxpayer also may 
use different basis determination methods for shares of stock held in 
the same account that are not identical.
    For sales or other dispositions before 2012 of RIC stock or DRP 
stock for which a taxpayer has used the average basis method, the 
proposed regulations retain the rules requiring that the taxpayer use 
the average basis method for identical stock held in separate accounts. 
However, a taxpayer may use different basis determination methods for 
shares of stock held in the same account that are not identical.
c. Separate Accounts
    Consistent with section 1012(c)(2)(A), the proposed regulations 
provide that, absent a single-account election (explained later in this 
preamble), RIC stock or DRP stock that a taxpayer acquires before 
January 1, 2012, is treated as held in a separate account from any 
stock acquired on or after that date. The proposed regulations further 
provide that any stock that is a covered security (within the meaning 
of section 6045(g)(3)) is treated as held in a separate account from 
any stock that is a noncovered security regardless of when acquired, as 
is consistent with Congressional intent. The proposed regulations 
include an example in which a security acquired on or after January 1, 
2012, is a noncovered security.

8. Single-Account Election

    Section 1012(c)(2) provides that, with respect to RIC stock, a RIC 
may elect (at the time and in the form and manner prescribed by the 
Secretary), on a stockholder by stockholder basis, to treat all stock 
in the RIC held by the stockholder as one account without regard to 
when the stock was acquired (single-account election). Section 
1012(d)(3) provides that the account by account rules of section 
1012(c), including the single-account election available to RICs, also 
apply to DRP stock.
a. Application and Scope of Election
    The proposed regulations provide that a RIC or DRP may make a 
single-account election to treat identical RIC stock or identical DRP 
stock held in separate accounts for which the taxpayer has elected to 
use the average basis method as held in a single account. If a broker 
holds the stock as a nominee, the broker, and not the RIC or DRP, makes 
the election. The single-account election is irrevocable. Commentators 
opined that a single-account election should not encompass stock a 
taxpayer acquires before January 1, 2012, if the basis information is 
unreliable. A commentator requested that the proposed regulations 
include a standard of reliability or, alternatively, allow brokers to 
exclude stock for which reliable basis information is not available 
from the single-account election. Another commentator requested penalty 
relief if reliable basis information is not available for pre-effective 
date shares.
    The proposed regulations provide that a RIC, DRP, or broker may 
make a single-account election only for stock for which it has accurate 
basis

[[Page 67018]]

information. A RIC, DRP, or broker has accurate basis information if 
the RIC, DRP, or broker neither knows nor has reason to know that the 
basis information is inaccurate. See also section 6724 and the 
regulations thereunder regarding standards for relief from information 
reporting penalties. Stock for which accurate basis information is 
unavailable may not be included in the single-account election and must 
be treated as held in a separate account.
    The proposed regulations provide that, once the single-account 
election is made, it applies to all identical stock that is a covered 
security a taxpayer later acquires in an account. If a taxpayer 
acquires identical stock that is a noncovered security in an account, a 
RIC, DRP, or broker may make another single-account election if the 
RIC, DRP, or broker has accurate basis information. In addition to 
allowing a RIC, DRP, or broker to make a single-account election for 
some taxpayers and not others, consistent with section 1012(c)(2)(B), 
the proposed regulations allow a RIC, DRP, or broker to make the 
election for some identical stocks held for a taxpayer and not for 
other stocks.
b. Time and Manner for Making the Single-Account Election
    The proposed regulations provide that a RIC, DRP, or broker makes 
the single-account election by clearly noting it on its books and 
records. The books and records must reflect the date of the election; 
the taxpayer's name, account number, and taxpayer identification 
number; the stock subject to the election; and the taxpayer's basis in 
the stock. The books and records reflecting the election must be 
provided to the taxpayer upon request. The proposed regulations provide 
that the single-account election may be made at any time and more than 
once for a specific stock.
    The proposed regulations require a RIC, DRP, or broker to use 
reasonable means to notify a taxpayer of a single-account election. 
Reasonable means include mailings, circulars, and electronic mail. The 
notification may be sent separately to the taxpayer or included with 
the taxpayer's account statement, or by other means calculated to 
provide actual notice. The notice must identify the securities subject 
to the election and advise the taxpayer that the stock will be treated 
as covered securities without regard to the date acquired.

9. FIFO and Specific Identification Methods

    Section 1.1012-1(c)(1) provides that if a taxpayer acquires shares 
of stock on different dates or at different prices and sells or 
transfers some of those shares, and does not adequately identify the 
lot from which the shares are sold or transferred, the shares deemed 
sold or transferred are the earliest acquired shares (the FIFO rule). 
If a taxpayer makes an adequate identification of the shares sold under 
Sec.  1.1012-1(c)(2), (3), or (4), the shares treated as sold are the 
shares the taxpayer identified.
a. FIFO Rule
    A commentator verbally requested that the proposed regulations 
clarify how the FIFO rule of Sec.  1.1012-1(c)(1) applies to stock 
splits. The commentator asked whether shares acquired from the split 
are treated as acquired on the date of the purchase of the original 
shares or on the date of the split. In general, the shares that are 
first acquired are the shares with the longest holding period. 
Therefore, this question is addressed by rules under sections 307 and 
1223 and the associated regulations and is outside the scope of these 
regulations.
    A commentator requested clarification on whether the FIFO rule 
applies to stock that is part of a stock certificate that includes 
multiple lots. In response to this comment, the proposed regulations 
clarify that the FIFO rule also applies to multiple lots represented by 
a single stock certificate.
b. Timing of Lot Selection
    Commentators suggested that taxpayers that wish to identify a 
specific lot of stock to be sold should be required to do so at the 
time of trade. Some commentators recommended that taxpayers should be 
allowed to wait to identify stock until the settlement date or until 
the end of the year. Other commentators opined that post-sale changes 
to specific identification of stock should not be allowed.
    Rev. Rul. 67-436 (1967-2 CB 266) holds that an identification of 
stock by the time of delivery, which was within four days of the sale 
date, complied with the requirement to identify stock at the time of 
the sale or transfer. Consistent with Rev. Rul. 67-436, the proposed 
regulations provide that a taxpayer makes an adequate identification of 
stock at the time of sale, transfer, delivery, or distribution if the 
taxpayer identifies the stock no later than the earlier of the 
settlement date or the time for settlement under Securities and 
Exchange Commission regulations. Rev. Rul. 67-436 will be obsoleted 
when these regulations are published as final regulations. See Sec.  
601.601(d)(2).
c. Standing Lot Selection Orders
    Several commentators recommended that the proposed regulations 
allow taxpayers to specify a lot selection method to their brokers 
through standing orders such as last-in-first-out or highest-in-first-
out. In response to these comments, the proposed regulations clarify 
that taxpayers may establish a lot selection method by standing order.
d. Method of Communicating Lot Selection
    To provide maximum flexibility, the proposed regulations do not 
designate how taxpayers must communicate lot selection to brokers. Any 
reasonable method of communication, including electronic and oral 
communication, is permissible.
e. Confirmation of Sales
    Section 1.1012-1(c)(3)(i)(b) and (ii)(b) requires a broker or agent 
to provide written confirmation of the sale of stock a taxpayer has 
specifically identified within a reasonable time after sale. 
Commentators suggested that the broker or agent should determine 
whether to provide a confirmation and its form, and that current 
technology renders the confirmation requirement obsolete. Another 
commentator suggested that the proposed regulations allow brokers to 
provide lot information to taxpayers either by trade confirmation, 
monthly statements, or year-end reports. The proposed regulations do 
not amend the current confirmation requirement, which ensures that 
taxpayers receive necessary information in a timely manner. What is 
reasonable depends on the facts and circumstances.
f. Writing in Electronic Format
    Commentators suggested that the proposed regulations specifically 
authorize electronic written confirmation or recordkeeping. In response 
to these comments, the proposed regulations clarify that a written 
confirmation, record, document, instruction, or advice includes a 
writing in electronic format.
g. Identification by Trustee or Executor
    Section 1.1012-1(c)(4) provides that a trustee of a trust or 
executor or administrator of an estate makes an adequate identification 
if the trustee, executor, or administrator specifies the stock in 
writing in the books and records of the trust or estate. If the stock 
is distributed, the trustee, executor, or

[[Page 67019]]

administrator must identify the stock in writing to the distributee.
    A commentator verbally noted that this rule does not require a 
trustee, executor, or administrator to identify stock to a broker or 
other agent selling the stock. The proposed regulations add the 
requirement that the trustee, executor, or administrator identify the 
stock to the broker or agent.

10. Reporting of Wash Sales

    Section 6045(g)(2)(B)(ii) provides that, unless the Secretary 
instructs otherwise, a broker is required to report the adjusted basis 
of a covered security without taking into account the effect on basis 
of the wash sale rules of section 1091 unless the purchase and sale 
transactions resulting in a wash sale occur in the same account and are 
for identical securities (rather than substantially identical 
securities).
    The proposed regulations provide that a broker is required to 
report adjusted basis in accordance with section 1091 only if both the 
purchase and sale transactions occur with respect to covered securities 
in the same account with the same CUSIP number (or other security 
identifier number that the Secretary may designate by publication in 
the Federal Register or in the Internal Revenue Bulletin). If a broker 
is required to apply section 1091 for reporting purposes, the broker 
must report the amount of the disallowed loss in addition to adjusted 
basis and gross proceeds for the sold security. The proposed 
regulations further provide that the broker must adjust the basis of 
the purchased security by the amount of the disallowed loss when 
reporting the eventual sale of the purchased security.
    Commentators requested exceptions from reporting wash sales 
resulting in de minimis adjustments and wash sales triggered by 
scheduled periodic investments such as in an employee stock purchase 
plan or by automatic dividend reinvestment. Because the underlying 
substantive rules disallow losses in these situations, the proposed 
regulations do not adopt these recommendations. In addition, 
commentators requested an exception from reporting for wash sales for 
high frequency traders such as day traders based on the belief that 
high frequency traders generally make timely and valid elections to use 
the mark-to-market method of accounting under section 475(e) or (f) and 
that section 475(d)(1) therefore exempts them from the wash sale rules. 
Commentators also requested that the regulations provide a general 
exception from basis reporting for high frequency traders based on the 
belief that section 475 makes basis reporting superfluous for most high 
frequency traders. The proposed regulations do not adopt these 
recommendations, in part because the proposed regulations provide 
generally that reporting should occur without regard to the mark-to-
market method of accounting. The Treasury Department and IRS request 
further comments on the treatment of high frequency traders, including 
specifics about the burden that basis reporting may impose, and how 
brokers can identify customers that have made valid and timely mark-to-
market accounting method elections under section 475(e) or (f) and 
which transactions by these persons are subject to the provisions of 
section 475.
    Commentators asserted that identical securities could have separate 
CUSIP numbers, potentially after a change to the name of the issuer. To 
facilitate administration of wash sale reporting, the proposed 
regulations interpret identical securities to mean securities with the 
same CUSIP number (or other security identifier number that the 
Secretary may designate by publication in the Federal Register or in 
the Internal Revenue Bulletin).

11. Reporting of Short Sales

    In the case of a short sale, section 6045(g)(5) provides that gross 
proceeds and basis reporting under section 6045 is generally required 
for the year in which the short sale is closed rather than, as under 
the present law rule for gross proceeds reporting, the year in which 
the short sale is entered into.
    The proposed regulations implement this change to reporting of 
short sales by requiring brokers to report all short sales opened on or 
after January 1, 2010, for the year in which the short sale is closed. 
For sales that are opened and closed in 2010, the proposed regulations 
require brokers to report only gross proceeds information with respect 
to the securities sold to open the short sale, which is consistent with 
how brokers currently report short sale transactions. For sales closed 
on or after January 1, 2011, using covered securities, however, the 
proposed regulations require brokers to report both the information 
concerning the securities sold to open the short sale and the 
information concerning the securities acquired to close the short sale 
on a single return of information. For sales closed on or after January 
1, 2011, using noncovered securities, the proposed regulations require 
brokers to report only the information concerning the securities sold 
to open the short sale and permit, but do not require, brokers to 
report adjusted basis for the securities acquired to close the short 
sale and whether any gain or loss on the short sale is long-term or 
short-term. The proposed regulations provide that reporting adjusted 
basis and whether any gain or loss on the short sale is long-term or 
short-term is not subject to penalty under section 6721 or 6722 if the 
Form 1099-B indicates that the sale reported is a sale of a noncovered 
security. These requirements are in line with the reporting beginning 
with calendar year 2011 of both adjusted basis and gross proceeds on 
Form 1099-B.
    Under section 1233, satisfaction of a short sale obligation through 
other borrowed property does not close a short sale. The proposed 
regulations address this situation and provide that, if an obligation 
arising from a short sale is satisfied by the receipt of transferred 
securities that themselves are borrowed from or through the person 
effecting the transfer, the receiving broker should not file a Form 
1099-B but should instead provide the information regarding the short 
sale of the borrowed securities to the person effecting the transfer. 
Under the proposed regulations, the person effecting the transfer must 
file Form 1099-B when the obligation is finally satisfied and the short 
sale is closed.
    The proposed regulations modify the backup withholding rules for 
short sales to provide that backup withholding can occur only at the 
time the short sale is closed and becomes subject to reporting under 
section 6045(g)(5).
    Commentators requested that brokers not be responsible for the 
additional reporting requirements related to short sales that are 
opened before January 2011 but also requested clear guidance on how to 
implement reporting for short sales opened prior to January 2011 to 
prevent duplicate reporting. The proposed regulations prevent duplicate 
reporting by requiring brokers to report short sales opened prior to 
January 2011 under current rules except for short sales opened in 2010 
that remain open into 2011. Instead of reporting the sale for calendar 
year 2010, the proposed regulations require that brokers report these 
sales for the year in which the sale is closed.
    Finally, commentators requested that the reporting of short sales 
not require brokers to apply the constructive sale rules of section 
1259, which can trigger the recognition of gain if the investor also 
holds or acquires an appreciated position in the same securities, or 
the rules under section 1233(h) concerning limitations imposed on 
investors that own property substantially identical to the short sale 
property. The proposed regulations provide for these exclusions from 
reporting.

[[Page 67020]]

12. Reporting of Sales by S Corporations

    Under Sec.  1.6045-1(c)(3)(i)(B)(1), a broker currently is not 
required to report sales of securities by corporations. Section 1.6045-
1(c)(3)(i)(C) currently permits a broker to treat a customer as a 
corporation if the broker has actual knowledge that the customer is a 
corporation, if the customer files a Form W-9, ``Request for Taxpayer 
Identification Number and Certification,'' exemption certificate 
claiming an exemption as a corporation, or, absent knowledge to the 
contrary, if the name of the customer contains an unambiguous 
expression of corporate status such as ``Corporation'' or 
``Incorporated.''
    To comply with the new requirement under section 6045(g)(4) that 
brokers report sales by customers that are S corporations of covered 
securities acquired on or after January 1, 2012, the proposed 
regulations exclude S corporations from the list of exempt Form 1099-B 
recipients, but only for sales of covered securities acquired on or 
after January 1, 2012. The proposed regulations also curtail the 
ability of brokers to rely solely on the name of the customer to 
determine whether the customer is a corporation exempt from reporting, 
but only for sales of covered securities acquired on or after January 
1, 2012. Commentators requested that the proposed regulations retain 
this rule because its removal potentially requires brokers to seek a 
certification from all corporate customers. The proposed regulations do 
not adopt this recommendation, however, because brokers cannot infer 
from a customer's name whether the customer is taxed as an S 
corporation or C corporation. Commentators also requested that accounts 
opened by corporations before January 2012 be excepted from reporting. 
The proposed regulations do not adopt this request as contrary to the 
statute.
    Commentators requested that Form W-9 be updated to facilitate a 
customer's statement to its broker of its current election to be taxed 
as an S corporation and that the proposed regulations require brokers 
to solicit or re-solicit Form W-9 from each existing corporate 
customer. The IRS is currently considering the requested modification 
to Form W-9. The proposed regulations do not impose a requirement to 
solicit or re-solicit Form W-9 from all existing corporate customers 
because, under Sec.  1.6045-1(c)(3)(i)(C), Form W-9 is only one method 
by which brokers may determine whether a corporate customer is exempt 
from all reporting beginning in 2012. However, if a broker does not 
have actual knowledge that a corporate customer is taxed as a C 
corporation or is otherwise exempt (for example, because it is a bank 
or organization exempt from tax under section 501(a)), a broker must 
request a Form W-9 exemption certificate or else must make a return of 
information for any sales by the corporation of covered securities 
acquired on or after January 1, 2012. A broker also may be required to 
backup withhold on gross proceeds paid to the customer.
    Commentators requested that brokers be permitted to report other 
Form 1099 information such as interest and dividends for S corporations 
because reporting of the sales of securities is done on composite 
statements containing all such information. The proposed regulations do 
not address this topic directly because no penalty is imposed for the 
act of filing a nonrequired return.

13. Reporting to Trust Interest Holders in a WHFIT

    Commentators requested that the proposed regulations exempt 
trustees and middlemen from any requirement to report information under 
sections 6045(g) to trust interest holders in a widely held fixed 
investment trust (WHFIT) with respect to both the securities held by a 
WHFIT and trust interests in a WHFIT because the WHFIT rules in Sec.  
1.671-5 already provide a framework for communicating similar 
information to trust interest holders. These proposed regulations 
clarify that the sale of a trust interest in a WHFIT by a trust 
interest holder is required to be reported under section 6045(a). 
However, to the extent that a trustee or middleman has a requirement to 
provide information under section 6045(g), the trustee or middleman is 
deemed to meet those requirements by complying with the WHFIT rules in 
Sec.  1.671-5. The Treasury Department and IRS request additional 
comments on whether any basis reporting rules are needed in addition to 
those provided under Sec.  1.671-5 to accommodate trust interest 
holders in a WHFIT.

14. Due Date for Payee Statements Furnished in a Consolidated Reporting 
Statement

    Section 6045(b) extends the due date to furnish all of the payee 
statements required under section 6045 to customers from January 31 to 
February 15, effective for statements required to be furnished after 
December 31, 2008. Thus, in addition to Form 1099-B, ``Proceeds from 
Broker and Barter Exchange Transactions,'' the February 15 due date 
applies to Form 1099-S, ``Proceeds from Real Estate Transactions,'' 
and, when reporting payments to attorneys or substitute payments by 
brokers in lieu of dividends or interest, Form 1099-MISC, 
``Miscellaneous Income.'' This February 15 due date also applies to any 
other statement required to be furnished on or before January 31 of a 
calendar year if furnished with a statement required under section 6045 
in a consolidated reporting statement. The Act did not define 
consolidated reporting statement but provided that the term would be 
defined in regulations. See Notice 2009-11 (2009-5 IRB 420), providing 
that, with respect to reportable items from calendar year 2008, brokers 
had until February 17, 2009, to report all items that they customarily 
reported on their annual composite form recipient statements. See Sec.  
601.601(d)(2).
    The proposed regulations define consolidated reporting statement as 
a grouping of statements furnished to the same customer or same group 
of customers on the same date whether or not the statements are 
furnished with respect to the same or different accounts or 
transactions. Importantly, the proposed regulations require that the 
grouping of statements be limited to those furnished to the customer 
based on the same relationship as the statement furnished under section 
6045 (for example, broker, payor, or real estate settlement agent), and 
not as a result of any other relationship between the parties such as 
debtor to creditor or employer to employee. Based on this limitation, 
the following forms may be furnished in a consolidated reporting 
statement with a statement required under section 6045: Form 1099-DIV, 
``Dividends and Distributions''; Form 1099-INT, ``Interest Income''; 
Form 1099-MISC, ``Miscellaneous Income''; Form 1099-OID, ``Original 
Issue Discount''; Form 1099-PATR, ``Taxable Distributions Received From 
Cooperatives''; Form 1099-Q, ``Payments From Qualified Education 
Programs (Under Sections 529 and 530)''; Form 1099-R, ``Distributions 
From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, 
Insurance Contracts, etc.''; Form 3921, ``Exercise of an Incentive 
Stock Option Under Section 422(b)'' (in development); Form 3922, 
``Transfer of Stock Acquired Through an Employee Stock Purchase Plan 
Under Section 423(c)'' (in development); and Form 5498, ``IRA 
Contribution Information.'' The Treasury Department and IRS request 
further comments regarding whether any other forms should be included 
in

[[Page 67021]]

the definition of consolidated reporting statement.
    For statements filed by brokers with respect to sales, the proposed 
regulations acknowledge that a customer may not sell securities in an 
account in every year and, thus, may not receive Form 1099-B every 
year. The proposed regulations provide that a broker may treat any 
customer as receiving a required statement under section 6045 if the 
customer has an account for which a statement would be required to be 
furnished under section 6045 had a sale occurred during the year.

15. Reporting Required in Connection With Transfers of Securities

    Under new section 6045A, a broker and any other person specified in 
Treasury regulations (applicable person) that transfers to a broker a 
security that is a covered security in the hands of the applicable 
person must furnish to the receiving broker a written statement for 
purposes of enabling the receiving broker to satisfy the reporting 
requirements of section 6045(g). Section 6045A(c) provides that, unless 
the Secretary provides otherwise, the statement required by this rule 
must be furnished to the receiving broker not later than fifteen days 
after the transfer of the covered security.
a. Transfer Reporting Generally
    The proposed regulations create a presumption that every transfer 
of custody effected by an applicable person to a broker or other 
professional custodian of any share of stock in a corporation on or 
after January 1, 2011, that is not a sale is a transfer of a covered 
security subject to reporting. Thus, the proposed regulations provide 
that a transfer statement must be furnished for every such transfer. 
This duty applies even if the security transferred is a noncovered 
security or is treated as a noncovered security because it was excepted 
from all reporting under section 6045 (for example, because the 
customer was an exempt recipient) at the time of its acquisition. In 
either situation, the transfer statement is not required to include any 
other required information provided that the transfer statement 
indicates that the security transferred is a noncovered security. This 
presumption that all transferred securities are covered securities and 
the requirement to provide a transfer statement for noncovered or 
excepted securities solely for the purpose of establishing that the 
security is a noncovered or excepted security will reduce uncertainty 
for receiving brokers and custodians. The person initiating the 
transfer of custody is permitted, but not required, to provide other 
information about the noncovered or excepted security.
    The proposed regulations place the duty to furnish the transfer 
statement on the person effecting the transfer of custody if the person 
is an applicable person. Under the proposed regulations, an applicable 
person is a broker within the meaning of Sec.  1.6045-1(a)(1), any 
person that acts as a custodian of securities in the ordinary course of 
a trade or business, any issuer of securities, and any agent of these 
persons. An applicable person does not include the beneficial owner of 
the securities, any governmental unit or agency or instrumentality of a 
governmental unit with respect to escheated securities, or any person 
that acts solely as a clearing house for the transfer.
    Under the proposed regulations, an applicable person has a duty to 
furnish a transfer statement if that person effects the transfer of 
custody of the securities. For securities held by direct registration 
with the issuer, including certificated shares, the person effecting 
the transfer is the issuer or its transfer agent. For securities held 
in street name, the person effecting the transfer is the broker or 
other firm carrying the securities.
    Although the person responsible for providing a transfer statement 
will often be a broker or other applicable person that effects sales, 
the proposed regulations also impose this duty on issuers, transfer 
agents, professional custodians, and other applicable persons that may 
not effect sales. For these applicable persons, this duty is limited to 
a duty to receive the statement when receiving custody of transferred 
securities and then to retransmit the information on the statement when 
transferring custody of those securities to a broker (or, if no 
statement is received, to furnish a statement that the securities are 
noncovered securities). The proposed regulations regarding transfer 
statements do not impose a duty on those that do not effect sales to 
update basis in response to adjustments announced by issuers under 
section 6045B or to compute basis by average cost under section 1012. 
These computations apply only to basis reporting at the time of sale 
under section 6045 and, thus, apply only to brokers effecting sales. 
The Treasury Department and IRS request further comments regarding the 
scope of the transfer statement requirement.
    Because the transfer statement is not filed with the IRS, no 
official form or format will be required. Instead, the proposed 
regulations specify the information required on the statement. At the 
request of commentators, the proposed regulations permit flexibility in 
the format and method by which the information is furnished pursuant to 
agreement of the parties. The Treasury Department and IRS request 
further comments about the form and format for the transfer statement 
and any substitutes thereto.
    Under the proposed regulations, the transfer statement must 
identify the applicable person furnishing the statement, the broker 
receiving the statement, the owner or owners transferring the 
securities, and, if different, the owner or owners of the securities 
after any transfer other than a sale, such as a transfer of gifted or 
inherited securities. The transfer statement must also identify the 
securities being transferred and information about the transfer such as 
the date the transfer was initiated and the settlement date of the 
transfer (if known when reporting).
    Under the proposed regulations, a transfer statement must include 
the total adjusted basis of the securities, the original date of 
acquisition, and the date for determining whether any gain or loss with 
respect to the security would be long-term or short-term at the time of 
sale. The transfer statement must also indicate the extent to which the 
reported basis amount has been adjusted to reflect any corporate 
actions that affect the basis of the security by reporting the number 
from the issuer statement required under section 6045B (discussed later 
in this preamble) of the most recent corporate action that is reflected 
on the transfer statement. Additionally, if the average basis method is 
used to determine basis, the proposed regulations permit reporting an 
original acquisition date of ``VARIOUS'' for securities owned at least 
five years.
    Commentators suggested that additional information items be 
required on the statement such as the original purchase amount, the 
reason why the securities are (or are treated as) noncovered securities 
(if applicable), and the basis method used by the taxpayer immediately 
prior to the transfer. The proposed regulations do not require this 
additional information on the statement because the proposed 
regulations do not require this information to be reported on Form 
1099-B. Additional information may be communicated with the statement, 
even if not required.
    If an applicable person furnishing a transfer statement later 
receives a

[[Page 67022]]

statement for an earlier transfer that reports that the transferred 
securities are covered securities and includes information inconsistent 
with the subsequent transfer statement, the proposed regulations 
require that a corrected statement be furnished to correct the 
inconsistent information within fifteen days following the receipt of 
the prior transfer statement.
b. Reporting Required in Connection With Transfers of Gifted and 
Inherited Securities
    Under section 6045(g)(3)(A)(ii), a covered security includes stock 
or indebtedness acquired on or after the applicable date if the 
security is transferred from an account in which the security was a 
covered security (but only if the receiving broker or other 
professional custodian receives a transfer statement). Therefore, under 
the proposed regulations, gifted and inherited securities that were 
covered securities in the account of the donor or decedent remain 
covered securities when transferred to the recipient's account and 
accompanied by a transfer statement.
    Under the proposed regulations, when covered securities are 
transferred from a decedent, the transfer statement must indicate that 
the securities are inherited. The transfer statement must also report 
the date of death as the acquisition date and must report adjusted 
basis in accordance with the instructions and valuations provided by an 
authorized representative of the estate. The proposed regulations 
require that the selling broker take these basis adjustments into 
account in reporting adjusted basis upon the subsequent sale or other 
disposition of these securities.
    When covered securities are transferred to a different owner as a 
gift, the proposed regulations require the statement to indicate that 
the transfer consists of gifted securities and to state the adjusted 
basis of the securities in the hands of the donor and the donor's 
original acquisition date of the securities. The transfer statement 
must also report the date of the gift (if known when furnishing the 
statement) and the fair market value of the gift on that date (if known 
or readily ascertainable). Upon the subsequent sale or other 
disposition of these securities, the selling broker must apply the 
relevant basis rules for gifts when reporting adjusted basis.
    Commentators opposed subjecting transfers of gifted and inherited 
securities to the requirements of transfer reporting because the 
substantive rules governing basis computation for these securities are 
complex. The proposed rules do not exclude transfers of gifted and 
inherited securities, however, because these transfers fall within the 
plain language of the statute. The proposed regulations provide 
workable rules to minimize complexity.
    Issuers and transfer agents commented that they often do not know 
the reason for the transfer of shares from one owner to another. The 
proposed regulations provide that, if the request to transfer ownership 
between different people is silent as to the reason for the transfer, 
the transfer should generally be treated as a gift.
    Commentators expressed concern regarding gifted and inherited 
securities about the potential burden to value privately traded 
securities or other securities for which fair market value is not 
easily determined. For inherited securities, the proposed regulations 
allow the applicable person effecting the transfer to rely on the 
authorized estate representative to provide the instructions and 
valuations necessary to report correct basis for any transferred 
securities. If the applicable person effecting the transfer does not 
receive instructions and valuations from the authorized estate 
representative, the applicable person must request this information 
from the authorized estate representative before preparing the transfer 
statement. If this information is not provided before the transfer 
statement is prepared, then the transfer statement must indicate that 
the transfer consists of an inherited security but must report the 
security as a noncovered security. If this information is provided 
after the transfer statement is sent, the applicable person effecting 
the transfer must send a corrected transfer statement.
    For gifted securities, the proposed regulations only require the 
applicable person effecting the gift transfer to report the date of the 
gift if known at the time the transfer statement is prepared and the 
fair market value of the securities on the date of the gift if known or 
readily ascertainable at that time. However, the proposed regulations 
provide that, if the gifted securities are subsequently transferred to 
a different account of the same owner, the applicable person must 
include the date of the gift on the subsequent transfer statement and, 
if known or readily ascertainable at the time the subsequent transfer 
statement is prepared, the fair market value of the securities as of 
the date of the gift. The proposed regulations provide a special 
reporting rule for brokers that applies on the sale of a gifted 
security when the security's adjusted basis depends upon its fair 
market value as of the date of the gift but the transfer statement 
received by the selling broker does not report this amount and this 
amount is not readily ascertainable by the broker. Under these 
circumstances, the proposed regulations provide that the broker must 
report adjusted basis equal to the gross proceeds from the sale.
c. Reporting Required in Connection With Transfers of Borrowed 
Securities
    To facilitate the correct reporting of short sales involving 
transfers of borrowed securities, the proposed regulations require the 
transfer statement to indicate that the transferred securities are 
borrowed and provide instructions on how the receiving broker can 
provide information to the applicable person effecting the transfer 
about any short position potentially being closed by the transfer or 
other sale of the securities. This information is required to alert the 
receiving broker that, if the transferred securities are used to 
satisfy a short sale obligation, the short sale remains open and should 
not be reported as closed to the IRS or to the customer.

16. Reporting by Issuers of Actions Affecting Basis of Securities

    If an organizational action (such as a stock split or a merger or 
acquisition) by an issuer affects the basis of a specified security, 
new section 6045B requires the issuer to file a return with the IRS and 
furnish to each nominee (or to each certificate holder if there is no 
nominee) a written statement regarding the action. The return filing 
and information statement requirements may be waived under section 
6045B(e) if the issuer makes the information about the action publicly 
available, in the form and manner determined by the Secretary.
    The proposed regulations require a reporting issuer to identify 
itself and the security on the return and provide information about the 
organizational action and the quantitative effect on the basis 
resulting from the action. The proposed regulations also require the 
issuer to assign and report a sequential number determined separately 
by security for each information report the issuer files.
    The proposed regulations require a domestic or foreign issuer to 
furnish a written statement to each holder of record that is not an 
exempt recipient as defined in Sec.  1.6045B-1(b)(5) as of the record 
date of the corporate action and all subsequent holders of record 
through the date the issuer furnishes the statement. The Treasury 
Department and IRS request comments as to the extent to which foreign 
issuers will be able to comply with such a reporting

[[Page 67023]]

requirement, and whether it may be appropriate to limit foreign 
issuers' reporting requirements (such as, for example, limiting foreign 
issuers' reporting requirements to securities that are traded on a 
securities exchange in the United States).
    If the security is held in the name of someone other than the 
holder of record on the books of the issuer, the proposed regulations 
require the issuer to furnish the statement to the nominee listed on 
its books unless such nominee is the issuer or the issuer's agent. For 
example, an issuer must furnish statements to the participants of the 
issuer's direct stock purchase plan even if the plan is listed as a 
nominee for the participants. The proposed regulations permit an issuer 
to furnish to its holders and nominees a copy of the return that it 
files with the IRS.
    The proposed regulations provide that both the return filing and 
information statement requirements under section 6045B are waived if an 
issuer posts a statement with the required information in a readily 
accessible format in an area of its primary public website dedicated to 
this purpose by the same due date for reporting the organizational 
action to the IRS and keeps the form accessible to the public. Under 
the proposed regulations, this public reporting relieves the issuer of 
its duty both to file the return with the IRS and to furnish the 
statement to its nominees and certificate holders.
    Commentators have questioned how issuers could report the effect on 
basis within 45 days of a corporate action when the effect may not be 
determinable until the conclusion of other events such as the end of 
the issuer's fiscal year. Any request to extend the due date was not 
adopted as inconsistent with the 45-day statutory due date. The 
proposed regulations provide that an issuer may make reasonable 
assumptions about facts that cannot be determined prior to this due 
date and must file a corrected return once the facts are determined if 
necessary to report the correct quantitative effect on basis. Under the 
proposed regulations, it is expected that an issuer will treat a 
payment that may be a dividend consistently with its treatment of the 
payment under section 6042(b)(3) and Sec.  1.6042-3(c).
    Some commentators suggested that the IRS establish a central 
repository on its website for posting information statements from 
issuers that wish to report publicly in lieu of filing returns. This 
suggestion was not adopted in the proposed regulations due to IRS 
resource and system constraints. The Treasury Department and IRS 
request comments on the definition of public reporting including rules 
about retaining the returns on the website and alternatives other than 
the use of a central repository.
    Commentators requested that the proposed regulations except actions 
by S corporations from reporting under section 6045B because 
adjustments are specific to the shareholder and are reported on 
Schedule K-1 (Form 1120S), ``Shareholder's Share of Income, Deductions, 
Credits, etc.'' The proposed regulations do not except reporting by S 
corporations, but deem an S corporation to satisfy the requirements 
under section 6045B if it reports the effect of the organizational 
action on the proper Schedule K-1 for each shareholder, timely files 
the schedules with the IRS, and timely furnishes the schedules to all 
proper parties.

17. Penalty Provisions

    The current regulations impose penalties on brokers for failing to 
file or furnish complete and correct returns and statements after the 
sale of a security. The proposed regulations expand the list of 
required statements and returns filed with the IRS in Sec.  301.6721-1 
and the list of required statements furnished to payees in Sec.  
301.6722-1 to include the new penalties associated with the new 
transfer statements and issuer statements. The proposed regulations 
also update the full list of returns and statements included in section 
6724(d).
    Commentators expressed concern that the IRS would assert penalties 
against a broker for reporting an incorrect adjusted basis or 
incorrectly reporting whether any gain or loss on a sale is long-term 
or short-term after relying on incorrect information provided by 
others. Under the proposed regulations, brokers generally must adjust 
basis reported for covered securities to reflect: (1) Information 
received on any transfer statement under section 6045A; and (2) 
information reported by the issuer under section 6045B regarding the 
effect on basis of any organizational actions. The proposed regulations 
provide that any failure to report correct information that arises 
solely from this reliance is deemed to be due to reasonable cause with 
respect to the penalties under sections 6721 and 6722.
    The proposed regulations permit, but do not require, a broker to 
adjust the reported basis in accordance with information that is not 
reflected on a transfer statement or issuer statement, including any 
information the broker has about securities held by the same customer 
in other accounts with the broker. The proposed regulations deem that a 
broker that takes into account information received from a customer or 
third party other than information reflected on a transfer statement or 
issuer statement relies upon such information in good faith in 
accordance with existing rules found in Sec.  301.6724-1(c)(6) if the 
broker neither knows nor has reason to know that the information is 
incorrect.

Proposed Effective and Applicability Dates

    These regulations are proposed to take effect when published in the 
Federal Register as final regulations except as follows. The 
regulations regarding reporting basis and whether any gain or loss on a 
sale is long-term or short-term under section 6045(g) are proposed to 
apply to: (1) Any share of stock other than RIC stock or DRP stock 
acquired on or after January 1, 2011; and (2) any share of RIC stock or 
DRP stock acquired on or after January 1, 2012. The regulations 
regarding the determination of basis under section 1012 are proposed to 
apply for taxable years beginning after the date the regulations are 
published as final regulations in the Federal Register. However, the 
rules in Sec.  1.1012-1(e)(1)(i), in part, apply to stock acquired on 
or after January 1, 2011, the rules in Sec.  1.1012-1(e)(2) and (e)(9), 
in part, apply to stock acquired on or after January 1, 2012, and the 
rules in Sec.  1.1012-1(e)(7)(i), in part, and in Sec.  1.1012-
1(e)(10), in part, apply to sales, exchanges, or other dispositions of 
stock on or after January 1, 2012.
    The regulations regarding transfer statement reporting under 
section 6045A are proposed to apply to: (1) Transfers of stock other 
than RIC stock or DRP stock that occur on or after January 1, 2011; and 
(2) transfers of RIC stock or DRP stock that occur on or after January 
1, 2012. The regulations regarding issuer reporting under section 6045B 
are proposed to apply to: (1) Organizational actions affecting basis of 
stock other than RIC stock that occur on or after January 1, 2011; and 
(2) organizational actions affecting basis of RIC stock that occur on 
or after January 1, 2012. The regulations regarding the timing for 
reporting short sales of securities under section 6045 and for 
collecting backup withholding in connection with short sales under 
section 3406 are proposed to apply to short sales opened on or after 
the date the final regulations are published in the Federal Register 
but no earlier than January 1, 2010.

Effect on Other Documents

    Rev. Rul. 67-436 will be obsoleted as of the date these regulations 
are

[[Page 67024]]

published as final regulations in the Federal Register.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866. Therefore, a regulatory assessment is not required. It also has 
been determined that section 553(b) of the Administrative Procedure Act 
(5 U.S.C. chapter 5) does not apply to this regulation.
    Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it 
is hereby certified that this regulation will not have a significant 
economic impact on a substantial number of small entities, because any 
effect on small entities by the rules proposed in this document flows 
directly from section 403 of the Energy Improvement and Extension Act 
of 2008, Division B of Public Law 110-343 (122 Stat. 3765, 3854 
(2008)).
    Section 403(a) of the Act modifies section 6045 to require that 
brokers report the adjusted basis of the securities and whether any 
gain or loss with respect to the securities is long-term or short-term 
when reporting the sale of a covered security. It is anticipated that 
this statutory requirement 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 requirement, the 
regulation proposes to limit reporting to the information described in 
the Act: Adjusted basis and whether any gain or loss with respect to 
the securities is long-term or short-term.
    Section 403(c) of the Act adds new section 6045A, which requires 
applicable persons to furnish a transfer statement in connection with 
the transfer of custody of a covered security. In implementing this 
statutory requirement, the regulation proposes to define applicable 
person to include brokers, professional custodians of securities, and 
issuers of securities. This definition effectuates 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 the security is long-term or short-term as 
required by section 6045 when the security is subsequently sold. 
Consequently, the regulation does not add to the impact on small 
entities imposed by the statutory scheme. Instead, it limits reporting 
to only these necessary entities. It also limits the information to be 
reported to only those items necessary to effectuate the statutory 
scheme.
    Section 403(d) of the Act adds new section 6045B, which requires 
issuer reporting by all issuers of specified securities regardless of 
size and even when the securities are not publicly traded. In 
implementing this statutory requirement, the regulation proposes to 
limit reporting to those items necessary to meet the Act's 
requirements. Additionally, the regulation proposes to mitigate the 
burden imposed by the Act by providing rules to permit issuers to 
report each action publicly as permitted by the Act instead of filing a 
return and furnishing each nominee or holder a statement about the 
action. The regulation therefore does not add to the statutory impact 
on small entities but instead eases this impact to the extent the 
statute permits.
    Therefore, because this regulation will not have a significant 
economic impact on a substantial number of small entities, a regulatory 
flexibility analysis is not required. The Treasury Department and IRS 
request comments on the accuracy of this statement. Pursuant to section 
7805(f) of the Code, this regulation has been submitted to the Chief 
Counsel for Advocacy of the Small Business Administration for comment 
on its impact on small business.

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written (a signed original and eight 
(8) copies) or electronic comments that are timely submitted to the 
IRS. The Treasury Department and IRS request comments on the clarity of 
the proposed regulations and how they can be made easier to understand. 
All comments will be available for public inspection and copying.
    A public hearing has been scheduled for February 17, 2010, 
beginning at 10 a.m., in the auditorium of the IRS New Carrollton 
Federal Building, 5000 Ellin Road, Lanham, Maryland 20706. All visitors 
must present photo identification to enter the building. Because of 
access restrictions, visitors will not be admitted beyond the immediate 
entrance area more than 30 minutes before the hearing starts. For 
information about having your name placed on the building access list 
to attend the hearing, see the FOR FURTHER INFORMATION CONTACT section 
of this preamble.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who 
wish to present oral comments at the hearing must submit written or 
electronic comments by February 8, 2010 and an outline of the topics to 
be discussed and the time to be devoted to each topic (a signed 
original and eight (8) copies) by February 8, 2010. A period of ten 
minutes will be allotted to each person for making comments. An agenda 
showing the scheduling of speakers will be prepared after the deadline 
for receiving outlines has passed. Copies of the agenda will be 
available free of charge at the hearing.

Drafting Information

    The principal authors of these proposed regulations are Edward C. 
Schwartz, Amy J. Pfalzgraf, and William L. Candler, Office of Associate 
Chief Counsel (Income Tax and Accounting), and Stephen Schaeffer, 
Office of Associate Chief Counsel (Procedure and Administration). 
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 31

    Employment taxes, Income taxes, Penalties, Pensions, Railroad 
retirement, Reporting and recordkeeping requirements, Social security, 
Unemployment compensation.

26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR parts 1, 31, and 301 are proposed to be amended 
as follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 is amended by adding 
entries in numerical order to read in part as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 1.6045A-1 also issued under 26 U.S.C. 6045A(a), (b), 
(c).
    Section 1.6045B-1 also issued under 26 U.S.C. 6045B(a), (c), 
(e). * * *

    Par. 2. Section 1.408-7 is amended by adding two new sentences at 
the end of paragraph (d)(2) to read as follows:


Sec.  1.408-7  Reports on distributions from individual retirement 
plans.

* * * * *
    (d) * * *
    (2) * * * However, if the statement is furnished in a consolidated 
reporting

[[Page 67025]]

statement under section 6045, the February 15 due date set forth in 
section 6045 applies to the statement. See Sec. Sec.  1.6045-1(k)(3), 
1.6045-2(d)(2), 1.6045-3(e)(2), 1.6045-4(m)(3), and 1.6045-5(a)(3)(ii).
* * * * *
    Par. 3. Section 1.1012-1 is amended by:
    1. Revising paragraphs (c)(1), (c)(4), (c)(7)(ii), and 
(c)(7)(iii)(a).
    2. Adding new paragraphs (c)(8), (c)(9), and (c)(10).
    3. Revising the heading of paragraph (e), and paragraphs (e)(1), 
(e)(2), (e)(3), (e)(4), (e)(6), and (e)(7).
    4. Revising the heading of paragraph (e)(5).
    5. Adding new paragraphs (e)(8), (e)(9), (e)(10), (e)(11), and 
(e)(12).
    The additions and revisions read as follows:


Sec.  1.1012-1  Basis of property.

* * * * *
    (c) Sale of stock--(1) In general. Except as provided in paragraph 
(e)(2) of this section (dealing with stock for which the average basis 
method is permitted), if a taxpayer sells or transfers shares of stock 
in a corporation that the taxpayer purchased or acquired on different 
dates or at different prices and the taxpayer does not adequately 
identify the lot from which the stock is sold or transferred, the stock 
sold or transferred is charged against the earliest lot the taxpayer 
purchased or acquired to determine the basis and holding period of the 
stock for purposes of subchapter P, chapter 1 of the Internal Revenue 
Code. If the earliest lot purchased or acquired is held in a stock 
certificate that represents multiple lots of stock, and the taxpayer 
does not adequately identify the lot from which the stock is sold or 
transferred, the stock sold or transferred is charged against the 
earliest lot included in the certificate. See paragraphs (c)(2), 
(c)(3), and (c)(4) of this section for rules on what constitutes an 
adequate identification.
* * * * *
    (4) Stock held by a trustee, executor, or administrator. (i) A 
trustee or executor or administrator of an estate holding stock (not 
left in the custody of a broker) makes an adequate identification if 
the trustee, executor, or administrator--
    (a) Specifies in writing in the books and records of the trust or 
estate the particular stock to be sold, transferred, or distributed;
    (b) In the case of a distribution, furnishes the distributee with a 
written document identifying the particular stock distributed; and
    (c) In the case of a sale or transfer through a broker or other 
agent, specifies to the broker or agent the particular stock to be sold 
or transferred, and within a reasonable time thereafter the broker or 
agent confirms the specification in a written document.
    (ii) The stock the trust or estate identifies under paragraph 
(c)(4)(i) of this section is the stock treated as sold, transferred, or 
distributed, even if the trustee, executor, or administrator delivers 
stock certificates from a different lot.
* * * * *
    (7) * * *
    (ii) In applying paragraph (c)(3)(i)(b) of this section to a sale 
or transfer of a book-entry security pursuant to a taxpayer's written 
instruction, a confirmation is made by furnishing to the taxpayer a 
written advice of transaction from the Reserve Bank or other person 
through whom the taxpayer sells or transfers the securities. The 
confirmation document must describe the securities and specify the date 
of the transaction and amount of securities sold or transferred.
    (iii) * * *
    (a) For purposes of this paragraph (c), the term book-entry 
security means a transferable Treasury bond, note, certificate of 
indebtedness, or bill issued under the Second Liberty Bond Act (31 
U.S.C. 774(2)), as amended, or other security of the United States (as 
defined in paragraph (c)(7)(iii)(b) of this section) in the form of an 
entry made as prescribed in 31 CFR Part 306, or other comparable 
Federal regulations, on the records of a Reserve Bank.
    (8) Time for making identification. For purposes of this paragraph 
(c), an adequate identification of stock is made at the time of sale, 
transfer, delivery, or distribution if the identification is made no 
later than the earlier of the settlement date or the time for 
settlement required by Rule 15c6-1 under the Securities Exchange Act of 
1934, 17 CFR 240.15c6-1 (or its successor). A standing order or 
instruction for the specific identification of stock is treated as an 
adequate identification made at the time of sale, transfer, delivery, 
or distribution.
    (9) Method of writing. A written confirmation, record, document, 
instruction, or advice includes a writing in electronic format.
    (10) Effective/applicability date. Paragraphs (c)(1), (c)(4), 
(c)(8) and (c)(9) of this section apply for taxable years beginning 
after these regulations are published as final regulations in the 
Federal Register.
* * * * *
    (e) Election to use average basis method--(1) In general. 
Notwithstanding paragraph (c) of this section, and except as provided 
in paragraph (e)(8) of this section, a taxpayer may use the average 
basis method described in paragraph (e)(7) of this section to determine 
the cost or other basis of identical shares of stock if--
    (i) The taxpayer leaves shares of stock in a regulated investment 
company (as defined in paragraph (e)(5) of this section) or shares of 
stock acquired after December 31, 2010, in connection with a dividend 
reinvestment plan (as defined in paragraph (e)(6) of this section) with 
a custodian or agent in an account maintained for the acquisition or 
redemption, sale, or other disposition of shares of the company; and
    (ii) The taxpayer acquires identical shares of stock at different 
prices or bases in the account.
    (2) Determination of method. (i) If a taxpayer places shares of 
stock described in paragraph (e)(1)(i) of this section acquired on or 
after January 1, 2012, in the custody of a broker (as defined by 
section 6045(c)(1)), including by transfer from an account with another 
broker, the basis of the shares is determined in accordance with the 
broker's default method, unless the taxpayer notifies the broker that 
the taxpayer elects another permitted method. The taxpayer must report 
gain or loss using the method the taxpayer elects or, if the taxpayer 
fails to make an election, the broker's default method.
    (ii) The provisions of this paragraph (e)(2) are illustrated by the 
following example:

    Example. (i) In connection with a dividend reinvestment plan, 
Taxpayer B acquires 100 shares of G Company in 2012 and 100 shares 
of G Company in 2013, in an account B maintains with R Broker. B 
notifies R in writing that B elects to use the average basis method 
to compute the basis of the shares of G Company. In 2014, B 
transfers the shares of G Company to an account with S Broker. B 
does not notify S of the basis determination method B chooses to use 
for the shares of G Company, and S's default method is first-in, 
first-out. In 2015, B instructs S to sell 100 shares of G Company.
    (ii) Because B does not notify S of a basis determination method 
for the shares of G Company, under paragraph (e)(2)(i) of this 
section, the basis of the 100 shares of G Company S sells for B in 
2015 must be determined under S's default method, first-in, first-
out.

    (3) Shares of stock. For purposes of this paragraph (e), securities 
issued by unit investment trusts (as defined in the Investment Company 
Act of 1940, as amended) are treated as shares of stock

[[Page 67026]]

and the term share or shares includes fractions of a share.
    (4) Identical stock. For purposes of this paragraph (e), identical 
shares of stock means stock with the same Committee on Uniform Security 
Identification Procedures (CUSIP) number or other security identifier 
number as permitted in published guidance of general applicability, see 
Sec.  601.601(d)(2) of this chapter. However, shares of stock in a 
dividend reinvestment plan are not identical to shares of the same 
stock that are not in a dividend reinvestment plan even if the shares 
have the same CUSIP number.
    (5) Regulated investment company. * * *
    (6) Dividend reinvestment plan--(i) In general. For purposes of 
this paragraph (e), the term dividend reinvestment plan means any 
written plan, arrangement, or program under which at least 10 percent 
of every dividend on any share of stock is reinvested in stock 
identical to the stock on which the dividend is paid. A plan is a 
dividend reinvestment plan if the plan documents require that at least 
10 percent of any dividend paid is reinvested in identical stock even 
if the plan includes stock on which no dividends have ever been 
declared or paid or on which an issuer ceases paying dividends. A plan 
that holds one or more different stocks may permit a taxpayer to 
reinvest a different percentage of dividends in the stocks held. The 
term dividend reinvestment plan includes both issuer administered 
dividend reinvestment plans and non-issuer administered dividend 
reinvestment plans.
    (ii) Acquisition of stock. Stock is acquired in connection with a 
dividend reinvestment plan if the stock is acquired under that plan, 
arrangement, or program, or if the dividends paid on the stock are 
subject to that plan, arrangement, or program. Shares of stock acquired 
in connection with a dividend reinvestment plan include the initial 
purchase of stock in the dividend reinvestment plan, transfers of 
identical stock into the dividend reinvestment plan, additional 
periodic purchases of identical stock in the dividend reinvestment 
plan, and identical stock acquired through reinvestment of the 
dividends paid under the plan.
    (iii) Dividends paid after reorganization. For purposes of this 
paragraph (e)(6), dividends declared before or pending a corporate 
action (such as a merger, consolidation, acquisition, split-off, or 
spin-off) involving the issuer of the dividend and subsequently paid 
and reinvested in shares of stock in the successor entity or entities 
are treated as reinvested in shares of stock identical to the shares of 
stock of the issuer of the dividends.
    (iv) Withdrawal from or termination of plan. If a taxpayer 
withdraws stock from a dividend reinvestment plan or the plan 
administrator terminates the dividend reinvestment plan, the shares of 
identical stock the taxpayer acquires after the withdrawal or 
termination are not acquired in connection with a dividend reinvestment 
plan. The taxpayer may not use the average basis method after the 
withdrawal or termination but may use any other permissible basis 
determination method. See paragraph (e)(7)(v) of this section for the 
basis of the shares after withdrawal or termination.
    (7) Computation of average basis--(i) In general. Average basis is 
determined by averaging the basis of all shares of identical stock in 
an account regardless of holding period. The basis of each share of 
identical stock in the account is the aggregate basis of all shares of 
that stock in the account divided by the aggregate number of shares. A 
taxpayer may not average together the basis of identical stock held in 
separate accounts that the taxpayer sells, exchanges, or otherwise 
disposes of on or after January 1, 2012.
    (ii) Order of disposition of shares sold or transferred. In the 
case of the sale or transfer of shares of stock to which the average 
basis method election applies, shares sold or transferred are deemed to 
be the shares first acquired. Thus, the first shares sold or 
transferred are those with a holding period of more than 1 year (long-
term shares) to the extent that the account contains long-term shares. 
If the number of shares sold or transferred exceeds the number of long-
term shares in the account, the excess shares sold or transferred are 
deemed to be shares with a holding period of 1 year or less (short-term 
shares). Any gain or loss attributable to shares held for more than 1 
year constitutes long-term gain or loss, and any gain or loss 
attributable to shares held for 1 year or less constitutes short-term 
gain or loss. For example, if a taxpayer sells 50 shares from an 
account containing 100 long-term shares and 100 short-term shares, the 
shares sold or transferred are all long-term shares. If, however, the 
account contains 40 long-term shares and 100 short-term shares, the 
taxpayer has sold 40 long-term shares and 10 short-term shares.
    (iii) Transition rule from double category method. This paragraph 
(e)(7)(iii) applies to stock for which a taxpayer uses the double-
category method under Sec.  1.1012-1(e)(3) (April 1, 2009) that the 
taxpayer acquired before the date these regulations are published as 
final regulations in the Federal Register and the taxpayer sells, 
exchanges, or otherwise disposes of after that date. The taxpayer must 
calculate the average basis of this stock by averaging together all 
identical shares of stock in the account on the date these regulations 
are published as final regulations in the Federal Register regardless 
of holding period.
    (iv) Wash sales. A taxpayer must apply section 1091 and the 
associated regulations (dealing with wash sales of substantially 
identical securities) in computing average basis regardless of whether 
the stock or security sold or otherwise disposed of and the stock 
acquired are in the same account or in different accounts.
    (v) Basis after change from average basis method. Unless a taxpayer 
revokes an average basis method election under paragraph (e)(9)(iii) of 
this section, if a taxpayer changes from the average basis method to 
another basis determination method (including a change resulting from a 
withdrawal from or termination of a dividend reinvestment plan), the 
basis of each share of stock immediately after the change is the same 
as the basis immediately before the change. See paragraph (e)(9)(iv) of 
this section for rules for changing from the average basis method.
    (vi) The provisions of this paragraph (e)(7) are illustrated by the 
following examples:

    Example 1. (i) In 2011, Taxpayer C acquires 100 shares of H 
Company and enrolls them in a dividend reinvestment plan 
administered by T Custodian. C elects to use the average basis 
method for the shares of H Company enrolled in the dividend 
reinvestment plan. T also acquires for C's account 50 shares of H 
Company and does not enroll these shares in the dividend 
reinvestment plan.
    (ii) Under paragraph (e)(4) of this section, the 50 shares of H 
Company not in the dividend reinvestment plan are not identical to 
the 100 shares of H Company enrolled in the dividend reinvestment 
plan, even if they have the same CUSIP number. Accordingly, under 
paragraphs (e)(1) and (e)(7)(i) of this section, C may not average 
the basis of the 50 shares of H Company with the basis of the 100 
shares of H Company. Under paragraph (e)(1)(i) of this section, C 
may not use the average basis method for the 50 shares of H Company 
because the shares are not acquired in connection with a dividend 
reinvestment plan.

    Example 2. (i) Taxpayer D enters into an agreement with W 
Custodian establishing an account for the periodic acquisition of 
shares of L Company, a regulated investment company. W acquires for 
D's account shares of L Company stock on the following dates and 
amounts:

[[Page 67027]]



------------------------------------------------------------------------
                 Date                      Number of shares        Cost
------------------------------------------------------------------------
January 8, 2009......................  25 shares...............     $200
February 8, 2009.....................  24 shares...............      200
March 8, 2009........................  20 shares...............      200
April 8, 2009........................  20 shares...............      200
------------------------------------------------------------------------

    (ii) At D's direction, W sells 40 shares from the account on 
January 15, 2010, for $10 per share or a total of $400. D elects to 
use the average basis method for the shares of L Company. The 
average basis for the shares sold on January 15, 2010, is $8.99 
(total cost of shares, $800, divided by the total number of shares, 
89).
    (iii) Under paragraph (e)(7)(ii) of this section, the shares 
sold are the shares first acquired. Thus, D realizes $25.25 ($1.01 * 
25) long-term capital gain for the 25 shares acquired on January 8, 
2009, and $15.15 ($1.01 * 15) short-term capital gain for 15 of the 
shares acquired on February 8, 2009.
    Example 3. (i) The facts are the same as in Example 2, except 
that on February 8, 2010, D changes to the first-in, first-out basis 
determination method. W purchases 25 shares of L Company for D on 
March 8, 2010, at $12 per share. D sells 40 shares on May 8, 2010, 
and 34 shares on July 8, 2011.
    (ii) Because D uses the first-in, first-out method, the 40 
shares sold on May 8, 2010 are 9 shares purchased on February 8, 
2009, 20 shares purchased on March 8, 2009, and 11 shares purchased 
on April 8, 2009. Because, under paragraph (e)(7)(v) of this 
section, the basis of the shares D owns when D changes from the 
average basis method remains the same, the basis of the shares sold 
on May 8, 2010, is $8.99 per share, not the original cost of $8.34 
for the shares purchased on February 8, 2009, or $10 per share for 
the shares purchased on March 8, 2009, and April 8, 2009. The basis 
of the shares sold on July 8, 2011, is $8.99 for 9 shares purchased 
on April 8, 2009, and $12 per share for 25 shares purchased on March 
8, 2010.

    (8) Limitation on use of average basis method for certain gift 
shares. (i) Except as provided in paragraph (e)(8)(ii) of this section, 
a taxpayer may not use the average basis method for shares of stock a 
taxpayer acquires by gift after December 31, 1920, if the basis of the 
shares (adjusted for the period before the date of the gift as provided 
in section 1016) in the hands of the donor or the last preceding owner 
by whom the shares were not acquired by gift was greater than the fair 
market value of the shares at the time of the gift. This paragraph 
(e)(8)(i) does not apply to shares the taxpayer acquires as a result of 
a taxable dividend or capital gain distribution on the gift shares.
    (ii) Notwithstanding paragraph (e)(8)(i) of this section, a 
taxpayer may use the average basis method if the taxpayer states in 
writing that the taxpayer will treat the basis of the gift shares as 
the fair market value of the shares at the time the taxpayer acquires 
the shares. The taxpayer must provide this statement when the taxpayer 
makes the election under paragraph (e)(9) of this section or when 
transferring the shares to an account for which the taxpayer has made 
this election, whichever occurs later. The statement must be effective 
for any gift shares identical to the gift shares to which the average 
basis method election applies that the taxpayer acquires at any time 
and must remain in effect as long as the election remains in effect.
    (iii) The provisions of this paragraph (e)(8) are illustrated by 
the following examples:

    Example 1. (i) Taxpayer E owns an account for the periodic 
acquisition of shares of M Company, a regulated investment company. 
On April 15, 2010, E acquires identical shares by gift and transfers 
those shares into the account. These shares had an adjusted basis in 
the hands of the donor that was greater than the fair market value 
of the shares on that date. On June 15, 2010, E sells shares from 
the account and elects to use the average basis method.
    (ii) Under paragraph (e)(8)(ii) of this section, E may elect to 
use the average basis method for shares sold or transferred from the 
account if E includes a statement with E's election that E will 
treat the basis of the gift shares in the account as the fair market 
value of the shares at the time E acquired them. See paragraph 
(e)(9)(ii) of this section.
    Example 2. (i) The facts are the same as in Example 1, except E 
acquires the gift shares on April 15, 2012, transfers those shares 
into the account, and used the average basis method for sales of 
shares of M Company before acquiring the gift shares. E sells shares 
of M Company on June 15, 2012.
    (ii) Under paragraph (e)(8)(ii) of this section, the basis of 
the gift shares may be averaged with the basis of the other shares 
of M Company in E's account if, when E transfers the gift shares to 
the account, E provides a statement to E's broker that E will treat 
the basis of the gift shares in the account as the fair market value 
of the shares at the time E acquired them. See paragraph (e)(9)(i) 
of this section.

    (9) Time and manner for making the average basis method election--
(i) In general. A taxpayer makes an election to use the average basis 
method for shares of stock described in paragraph (e)(1)(i) of this 
section that are covered securities (within the meaning of section 
6045(g)(3)) by notifying the custodian or agent in writing by any 
reasonable means. The taxpayer may make the average basis method 
election at any time, effective for sales or other dispositions of 
stock occurring after the taxpayer notifies the custodian or agent. The 
taxpayer makes the election separately for each account holding stock 
for which the average basis method is permissible. If the election 
applies to gift shares, the taxpayer must provide the statement 
required by paragraph (e)(8)(ii) of this section, if applicable, to the 
custodian or agent with the taxpayer's election.
    (ii) Average basis method election for securities that are 
noncovered securities. A taxpayer makes an election to use the average 
basis method for shares of stock described in paragraph (e)(1)(i) of 
this section that are noncovered securities (as described in Sec.  
1.6045-1(a)(16)) on the taxpayer's income tax return for the first 
taxable year for which the election applies. A taxpayer may make the 
election on an amended return filed no later than the time prescribed 
(including extensions) for filing the original return for the taxable 
year for which the election applies. The taxpayer must indicate on the 
return that the taxpayer used the average basis method in reporting 
gain or loss on the sale or other disposition. A taxpayer must attach 
to the return the statement described in paragraph (e)(8)(ii) of this 
section, if applicable. A taxpayer making the election must maintain 
records necessary to substantiate the average basis reported.
    (iii) Revocation of election. A taxpayer may revoke an election 
under paragraph (e)(9)(i) of this section by the earlier of one year 
after the taxpayer makes the election or the date of the first sale or 
other disposition of that stock following the election. A custodian or 
agent may extend the one-year period but a taxpayer may not revoke an 
election after the first sale or other disposition of the stock. A 
revocation applies to all stock the taxpayer holds in an account that 
is identical to the shares of stock for which the taxpayer revokes the 
election. A revocation is effective when the taxpayer notifies, by any 
reasonable means, the custodian or agent holding the stock to which the 
revocation applies. After revocation, the taxpayer's basis in the 
shares of stock to which the revocation applies is determined using 
another permissible basis determination method.
    (iv) Change from average basis method. (a) A taxpayer may change 
basis determination methods from the average basis method to another 
method prospectively at any time. A change from the average basis 
method applies to all identical stock the taxpayer sells or otherwise 
disposes of before January 1, 2012, that was held in any account. A 
change from the average basis method applies on an account by account 
basis (within the meaning of paragraph (e)(10) of this section) to all 
identical stock the taxpayer sells or otherwise disposes of on or after 
January 1, 2012. Unless paragraph (e)(9)(iii) of this section applies, 
the basis of each share of stock

[[Page 67028]]

to which the change applies is the basis immediately before the change. 
See paragraph (e)(7)(v) of this section.
    (b) Unless paragraph (e)(9)(iii) of this section applies, a change 
in basis determination method is a change in method of accounting to 
which the provisions of sections 446 and 481 and the associated 
regulations apply. A taxpayer that wishes to change its basis 
determination method must obtain the consent of the Commissioner in 
accordance with applicable administrative procedures, see Sec.  
601.601(d)(2) of this chapter.
    (v) Example. The provisions of this paragraph (e)(9) are 
illustrated by the following example:

    Example. (i) Taxpayer F enters into an agreement with W 
Custodian establishing an account for the periodic acquisition of 
shares of N Company, a regulated investment company. W acquires for 
F's account shares of N Company on the following dates and amounts:

------------------------------------------------------------------------
                 Date                      Number of shares        Cost
------------------------------------------------------------------------
January 8, 2012......................  25 shares...............     $200
February 8, 2012.....................  24 shares...............      200
March 8, 2012........................  20 shares...............      200
------------------------------------------------------------------------

    (ii) F elects, under paragraph (e)(9)(i) of this section, to use 
the average basis method for the shares of N Company. On May 8, 
2012, F revokes the average basis method election under paragraph 
(e)(9)(iii) of this section. On June 1, 2012, F sells 60 shares of N 
Company using the first-in, first-out basis determination method.
    (iii) Under paragraph (e)(9)(iii) of this section, the basis of 
the N Company shares upon revocation, and for purposes of 
determining gain on the sale, is $8.00 per share for each of the 25 
shares purchased on January 8, 2012, $8.34 per share for each of the 
24 shares purchased on February 8, 2012, and $10 per share for the 
remaining 11 shares purchased on March 8, 2012.

    (10) Application of average basis method account by account--(i) In 
general. For sales, exchanges, or other dispositions on or after 
January 1, 2012, of any stock described in paragraph (e)(1)(i) of this 
section, the average basis method applies on an account by account 
basis. A taxpayer may use the average basis method for stock in a 
regulated investment company or stock acquired in connection with a 
dividend reinvestment plan in one account but use a different basis 
determination method for the identical stock in a different account. If 
a taxpayer uses the average basis method for a stock described in 
paragraph (e)(1)(i) of this section, the taxpayer must use the average 
basis method for all identical stock within that account. The taxpayer 
may use different basis determination methods for stock within an 
account that is not identical. Except as provided in paragraph 
(e)(10)(ii) of this section, a taxpayer must make separate elections to 
use the average basis method for stock held in separate accounts.
    (ii) Account rule for stock sold before 2012. A taxpayer's election 
to use the average basis method for shares of stock described in 
paragraph (e)(1)(i) of this section that a taxpayer sells, exchanges, 
or otherwise disposes of before January 1, 2012, applies to all 
identical shares of stock the taxpayer holds in any account.
    (iii) Separate account. Unless the single-account election 
described in paragraph (e)(11)(i) of this section applies, any stock 
described in paragraph (e)(1)(i) of this section that a taxpayer 
acquires before January 1, 2012, is treated as held in a separate 
account from any stock acquired on or after that date, and any stock 
that is a covered security (within the meaning of section 6045(g)(3)) 
is treated as held in a separate account from any stock that is a 
noncovered security (as described in Sec.  1.6045-1(a)(16)) regardless 
of when acquired.
    (iv) Examples. The provisions of this paragraph (e)(10) are 
illustrated by the following examples:

    Example 1. (i) In 2012, Taxpayer G enters into an agreement with 
Y Broker establishing three accounts (G-1, G-2, and G-3) for the 
periodic acquisition of shares of P Company, a regulated investment 
company. Y makes periodic purchases of P Company for each of G's 
accounts. G elects to use the average basis method for account G-1. 
On July 1, 2013, G sells shares of P Company from account G-1.
    (ii) G is not required to use the average basis method for the 
shares of P Company that G holds in accounts G-2 and G-3 because, 
under paragraph (e)(10)(i) of this section, the average basis method 
election applies to shares sold after 2011 on an account by account 
basis.
    Example 2. The facts are the same as in Example 1, except that G 
also instructs Y to acquire shares of Q Company, a regulated 
investment company, for account G-1. Under paragraph (e)(10)(i) of 
this section, G may use any permissible basis determination method 
for the shares of Q Company because, under paragraph (e)(4) of this 
section, the shares of Q Company are not identical to the shares of 
P Company.
    Example 3. (i) The facts are the same as in Example 1, except 
that G establishes the accounts in 2011 and Y sells shares of P 
Company from account G-1 on July 1, 2011.
    (ii) G must use the average basis method for the shares of P 
Company in accounts G-2 and G-3 because, under paragraph (e)(10)(ii) 
of this section, for sales before 2012, G's election applies to all 
accounts in which G holds identical stock. G must average together 
the basis of the shares in all accounts.
    Example 4. (i) In 2011, Taxpayer H acquires 80 shares of R 
Company and enrolls them in R Company's dividend reinvestment plan. 
In 2012, H acquires 50 shares of R Company in the dividend 
reinvestment plan. H elects to use the average basis method for the 
shares of R Company in the dividend reinvestment plan. R Company 
does not make the single-account election under paragraph (e)(11)(i) 
of this section.
    (ii) Under paragraph (e)(10)(iii) of this section, the 80 shares 
acquired in 2011 are treated as held in a separate account from the 
50 shares acquired in 2012. H must make a separate average basis 
method election for each account and must average the basis of the 
shares in each account separately from the shares in the other 
account.
    Example 5. (i) B, a broker within the meaning of section 
6045(c)(1), maintains an account for Taxpayer J for the periodic 
acquisition of shares of S Company, a regulated investment company. 
In 2013, B purchases shares of S Company for J's account that are 
covered securities within the meaning of section 6045(g)(3). On 
April 15, 2014, J inherits shares of S Company that are noncovered 
securities and transfers the shares into the account with B.
    (ii) Under paragraph (e)(10)(iii) of this section, J must treat 
the purchased shares and the inherited shares of S Company as held 
in separate accounts. J may elect to apply the average basis method 
to all the shares of S Company, but must make a separate election 
for each account, and must average the basis of the shares in each 
account separately from the shares in the other account.

    (11) Single-account election--(i) In general. Paragraph 
(e)(10)(iii) of this section does not apply if a regulated investment 
company or dividend reinvestment plan elects to treat all identical 
shares of stock described in paragraph (e)(1)(i) of this section as 
held in a single account (single-account election). The single-account 
election applies only to stock for which a taxpayer elects to use the 
average basis method that is held in separate accounts or treated as 
held in separate accounts maintained for the taxpayer. If a broker (as 
defined by section 6045(c)(1)) holds the stock as a nominee, the 
broker, and not the regulated investment company or dividend 
reinvestment plan, makes the election. The single-account election is 
irrevocable.
    (ii) Scope of election. A company, plan, or broker may make a 
single-account election for one or more taxpayers for which it 
maintains an account, and for one or more stocks it holds for a 
taxpayer. The company, plan, or broker may make the election only for 
the shares of stock for which it has accurate basis information. A 
company, plan, or broker has accurate basis information if the company, 
plan, or broker neither knows nor has reason to know that the basis 
information is inaccurate. See also section 6724 and the regulations 
thereunder regarding standards for relief from information

[[Page 67029]]

reporting penalties. Stock for which accurate basis information is 
unavailable may not be included in the single-account election and must 
be treated as held in a separate account.
    (iii) Effect of single-account election. If a company, plan, or 
broker makes the single-account election, the basis of all identical 
shares of stock to which the election applies must be averaged together 
regardless of when the taxpayer acquires the shares, and all the shares 
are treated as covered securities. Once made, the single-account 
election applies to all identical stock a taxpayer later acquires in 
the account that is a covered security (within the meaning of section 
6045(g)(3)). A company, plan, or broker may make another single-account 
election if a taxpayer acquires identical stock in the account that is 
a noncovered security (as described in Sec.  1.6045-1(a)(16)) for which 
the company, plan, or broker has accurate basis information.
    (iv) Time and manner for making the single-account election. A 
company, plan, or broker makes the single-account election by clearly 
noting it on its books and records. The books and records must reflect 
the date of the election; the taxpayer's name, account number, and 
taxpayer identification number; the stock subject to the election; and 
the taxpayer's basis in the stock. The company, plan, or broker must 
provide copies of the books and records regarding the election to the 
taxpayer upon request. A company, plan, or broker may make the single-
account election at any time.
    (v) Notification to taxpayer. A company, plan, or broker making the 
single-account election must use reasonable means to notify the 
taxpayer of the election. Reasonable means include mailings, circulars, 
or electronic mail sent separately to the taxpayer or included with the 
taxpayer's account statement, or other means reasonably calculated to 
provide actual notice to the taxpayer. The notice must identify the 
securities subject to the election and advise the taxpayer that the 
securities will be treated as covered securities regardless of when 
acquired.
    (vi) Examples. The provisions of this paragraph (e)(11) are 
illustrated by the following examples:

    Example 1. (i) C Broker maintains an account for Taxpayer K for 
the acquisition and disposition of shares of T Company, a regulated 
investment company, and shares of V Company that K enrolls in C's 
dividend reinvestment plan. In 2011, C purchases for K's account 100 
shares of T Company in multiple lots and 80 shares of V Company in 
multiple lots that are enrolled in the dividend reinvestment plan. C 
has accurate basis information for all 100 shares of T Company and 
80 shares of V Company. In 2012, C acquires for K's account 150 
shares of T Company and 160 shares of V Company that are enrolled in 
the dividend reinvestment plan. K elects to use the average basis 
method for all the shares of T Company and V Company.
    (ii) Under paragraphs (e)(11)(i) and (ii) of this section, C may 
make a single-account election for the T Company stock or the V 
Company stock, or both. After making a single-account election for 
each stock, under paragraph (e)(11)(iii) of this section, the basis 
of all T Company stock is averaged together and the basis of all V 
Company stock is averaged together, regardless of when acquired, and 
all the shares of T Company and V Company are covered securities.
    Example 2. The facts are the same as in Example 1, except that K 
transfers the 100 shares of T Company acquired in 2011 from an 
account with another broker into K's account with C. C does not have 
accurate basis information for 30 of the 100 shares of T Company, 
which K had acquired in two lots. Under paragraph (e)(11)(ii) of 
this section, C may make the single-account election only for the 70 
shares of T Company stock for which C has accurate basis 
information. The 30 shares of T Company for which C does not have 
accurate basis information must be treated as held in a separate 
account. K may use the average basis method for the 30 shares of T 
Company, but must make a separate average basis method election for 
these shares and must average the basis of these shares separately 
from the 70 shares subject to C's single-account election.
    Example 3. The facts are the same as in Example 1, except that 
in 2013 K acquires additional shares of T Company that are covered 
securities in K's account with C. Under paragraph (e)(11)(iii) of 
this section, these shares of T Company are subject to C's single-
account election.
    Example 4. The facts are the same as in Example 1, except that 
following C's single-account election, in 2013, K inherits shares of 
T Company that are noncovered securities and transfers the shares 
into the account with C. C has accurate basis information for these 
shares. Under paragraph (e)(11)(iii) of this section, C may make a 
second single-account election to include the inherited T Company 
shares.

    (12) Effective/applicability date. Except as otherwise provided in 
paragraphs (e)(1), (e)(2), (e)(7), (e)(9), and (e)(10) of this section, 
this paragraph (e) applies for taxable years beginning after the date 
these regulations are published as final regulations in the Federal 
Register.
* * * * *
    Par. 4. Section 1.6039-2 is amended by adding two new sentences at 
the end of paragraph (c)(1) to read as follows:


Sec.  1.6039-2  Statements to persons with respect to whom information 
is reported.

* * * * *
    (c) * * *
    (1) * * * However, if the statement is furnished in a consolidated 
reporting statement under section 6045, the February 15 due date set 
forth in section 6045 applies to the statement. See Sec. Sec.  1.6045-
1(k)(3), 1.6045-2(d)(2), 1.6045-3(e)(2), 1.6045-4(m)(3), and 1.6045-
5(a)(3)(ii).
* * * * *
    Par. 5. Section 1.6042-4 is amended by adding two new sentences at 
the end of paragraph (e)(1) to read as follows:


Sec.  1.6042-4  Statements to recipients of dividend payments.

* * * * *
    (e) * * *
    (1) * * * If the statement is furnished in a consolidated reporting 
statement under section 6045, the February 15 due date set forth in 
section 6045 applies to the statement. See Sec. Sec.  1.6045-1(k)(3), 
1.6045-2(d)(2), 1.6045-3(e)(2), 1.6045-4(m)(3), and 1.6045-5(a)(3)(ii).
* * * * *
    Par. 6. Section 1.6044-5 is amended by adding two new sentences at 
the end of paragraph (b) to read as follows:


Sec.  1.6044-5  Statements to recipients of patronage dividends.

* * * * *
    (b) * * * If the statement is furnished in a consolidated reporting 
statement under section 6045, the February 15 due date set forth in 
section 6045 applies to the statement. See Sec. Sec.  1.6045-1(k)(3), 
1.6045-2(d)(2), 1.6045-3(e)(2), 1.6045-4(m)(3), and 1.6045-5(a)(3)(ii).
* * * * *
    Par. 7. Section 1.6045-1 is amended by:
    1. Revising paragraphs (a)(1) and (a)(9), and adding paragraphs 
(a)(14), (a)(15), and (a)(16).
    2. Revising paragraphs (c)(2), (c)(3)(i)(B)(1), and (c)(3)(i)(C).
    3. Removing paragraph (c)(3)(xii) and redesignating paragraph 
(c)(3)(xi) as (c)(3)(xii) and adding a new paragraph (c)(3)(xi).
    4. Adding Examples 7, 8, 9, 10, and 11 to paragraph (c)(4).
    5. Revising paragraphs (d)(1), (d)(2), and (d)(5).
    6. Redesignating paragraphs (d)(6) and (d)(7) as (d)(8) and (d)(9) 
respectively and adding new paragraphs (d)(6) and (d)(7).
    7. Revising newly designated paragraphs (d)(8) and (d)(9).
    8. Revising paragraphs (e)(2)(i), (f)(1), (f)(2)(i), (k)(1), and 
(k)(2).
    9. Redesignating paragraph (k)(3) as (k)(4) and adding a new 
paragraph (k)(3).
    10. Removing paragraphs (p) and (q) and redesignating paragraph (r) 
as (p).
    The additions and revisions read as follows:

[[Page 67030]]

Sec.  1.6045-1  Returns of information of brokers and barter exchanges.

    (a) * * *
    (1) The term broker means any person (other than a person who is 
required to report a transaction under section 6043), U.S. or foreign, 
that, in the ordinary course of a trade or business during the calendar 
year, stands ready to effect sales to be made by others. A broker 
includes an obligor that regularly issues and retires its own debt 
obligations or a corporation that regularly redeems its own stock. 
However, with respect to a sale (including a redemption or retirement) 
effected at an office outside the United States, except as otherwise 
provided in a withholding agreement with the Internal Revenue Service 
under Sec.  1.1441-1(e)(5)(iii), a broker includes only a person 
described as a U.S. payor or U.S. middleman in Sec.  1.6049-5(c)(5). In 
addition, a broker does not include an international organization 
described in Sec.  1.6049-4(c)(1)(ii)(G) that redeems or retires an 
obligation of which it is the issuer.
* * * * *
    (9) The term sale means any disposition for cash of securities, 
commodities, regulated futures contracts, or forward contracts, and 
includes redemptions of stock, retirements of indebtedness, and 
enterings into short sales when these actions are conducted for cash. 
In the case of a regulated futures contract or a forward contract, the 
term ``sale'' means any closing transaction. When a closing transaction 
in a regulated futures contract involves making or taking delivery, the 
profit or loss on the contract is a sale, and, if delivery is made, 
such delivery is a separate sale. When a closing transaction in a 
forward contract involves making or taking delivery, the delivery is a 
sale without separation of the profit or loss on the contract from the 
profit or loss on the delivery, except that taking delivery for United 
States dollars is not a sale. The term ``sale'' does not include grants 
or purchases of options, exercises of call options, or enterings into 
contracts that require delivery of personal property or an interest 
therein. For purposes of this section only, the term ``sale'' does not 
include a constructive sale under section 1259 or a mark to fair market 
value under section 475.
* * * * *
    (14) The term specified security means any share of stock 
(including a certificate of beneficial interest) in a corporation 
(foreign or domestic) described in Sec.  301.7701-2(b) of this chapter. 
Solely for purposes of this paragraph (a)(14), a security classified as 
stock by the issuer is treated as stock. If no issuer classification 
has been made, the security is not treated as stock unless the broker 
knows, or has reason to know, that the security is reasonably 
classified as stock under general Federal tax principles.
    (15) The term covered security means the following specified 
securities:
    (i) Any specified security acquired through a sale transaction in 
an account on or after January 1, 2011, except for stock in a regulated 
investment company (as described in Sec.  1.1012-1(e)(5)) and stock 
that is considered acquired in connection with a dividend reinvestment 
plan (as described in Sec.  1.1012-1(e)(6)) on the date of acquisition.
    (ii) Stock in a regulated investment company if acquired through a 
sale transaction in an account on or after January 1, 2012.
    (iii) Stock acquired in connection with a dividend reinvestment 
plan if acquired through a sale transaction in an account on or after 
January 1, 2012.
    (iv) Any specified security transferred to an account in a non-sale 
transaction provided that the broker or other custodian of the account 
receives a transfer statement (as described in Sec.  1.6045A-1) 
reporting the security as a covered security.
    (16) The term noncovered security means any security that is not a 
covered security.
* * * * *
    (c) * * *
    (2) Sales required to be reported. Except as provided in paragraphs 
(c)(3), (c)(5), and (g) of this section, a broker is required to make a 
return of information with respect to each sale by a customer of the 
broker if, in the ordinary course of a trade or business in which the 
broker stands ready to effect sales to be made by others, the broker 
effects the sale or closes the short position opened by the sale.
    (3) * * *
    (i) * * *
    (B) * * *
    (1) A corporation as defined in section 7701(a)(3), whether 
domestic or foreign, except that this exclusion does not apply to sales 
of covered securities acquired on or after January 1, 2012, by a 
corporation for which an election under section 1362(a) is in effect;
* * * * *
    (C) Exemption certificate. A broker may treat a person described in 
paragraph (c)(3)(i)(B) of this section as an exempt recipient based on 
a properly completed exemption certificate (as provided in Sec.  
31.3406(h)-3 of this chapter), on the broker's actual knowledge that 
the payee is a person described in paragraph (c)(3)(i)(B) of this 
section, or on the applicable indicators described in Sec.  1.6049-
4(c)(1)(ii)(A) through (M), except a broker must not treat a person 
described in paragraph (c)(3)(i)(B) of this section as an exempt 
recipient based on the indicator described in Sec.  1.6049-
4(c)(1)(ii)(A) (relating to corporations) with respect to sales of 
covered securities acquired on or after January 1, 2012. A broker may 
require an exempt recipient to file a properly completed exemption 
certificate and may treat an exempt recipient that fails to do so as a 
recipient that is not exempt.
* * * * *
    (xi) Short sales. A return of information for a short sale of a 
security entered into on or after January 1, 2010, is not made until 
the year in which securities are acquired or delivered to close the 
short sale. The return must be made without regard to the constructive 
sale rule in section 1259 and, if the short sale remains open, without 
regard to section 1233(h). The return is required to include the 
following information:
    (A) With respect to short sales closed by covered securities (other 
than short sales described in paragraph (c)(3)(xi)(C) of this section), 
a broker is required to report, on a single return of information, the 
information required by paragraph (d)(2)(i) of this section including 
the relevant information regarding the securities sold to open the 
short sale and the adjusted basis for the securities acquired or 
delivered to close the short sale and whether any gain or loss on the 
closing of the short sale is long-term or short-term (within the 
meaning of section 1222).
    (B) With respect to short sales closed by noncovered securities 
(other than short sales described in paragraph (c)(3)(xi)(C) of this 
section), a broker is required to report the relevant information 
required by paragraph (d)(2)(i) of this section for the securities sold 
to open the short sale. Adjusted basis and whether any gain or loss on 
the closing of a short sale is long-term or short-term (within the 
meaning of section 1222) are not reportable for short sales closed 
before January 1, 2011. With respect to short sales closed on or after 
January 1, 2011, a broker is not required to report adjusted basis and 
whether any gain or loss on the closing of the short sale is long-term 
or short-term for noncovered securities acquired or delivered to close 
a short sale provided that the broker indicates on Form 1099 or any 
successor form that the securities acquired or delivered to

[[Page 67031]]

close a short sale are noncovered securities. A broker that chooses to 
report this information with respect to short sales closed by 
noncovered securities is not subject to penalties under section 6721 or 
6722 for any failure to report such information correctly, provided 
that the broker indicates on Form 1099 or any successor form that 
securities acquired or delivered to close a short sale are noncovered 
securities.
    (C) With respect to short sales closed by securities transferred 
into a customer's account accompanied by a transfer statement (as 
described in Sec.  1.6045A-1) indicating that the securities were 
borrowed from or through the applicable person effecting the transfer 
(within the meaning of Sec.  1.6045A-1(a)(3)), the broker receiving 
custody of the securities must not file a return of information. In 
this situation, the broker receiving custody of the securities must 
furnish a statement to the applicable person effecting the transfer 
that reports the amount of gross proceeds received from the short sale, 
the date the short sale was opened, and the CUSIP 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) of the securities that opened the short 
sale. The statement must also contain the date that the transfer was 
initiated as reported on the transfer statement and the name and 
contact information of the broker receiving custody of the securities, 
the applicable person that effected the transfer, and the customer. The 
applicable person that effected the transfer must take the information 
furnished by the broker receiving custody of the securities under this 
paragraph (c)(3)(xi)(C) into account when making the return of 
information required by this section at the time the short sale is 
closed unless the applicable person that effected the transfer knows 
that the information on the statement is incorrect. Any failure to 
report correct information that arises solely from this reliance is 
deemed to be due to reasonable cause with respect to penalties under 
sections 6721 and 6722. See Sec.  301.6724-1(a)(1) of this chapter. 
This paragraph (c)(3)(xi)(C) applies only if a short sale is not 
considered closed under section 1233 by the delivery of property 
borrowed from a lender.
    (4) * * *
* * * * *
    Example 7. On April 17, 2009, H, an individual who is not an 
exempt recipient, opens a short sale of stock in an account with M, 
a broker. Because the short sale is entered into prior to January 1, 
2010, paragraph (c)(3)(xi) of this section does not apply. Under 
paragraphs (c)(2) and (j) of this section, M must make a return of 
information for the year of the sale regardless of when the short 
sale is closed.
    Example 8. (i) On June 24, 2010, H opens a short sale of stock 
in an account with M, a broker. H closes the short sale with M on 
August 25, 2010, by purchasing stock of the same corporation in the 
account in which H opened the short sale.
    (ii) Because the short sale is entered into on or after January 
1, 2010, under paragraphs (c)(2) and (c)(3)(xi) of this section, the 
broker closing the short sale must make a return of information 
reporting the sale for the year in which the short sale is closed. 
Thus, M is required to report the sale for 2010.
    (iii) Because the stock used to close the short sale was 
acquired before January 1, 2011, the stock is a noncovered security 
under paragraph (a)(16) of this section, and paragraph (c)(3)(xi)(B) 
of this section applies. Under paragraph (c)(3)(xi)(B) of this 
section, because the short sale was closed prior to January 1, 2011, 
M must report the relevant information for the sold stock. The 
adjusted basis and whether any gain or loss on the closing of the 
short sale is long-term or short-term (within the meaning of section 
1222) are not reportable for transactions occurring prior to January 
1, 2011.
    Example 9. (i) On December 20, 2010, H opens a short sale of 
stock that is not stock in a regulated investment company in an 
account with M, a broker. H closes the short sale with M on January 
20, 2011, by purchasing stock of the same corporation in the account 
in which H opened the short sale. The purchased stock is not 
considered to be acquired in connection with a dividend reinvestment 
plan.
    (ii) Because the short sale is entered into on or after January 
1, 2010, under paragraphs (c)(2) and (c)(3)(xi) of this section, the 
broker closing the short sale must make a return of information 
reporting the sale for the year in which the short sale is closed. 
Thus, M is required to report the sale for 2011.
    (iii) Because the stock used to close the short sale is not 
stock in a regulated investment company or acquired in connection 
with a dividend reinvestment plan and was acquired on or after 
January 1, 2011, the stock is a covered security under paragraph 
(a)(15)(i) of this section, and paragraph (c)(3)(xi)(A) of this 
section applies. Under paragraph (c)(3)(xi)(A) of this section, M 
must report on a single return the relevant information for the sold 
stock, the adjusted basis of the acquired stock, and whether any 
gain or loss on the closing of the short sale is long-term or short-
term (within the meaning of section 1222). Thus, M must report the 
information about the transactions opening and closing the short 
sale on a single return for taxable year 2011.
    Example 10. Assume the same facts as in Example 9 except that H 
satisfies the short sale obligation with M by delivering stock of 
the same corporation that H acquired on December 29, 2010. Because 
the stock used to close the short sale was acquired before January 
1, 2011, the stock is a noncovered security under paragraph (a)(16) 
of this section and paragraph (c)(3)(xi)(B) of this section applies. 
Under paragraph (c)(3)(xi)(B) of this section, because the short 
sale was closed on or after January 1, 2011, M must report the 
relevant information for the sold stock and is permitted to report 
the adjusted basis of the stock acquired to close the short sale, 
and whether any gain or loss on the closing of the short sale is 
long-term or short-term (within the meaning of section 1222). 
Whether M chooses to report the last two items or to leave these two 
fields blank, M will not be subject to penalties for failing to 
report the correct adjusted basis or whether any gain or loss on the 
closing of the short sale is long-term or short-term provided that M 
indicates on Form 1099 or any successor form that the securities 
acquired or delivered to close the short sale are noncovered 
securities.
    Example 11. Assume the same facts as in Example 9 except that H 
satisfies the short sale obligation with M by borrowing stock of the 
same corporation from another broker, N, and transferring the 
borrowed stock from the custody of N to M. N indicates on the 
transfer statement that the transferred stock was borrowed from or 
through N. Because H is not considered to have closed H's short sale 
under section 1233, under paragraph (c)(3)(xi)(C) of this section, M 
is not permitted to file the return of information required under 
this section. Instead, M must furnish a statement to N that reports 
the gross proceeds from the short sale, the date the short sale was 
opened, and the CUSIP number or other security identifier number for 
the sale of the stock borrowed from M to open the short sale on 
December 20, 2010, along with the date N initiated the transfer as 
reported by N on the transfer statement and the name and contact 
information of H, M, and N. N must report the gross proceeds from 
the short sale, the date the short sale was opened, the adjusted 
basis of the stock acquired to close the short sale, and whether any 
gain or loss on the closing of the short sale is long-term or short-
term (within the meaning of section 1222) on the return of 
information N is required to file under paragraph (c)(2) of this 
section when H closes the short sale in the account with N.
* * * * *
    (d) Information required--(1) In general. A broker that is required 
to make a return of information under paragraph (c) of this section 
during a reporting period is required to report on a separate Form 
1096, ``Annual Summary and Transmittal of U.S. Information Returns,'' 
or any successor form for each filing group, showing such information 
as may be required by Form 1096, in the form, manner, and number of 
copies required by Form 1096.
    (2) Transactional reporting--(i) Required information. For each 
sale for which a broker is required to make a return of information 
under this section, the broker, except as provided in paragraph (c)(5) 
of this section, must report on Form 1099 or any successor form the 
name, address, and taxpayer identification number of the customer, the 
property sold, the Committee on

[[Page 67032]]

Uniform Security Identification Procedures (CUSIP) number of the 
security sold (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), the adjusted basis of the security sold, whether any gain or 
loss with respect to the security sold is long-term or short-term 
(within the meaning of section 1222), the gross proceeds of the sale, 
the sale date, and such other information as may be required by Form 
1099, in the form, manner, and number of copies required by Form 1099.
    (ii) Specific identification of securities. In the case of a sale 
of securities acquired on different dates or at different prices but 
involving less than the entire position of the security held in an 
account, a broker must report the sale on a first-in, first-out basis 
within the account unless the customer notifies the broker by means of 
making an adequate and timely identification of the securities to be 
sold. If the customer makes an adequate and timely identification of 
the securities to be sold, the broker must report the sale consistently 
with the customer's identification. For rules governing the 
requirements and timing for making an adequate identification, see 
Sec.  1.1012-1(c).
    (iii) Sales of noncovered securities and certain excepted 
securities. In the case of a sale of a noncovered security, reporting 
of the adjusted basis of the security sold and whether any gain or loss 
with respect to the security sold is long-term or short-term (within 
the meaning of section 1222) is not required provided that a broker 
indicates on Form 1099 or any successor form that the sale is a sale of 
a noncovered security. A broker that chooses to report this information 
with respect to a noncovered security is not subject to penalties under 
section 6721 or 6722 for any failure to report such information 
correctly, provided that the broker indicates on Form 1099 or any 
successor form that the sale is a sale of a noncovered security. For 
purposes of this paragraph (d)(2)(iii), a security that was excepted 
from all reporting under this section as described in paragraph (c)(3) 
of this section at the time of its acquisition is treated in the same 
manner as a noncovered security.
    (iv) Information from other parties and other accounts--(A) 
Transfer and issuer statements. When reporting the sale of a covered 
security, a broker must take into account all information reported on 
any transfer statement (as described in Sec.  1.6045A-1) received in 
connection with the transfer of the security to the customer's account 
with the broker, and all information reported on any issuer statement 
(as described in Sec.  1.6045B-1) regarding the effect on the security 
of any organizational actions prior to the sale of the security unless 
the broker knows that the information presented on the transfer 
statement or issuer statement is incorrect. With respect to penalties 
under sections 6721 and 6722, any failure to report correct information 
that arises solely from this reliance is deemed to be due to reasonable 
cause. See Sec.  301.6724-1(a)(1) of this chapter.
    (B) Other information. A broker is permitted, but not required, to 
take into account any information with respect to a covered security 
that is not reflected on a transfer statement or issuer statement, 
including any information the broker has about securities held by the 
same customer in other accounts with the broker. With respect to 
penalties under sections 6721 and 6722, a broker that takes into 
account information received from a customer or third party other than 
information reflected on a transfer statement or issuer statement is 
deemed to have relied upon it in good faith if the broker neither knows 
nor has reason to know that the information is incorrect. See Sec.  
301.6724-1(c)(6) of this chapter.
    (v) Failures by other parties. A broker that does not receive a 
complete transfer statement by the transfer statement due date (as 
described in Sec.  1.6045A-1(a)(5) and (b)) in connection with the 
receipt of transferred securities must notify the person effecting the 
transfer and request a complete statement. The broker is not required 
to make this request more than once. If the broker does not receive a 
complete transfer statement after making the request, the broker may 
treat the security as noncovered when sold. If the broker receives a 
complete transfer statement after the sale indicating that the security 
was a covered security, the broker must file a corrected Form 1099 
within thirty days of receiving the statement unless the required 
information was reported on the original Form 1099 consistently with 
the complete transfer statement. Similarly, if an issuer does not 
furnish a complete issuer statement (as described in Sec.  1.6045B-1) 
regarding a corporate organizational action that occurs prior to the 
sale of a covered security until after the broker has reported the sale 
of the security, the broker must file a corrected Form 1099 within 
thirty days of receiving the statement unless the required information 
was reported on the original Form 1099 consistently with the complete 
issuer statement.
    (vi) Examples. The following examples illustrate the rules of this 
paragraph (d)(2):

    Example 1. (i) J is an organization exempt from taxation under 
section 501(a). On February 22, 2012, J purchases stock in an 
account with F, a broker. On October 1, 2012, J loses its exemption 
under section 501(a). On January 15, 2013, J sells the shares of 
stock.
    (ii) Because J was exempt from reporting under section 6045 at 
the time it acquired the shares of stock, under paragraph 
(d)(2)(iii) of this section, F is not required to report the 
adjusted basis of the stock and whether any gain or loss on the sale 
is long-term or short-term (within the meaning of section 1222). 
Whether F chooses to report this information or to leave these 
fields blank, under paragraph (d)(2)(iii) of this section, F is not 
subject to penalties for failing to report the correct adjusted 
basis or whether any gain or loss on the sale is long-term or short-
term provided that F indicates on Form 1099 that the sale is a sale 
of a noncovered security.
    Example 2. (i) On March 1, 2012, K sells 100 shares of stock of 
C, a corporation, at a loss in an account held with F, a broker. On 
March 15, 2012, K purchases 100 shares of stock of the same 
corporation in an account with G, a different broker. Because the 
shares purchased on March 15, 2012, are acquired through a sale 
transaction in an account after January 1, 2012, under paragraph 
(a)(15) of this section, the shares are covered securities. K asks G 
to increase K's adjusted basis in the shares to account for the 
application of the wash sale rules under section 1091 to the loss 
transaction in the account held with F.
    (ii) Under paragraph (d)(2)(iv)(B) of this section, G is not 
required to take into account the information provided by K when 
subsequently reporting the adjusted basis and whether any gain or 
loss on the sale is long-term or short-term (within the meaning of 
section 1222). If G chooses to take this information into account, 
under paragraph (d)(2)(iv)(B) of this section, G is deemed to have 
relied upon the information received from K in good faith on any 
subsequent reporting for purposes of penalties under section 6721 
and 6722 if G neither knows nor has reason to know that the 
information provided by K is incorrect.
    Example 3. (i) L purchases shares of stock of the same 
corporation in an account with F, a broker, on November 21, 1962, 
November 21, 2012, November 21, 2013, and November 21, 2014. In 
January 2015, L sells all the stock.
    (ii) Under paragraph (d)(2)(i) of this section, F must 
separately report the gross proceeds and adjusted basis attributable 
to those shares purchased in 2014, for which the gain or loss on the 
sale is short-term, and the combined gross proceeds and adjusted 
basis attributable to those shares purchased in 2012 and 2013, for 
which the gain or loss on the sale is long-term. Under paragraph 
(d)(2)(iii) of this section, F must also separately report the gross 
proceeds attributable to the shares purchased in 1962 as the sale of 
noncovered securities in order to avoid treatment of this sale as 
the sale of covered securities.

[[Page 67033]]

    Example 4. (i) On June 1, 2015, M makes a gift to N of shares of 
stock originally purchased by M on March 1, 2013, in an account with 
F, a broker. In connection with the transfer, F provides a complete 
transfer statement (as described in Sec.  1.6045A-1) to G, N's 
broker, stating that the shares are covered securities. N 
subsequently sells the shares.
    (ii) Because G received a complete transfer statement stating 
that the shares are covered securities, under paragraph 
(d)(2)(iv)(A) of this section, G must take into account the 
information reported on the transfer statement in reporting N's 
subsequent sale of the shares unless G knows that the information is 
incorrect. Under paragraph (d)(2)(iv)(A) of this section, any 
failure to report correct information that arises solely from this 
reliance is deemed to be due to reasonable cause.
    Example 5. Assume the same facts as in Example 4 except that G 
does not receive a complete transfer statement by the transfer 
statement due date. Under paragraph (d)(2)(v) of this section, G 
must notify F and request a complete statement. If G still does not 
receive a complete statement, G may treat the securities as 
noncovered securities at the time of sale.
* * * * *
    (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 such sale reduced by the amount of 
any interest reported under paragraph (d)(3) of this section and 
increased by any amount not so paid or credited by reason of repayment 
of margin loans. In the case of a closing transaction which results in 
a loss, gross proceeds are the amount debited from the customer's 
account. A broker may, but is not required to, take commissions into 
account in determining gross proceeds, 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 before January 1, 
2013, a broker may, but is not required to, take the option premiums 
into account in determining the gross proceeds of the securities sold 
pursuant to the exercise of the option, provided the treatment chosen 
is consistent with the books of the broker.
    (6) Adjusted basis--(i) In general. For purposes of this section, 
the adjusted basis of a security is determined from the basis 
determined under paragraph (d)(6)(ii) of this section as of the date 
the security is acquired in an account, increased by the commissions 
and transfer taxes related to its sale to the extent not accounted for 
in gross proceeds as described in paragraph (d)(5) of this section. 
When reporting adjusted basis, a broker must take into account 
organizational actions affecting the basis of the security if reported 
on any issuer statement (as described in Sec.  1.6045B-1) but is not 
otherwise required to consider transactions, elections, or events 
occurring outside the account.
    (ii) Initial basis--(A) Cost basis. For a security acquired through 
a sale transaction in an account, the initial basis is the total amount 
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 to the extent not accounted for in gross proceeds as 
described in paragraph (d)(5) of this section. For securities purchased 
or acquired pursuant to the exercise of an option granted or acquired 
before January 1, 2013, a broker may, but is not required to, take 
option premiums into account in determining the adjusted basis of the 
securities purchased or acquired pursuant to the exercise of the 
option. A broker may, but is not required to, take into account income 
recognized upon the exercise of a compensatory option or other equity-
based compensation arrangement before January 1, 2013, in determining 
adjusted basis.
    (B) Transferred basis--(1) In general. In the case of a security 
acquired through a non-sale transfer, the initial basis is generally 
the basis reported on the transfer statement (as described in Sec.  
1.6045A-1).
    (2) Securities acquired by gift. If the transfer statement 
indicates that the security is acquired as a gift, the broker must 
apply the relevant basis rules under this Title for property acquired 
by gift in determining the initial basis, except that the broker is not 
required to account for adjustments to basis arising solely from gift 
tax paid with respect to the gift. If the application of the relevant 
basis rules for property acquired by gift prevents both gain and loss 
from being recognized, or if the initial basis of the security depends 
upon its fair market value as of the date of the gift but the transfer 
statement does not report its fair market value as of the date of the 
gift and this amount is not readily ascertainable by the broker, the 
broker must treat the initial basis as equal to the gross proceeds from 
the sale determined under paragraph (d)(5) of this section.
    (iii) Adjustments for wash sales. A broker must apply the wash sale 
rules under section 1091, but only if both the sale and purchase 
transactions occur with respect to covered securities in the same 
account with the same CUSIP number 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). When reporting the sale transaction that triggered the wash 
sale, the broker must report the amount of loss that is disallowed by 
section 1091 in addition to gross proceeds and adjusted basis for the 
sale transaction. Additionally, the broker must take the amount of loss 
disallowed on the sale transaction into account in determining the 
adjusted basis of the purchased securities.
    (iv) No constructive sale or mark-to-market adjustments. A broker 
must report adjusted basis for a security without regard to the 
provisions of section 1259 (regarding constructive sales) or section 
475 (regarding the mark-to-market method of accounting).
    (v) Average basis method adjustments. For securities for which 
basis may be determined by the average basis method, a broker must 
compute basis using the average basis method if the owner validly 
elects that method for the securities sold or, in the absence of any 
instruction from the customer, if the broker chooses that method as its 
default basis determination method. See Sec.  1.1012-1(e).
    (vi) Examples. The following examples, in which all the securities 
are covered securities, illustrate the rules of this paragraph (d)(6):

    Example 1. (i) M makes a gift to N of shares of stock which M 
holds in an account with F, a broker. The shares are stock of a 
publicly traded company with a readily ascertainable fair market 
value. In connection with the transfer, F provides a transfer 
statement (as described in Sec.  1.6045A-1) to G, N's broker, 
reporting that the transfer was a gift of covered securities 
originally acquired on April 2, 2012. G receives custody of the 
shares on June 4, 2015. G sells the shares on March 24, 2016.
    (ii) Because the transfer statement reported the transfer as a 
gift, under paragraph (d)(6)(ii)(B)(2) of this section, G must apply 
the relevant basis rules for property acquired by gift in 
determining adjusted basis when reporting the sale of the shares. 
Depending on the gross proceeds of the sale, G may determine the 
reported adjusted basis from the basis reported on the transfer 
statement, the fair market value of the gifted shares on June 4 that 
G determines from readily ascertainable records, or the gross 
proceeds determined from the sale.
    Example 2. Assume the same facts as in Example 1 except that the 
shares are stock of a privately held company with no readily 
ascertainable fair market value and the transfer statement did not 
report a fair market value of the securities as of the date of the 
gift to N. Under paragraph (d)(6)(ii)(B)(2) of this section, if G 
must determine the reported adjusted basis from the fair market 
value of the shares, G must treat the gross proceeds from the sale 
as the adjusted basis. Under paragraph (d)(2)(iv)(B) of this 
section, G may

[[Page 67034]]

instead rely on a fair market value provided by N in determining 
basis under the relevant basis rules for property acquired by gift 
and is deemed to have relied upon the fair market value provided by 
N in good faith on any subsequent reporting for purposes of 
penalties under sections 6721 and 6722 if G neither knows nor has 
reason to know that the fair market value provided by N is 
incorrect.
    Example 3. (i) On September 21, 2012, P purchases 100 shares of 
common stock of C, a corporation, in an account with J, a broker. In 
the same account with J, on December 14, 2012, P purchases 50 shares 
of C common stock. All of the C common stock purchased by P has the 
same CUSIP number. On January 4, 2013, P sells the 100 shares 
purchased on September 21, 2012 at a loss.
    (ii) J must apply the rules of paragraph (d)(6)(iii) of this 
section for reporting the basis of the covered securities sold in a 
wash sale when reporting the January 4, 2013 sale of the shares 
purchased on September 21, 2012, because this sale and the purchase 
of shares on December 14, 2012, occurred with respect to covered 
securities in the same account with the same CUSIP number.
    (iii) Under the rules of paragraph (d)(6)(iii) of this section 
for reporting the basis of covered securities sold in a wash sale, 
for the January 4, 2013 sale, J must report the amount of the 
disallowed loss determined under section 1091 in addition to gross 
proceeds and adjusted basis of the September 21, 2012 stock. If P 
later sells the shares acquired on December 14, 2012, J must take 
the amount of loss disallowed on the January 4, 2013 sale 
transaction into account in determining adjusted basis.
    Example 4. Assume the same facts as in Example 3 except that the 
December 14, 2012 purchase occurs in another account maintained by P 
with J. Because the December 14, 2012 purchase did not occur in the 
same account as the sale of the September 21, 2012 stock, under 
paragraph (d)(6)(iii) of this section, J is not required to apply 
the wash sale reporting rules to determine amounts to be reported 
for the sale of stock acquired on September 21, 2012, or December 
14, 2012. Under paragraph (d)(2)(iv)(B) of this section, J may 
choose to apply the wash sale rules as if the transactions occurred 
in the same account and report the sales of the securities as in 
Example 3.
    Example 5. On January 20, 2012, Q purchases shares of stock of 
C, a corporation, in an account with K, a broker. In 2014, C makes a 
distribution to shareholders that it classifies as a nondividend 
(nontaxable) distribution on an issuer statement (as described in 
Sec.  1.6045B-1). On July 1, 2015, Q sells the shares. Under section 
(d)(6)(i) of this section, K must take into account the reduction to 
adjusted basis based on the 2014 distribution when reporting the 
sale of the shares.
    Example 6. (i) L, a regulated investment company, offers two 
funds for sale, Fund D and Fund E. On April 22, 2012, R purchases 
shares of Fund D and pays a separate load charge. By reason of the 
payment of the load charge, R acquires a reinvestment right in 
shares of Fund E. On April 23, 2012, at the request of R, Fund D 
redeems the shares. R uses the proceeds to purchase shares of Fund E 
in a separate account. As a result of the reinvestment right 
acquired by R, R pays no load charge on the purchase of shares of 
Fund E. Without the reinvestment right, R would have paid a load 
charge on the purchase of the shares of Fund E.
    (ii) Under paragraph (d)(6)(i) of this section, when reporting 
adjusted basis at the time of sale, L is not required to take into 
account any deferral of the load charge under section 852(f), 
because the transactions concerning Fund D and Fund E occur in 
separate accounts. Under paragraph (d)(2)(iv)(B) of this section, L 
may choose to apply the provisions of section 852(f).
    Example 7. S, an employee of C, a corporation, participates in 
C's stock option plan. On April 2, 2012, C grants S a nonstatutory 
option under the plan to buy 100 shares of stock. The option becomes 
substantially vested on April 2, 2013. On October 2, 2013, S 
exercises the option and purchases 100 shares. On December 2, 2013, 
S sells the 100 shares acquired through the plan. Under paragraphs 
(d)(2)(i) and (d)(6)(ii)(A) of this section, C is required to report 
adjusted basis based on the amount paid by S under the terms of the 
option. Under paragraph (d)(6)(ii)(A) of this section, C is not 
required to take any amount includible as wage income by S with 
respect to the October 2, 2013, purchase of the shares into account 
when reporting adjusted basis, but has the choice to take income 
recognized upon the exercise of the compensatory option into account 
when determining adjusted basis. The same result would occur if C 
had granted S a statutory option.

    (7) Long-term or short-term gain or loss--(i) In general. For 
purposes of this section, a broker determines whether any gain or loss 
on the sale of a security is long-term or short-term within the meaning 
of section 1222. In making this determination, a broker is not required 
to consider transactions, elections, or events occurring outside the 
account except for the following:
    (A) Information reported on the transfer statement (as described in 
Sec.  1.6045A-1), if any, received in connection with a non-sale 
transfer of a security to the account. For a security acquired from a 
decedent, a broker must apply the relevant rules under this Title for 
property acquired from a decedent. For a security acquired (or treated 
as acquired) as a gift, a broker must apply the relevant rules under 
this Title for property acquired by gift in coordination with the 
application of the rules in paragraph (d)(6) of this section.
    (B) Information reported on any issuer statement (as described in 
Sec.  1.6045B-1) regarding the effect on the security of any 
organizational actions.
    (ii) Adjustments for wash sales. When reporting the sale of a 
security whose acquisition triggers a wash sale, a broker must apply 
section 1091 when determining whether any gain or loss on the sale of a 
security is long-term or short-term within the meaning of section 1222, 
but only if both the sale and purchase transactions occur with respect 
to covered securities in the same account with the same CUSIP number 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).
    (iii) No constructive sale or mark-to-market adjustments. A broker 
must determine whether any gain or loss on the sale of a security is 
long-term or short-term within the meaning of section 1222 without 
regard to the provisions of section 1259 (regarding constructive sales) 
or section 475 (regarding the mark-to-market method of accounting).
    (iv) Examples. The following examples illustrate the rules of this 
paragraph (d)(7):

    Example 1. (i) M makes a gift to N of shares of stock that M 
holds in an account with F, a broker. The shares are stock of a 
publicly traded company with a readily ascertainable fair market 
value. In connection with the transfer, F provides a transfer 
statement (as described in Sec.  1.6045A-1) to G, N's broker, 
reporting that the transfer was a gift of covered securities 
originally acquired on April 2, 2012. G receives custody of the 
shares on June 4, 2015. N sells the shares on March 24, 2016.
    (ii) Because the transfer statement reported the transfer as a 
gift, under paragraph (d)(7)(i)(A) of this section, G must apply the 
relevant rules for property acquired by gift in determining whether 
any gain or loss on the sale is long-term or short-term within the 
meaning of section 1222 when reporting the sale of the shares and, 
depending on the gross proceeds of the sale, may determine holding 
period based on the date M acquired the shares or the June 4, 2015 
date of the gift.
    Example 2. O's aunt dies on May 15, 2013. In her will, she 
directs that O receive all of her shares of stock in C, a 
corporation. H, O's broker, receives a transfer statement reporting 
that the transfer is an inheritance or bequest of covered securities 
with an original acquisition date of May 15, 2013. O then sells the 
shares on July 15, 2013. Under paragraph (d)(7)(i)(A) of this 
section, H must apply the relevant rules for property acquired from 
a decedent when reporting whether any gain or loss on the sale is 
long-term or short-term within the meaning of section 1222.
    Example 3. On June 20, 2012, Y purchases shares of stock in an 
account with P, a broker. On December 20, 2012, the corporation 
distributes stock to shareholders. Y receives 10 shares of stock in 
the distribution. On January 10, 2013, the corporation reports on an 
issuer statement (as described in Sec.  1.6045B-1) that the 
distribution is a nondividend (nontaxable) distribution that has 
resulted in an adjustment to the basis of the shares owned prior to 
the distribution. On July 1, 2014, Y

[[Page 67035]]

sells the distributed stock. Under section (d)(7)(i)(B) of this 
section, P must apply the relevant holding period rules when 
reporting whether any gain or loss on the sale is long-term or 
short-term within the meaning of section 1222.

    (8) Conversion into United States dollars of proceeds paid or 
received in foreign currency--(i) Conversion rules. When a payment is 
made or received in a foreign currency, the U.S. dollar amount shall be 
determined by converting such foreign currency into U.S. dollars on the 
date of payment at the spot rate (as defined in Sec.  1.988-1(d)(1)) or 
pursuant to a reasonable spot rate convention. For example, a broker 
may use a month-end spot rate or a monthly average spot rate. A spot 
rate convention must be used consistently with respect to all non-
dollar amounts reported and from year to year. Such convention cannot 
be changed without the consent of the Commissioner or his or her 
delegate.
    (ii) Effect of identification under Sec.  1.988-5(a), (b), or (c) 
where the taxpayer effects a sale and a hedge through the same broker--
(A) In general. In lieu of the amount reportable under paragraph 
(d)(8)(i) of this section, the amount subject to reporting shall be the 
integrated amount computed under Sec.  1.988-5(a), (b) or (c) if--
    (1) A taxpayer effects through a broker a sale or exchange of 
nonfunctional currency (as defined in Sec.  1.988-1(c)) and hedges all 
or a part of such sale as provided in Sec.  1.988-5(a), (b) or (c) with 
the same broker; and
    (2) The taxpayer complies with the requirements of Sec.  1.988-
5(a), (b) or (c) and so notifies the broker prior to the end of the 
calendar year in which the sale occurs.
    (B) Effective/applicability date. The provisions of this paragraph 
(d)(8)(ii) apply to transactions entered into after December 31, 2000.
    (9) Coordination with reporting rules for widely held fixed 
investment trusts under Sec.  1.671-5. The information required to be 
reported under section 6045(a) must be provided with respect to the 
sale of an interest in a widely held fixed investment trust (as defined 
under Sec.  1.671-5). To the extent that any additional information 
reporting is required under section 6045(g), those requirements are 
deemed to be met through compliance with the rules in Sec.  1.671-5.
    (e) * * *
    (2) Exchanges required to be reported--(i) In general. Except as 
provided in paragraphs (e)(2)(ii) and (g) of this section, a barter 
exchange shall make a return of information with respect to exchanges 
of personal property or services through the barter exchange during the 
calendar year among its members or clients or between such persons and 
the barter exchange. For this purpose, property or services are 
exchanged through a barter exchange if payment for property or services 
is made by means of a credit on the books of the barter exchange or 
scrip issued by the barter exchange or if the barter exchange arranges 
a direct exchange of property or services among its members or clients 
or exchanges property or services with a member or client.
* * * * *
    (f) Information required--(1) In general. A person that is a barter 
exchange during a calendar year shall report on Form 1096, ``Annual 
Summary and Transmittal of U.S. Information Return,'' or any successor 
form showing the information required thereon for such year.
    (2) Transactional reporting--(i) In general. As to each exchange 
with respect to which a barter exchange is required to make a return of 
information under this section, the barter exchange shall show on Form 
1099, ``U.S. Information Return for Calendar Year 1971,'' or any 
successor form the name, address, and taxpayer identification number of 
each member or client providing property or services in the exchange, 
the property or services provided, the amount received by the member or 
client for such property or services, the date on which the exchange 
occurred, and such other information as may be required by Form 1099, 
in the form, manner, and number of copies required by Form 1099.
* * * * *
    (k) Requirement and time for furnishing statement; cross-reference 
to penalty--(1) General requirements. A broker or barter exchange 
making a return of information under this section with respect to a 
transaction shall furnish to the person whose identifying number is (or 
is required to be) shown on such return a written statement showing the 
information required by paragraph (c)(5), (d), or (f) of this section 
and containing a legend stating that such information is being reported 
to the Internal Revenue Service. If the return of information is not 
made on magnetic media, this requirement may be satisfied by furnishing 
to such person a copy of all Forms 1099 or any successor form with 
respect to such person filed with the Internal Revenue Service Center. 
A statement shall be considered to be furnished to a person to whom a 
statement is required to be made under this paragraph (k) if it is 
mailed to such person at the last address of such person known to the 
broker or barter exchange.
    (2) Time for furnishing statements. A broker or barter exchange may 
furnish the statements required under this paragraph (k) yearly, 
quarterly, monthly, or on any other basis, without regard to the 
reporting period elected by the broker or barter exchange, provided 
that all statements required to be furnished under this paragraph (k) 
for a calendar year shall be furnished on or before February 15 of the 
following calendar year.
    (3) Consolidated reporting. (i) The term consolidated reporting 
statement means a grouping of statements furnished by the same broker 
to the same customer or same group of customers on the same date that 
includes a statement required to be furnished under this section. A 
consolidated reporting statement is limited to those statements 
furnished to the customer based on the same relationship of broker to 
customer as the statement required to be furnished under this section. 
For purposes of this paragraph (k)(3)(i), a broker may treat a 
shareholder of the broker as a customer of the broker and may treat a 
grouping of statements for a customer as including a statement required 
to be furnished under this section if the customer has an account with 
the broker for which a statement would be required to be furnished 
under this section had a sale occurred during the year.
    (ii) A consolidated reporting statement must be furnished on or 
before February 15. Any statement that otherwise must be furnished on 
or before January 31 may be furnished on or before February 15 if it is 
furnished in the consolidated reporting statement.
    (iii) Examples. The following examples illustrate the rules of this 
paragraph (k)(3):

    Example 1. D has a taxable account with B, a broker, consisting 
solely of shares of stock in a single corporation. D receives 
reportable dividends from this stock in 2010, and sells the stock in 
2010. Under this section and Sec.  1.6042-4, B must furnish a Form 
1099-B, ``Proceeds from Broker and Barter Exchange Transactions,'' 
and Form 1099-DIV, ``Dividends and Distributions,'' to D in 2011 
with respect to the sale and the dividends. Under paragraph (k)(2) 
of this section, B is required to furnish the required statement 
under this section to D by February 15, 2011. Under paragraph 
(k)(3)(ii) of this section, the statement reporting the dividends, 
if furnished in a consolidated reporting statement as defined in 
paragraph (k)(3)(i) of this section, must also be furnished by 
February 15, 2011. Otherwise, the statement reporting the dividends 
must be furnished by the due date set forth in Sec.  1.6042-4.

[[Page 67036]]

    Example 2. Assume the same facts as in Example 1 except that D 
does not sell the stock. B is not required to issue a statement 
required under this section. However, under paragraph (k)(3)(i) of 
this section, B may treat a grouping of statements for D as 
including a required statement under this section because D has an 
account for which a statement would be required under this section 
had a sale occurred during the year. The statement reporting the 
dividends may still be furnished by February 15, 2011, under 
paragraph (k)(3)(ii) of this section.
    Example 3. E has a non-taxable IRA account with B, a broker. 
This account is the only account E holds with B. E sells stock in 
2010 in this account. E also receives a cash distribution from the 
account in 2010. The cash distribution from the IRA is reportable on 
Form 1099-R, ``Distributions From Pensions, Annuities, Retirement or 
Profit-Sharing Plans, IRAs, Insurance Contracts, etc.,'' under Sec.  
1.408-7. Because the account is not taxable, sales in the account 
are not subject to reporting under this section. Therefore, because 
no statement is or would be required under this section, paragraph 
(k)(3) of this section does not permit B to include any statements 
to E in a consolidated reporting statement. Additionally, the 
February 15 due date for furnishing a statement does not apply to 
the statement reporting the distribution or any other customer 
statements.
    Example 4. Assume the same facts as in Example 3 except that E 
also has a taxable account with B. Under paragraph (k)(3) of this 
section, all customer statements that B must otherwise furnish to E 
on or before January 31, 2011, including the statement reporting the 
cash distribution from the IRA, may be furnished by February 15, 
2011, if furnished on the same date in a consolidated reporting 
statement with the required statements under this section for any 
sales in E's taxable account.
    Example 5. Assume the same facts as in Example 3 except that E 
and F have a joint taxable account with B. Because sales in the 
joint taxable account are subject to reporting under this section, 
all customer statements that B must otherwise furnish jointly to E 
and F on or before January 31, 2011, may be furnished by February 
15, 2011, under paragraph (k)(3) of this section if furnished on the 
same date in a consolidated reporting statement with the required 
statements under this section for any sales in the joint taxable 
account. However, B may not include any statement with respect to 
E's IRA account in the consolidated reporting statement furnished 
jointly to E and F because the statements are not furnished to the 
same customer or group of customers.
* * * * *
    Par. 8. Section 1.6045-2 is amended by revising paragraph (d) to 
read as follows:


Sec.  1.6045-2  Furnishing statement required with respect to certain 
substitute payments.

* * * * *
    (d) Time for furnishing statements--(1) General requirements. A 
broker must furnish the statements required by paragraph (a) of this 
section for each calendar year. Such statements shall be furnished 
after April 30th of such calendar year but in no case before the final 
substitute payment for the calendar year is made, and on or before 
February 15 of the following calendar year.
    (2) Consolidated reporting. (i) The term consolidated reporting 
statement means a grouping of statements furnished by the same broker 
to the same customer or same group of customers on the same date that 
includes a statement required to be furnished under this section. A 
consolidated reporting statement is limited to those statements 
furnished to the customer based on the same relationship of broker to 
customer as the statement required to be furnished under this section.
    (ii) A consolidated reporting statement must be furnished on or 
before February 15. Any statement that otherwise must be furnished on 
or before January 31 may be furnished on or before February 15 if it is 
furnished in the consolidated reporting statement.
* * * * *
    Par. 9. Section 1.6045-3 is amended by revising paragraph (e) to 
read as follows:


Sec.  1.6045-3  Information reporting for an acquisition of control or 
a substantial change in capital structure.

* * * * *
    (e) Furnishing of forms to customers--(1) General requirements. The 
Form 1099-B prepared for each customer must be furnished to the 
customer on or before February 15 of the year following the calendar 
year in which the customer receives stock, cash or other property.
    (2) Consolidated reporting. (i) The term consolidated reporting 
statement means a grouping of statements furnished by the same broker 
to the same customer or same group of customers on the same date that 
includes a statement required to be furnished under this section. A 
consolidated reporting statement is limited to those statements 
furnished to the customer based on the same relationship of broker to 
customer as the statement required to be furnished under this section.
    (ii) A consolidated reporting statement must be furnished on or 
before February 15. Any statement that otherwise must be furnished on 
or before January 31 may be furnished on or before February 15 if it is 
furnished in the consolidated reporting statement.
* * * * *
    Par. 10. Section 1.6045-4 is amended by revising paragraph (m)(2) 
and adding paragraph (m)(3) to read as follows:


Sec.  1.6045-4  Information reporting on real estate transactions with 
dates of closing on or after January 1, 1991.

* * * * *
    (m) * * *
    (2) Time for furnishing statement. The statement required under 
this paragraph (m) must be furnished to the transferor on or after the 
date of closing and on or before February 15 of the following calendar 
year.
    (3) Consolidated reporting. (i) The term consolidated reporting 
statement means a grouping of statements furnished by the same 
reporting person to the same transferor or same group of transferors on 
the same date that includes a statement required to be furnished under 
this section. A consolidated reporting statement is limited to those 
statements furnished to the transferor based on the same relationship 
of reporting person to transferor as the statement required to be 
furnished under this section.
    (ii) A consolidated reporting statement must be furnished on or 
before February 15. Any statement that otherwise must be furnished on 
or before January 31 may be furnished on or before February 15 if it is 
furnished in the consolidated reporting statement.
* * * * *
    Par. 11. Section 1.6045-5 is amended by revising paragraph (a)(3) 
to read as follows:


Sec.  1.6045-5  Information reporting on payments to attorneys.

    (a) * * *
    (3) Requirement to furnish statement--(i) General requirements. A 
person required to file an information return under paragraph (a)(1) of 
this section must furnish to the attorney a written statement of the 
information required to be shown on the return. This requirement may be 
met by furnishing a copy of the return to the attorney. The written 
statement must be furnished to the attorney on or before February 15 of 
the year following the calendar year in which the payment was made.
    (ii) Consolidated reporting. (A) The term consolidated reporting 
statement means a grouping of statements furnished by the same payor to 
the same payee or same group of payees on the same date, provided that 
the grouping of statements includes a statement required to be 
furnished under this section. A consolidated reporting statement is 
limited to those statements furnished to the payee based on the same 
relationship of payor to payee as the statement required to be 
furnished under this section.
    (B) A consolidated reporting statement must be furnished on or

[[Page 67037]]

before February 15. Any statement that otherwise must be furnished on 
or before January 31 may be furnished on or before February 15 if it is 
furnished in the consolidated reporting statement.
* * * * *
    Par. 12. Section 1.6045A-1 is added to read as follows:


Sec.  1.6045A-1  Statements of information required in connection with 
transfers of securities.

    (a) Duty to furnish transfer statement--(1) In general. Every 
applicable person (as described in paragraph (a)(3) of this section) 
that transfers to a broker (as described in paragraph (a)(4) of this 
section) the custody of a specified security in a transaction that is 
not a sale must furnish to the broker a transfer statement setting 
forth the information described in paragraph (b) of this section with 
respect to the transferred securities. Except as provided in paragraph 
(b)(1)(vii) of this section for certain securities for which basis is 
determined under an average basis method, a separate statement must be 
furnished for each security and, if transferring the same security 
acquired on different dates or at different prices, for each 
acquisition. For purposes of this section, the terms sale and specified 
security have the same meaning as in Sec.  1.6045-1(a)(9) and (a)(14).
    (2) Format of transfer statement. The transfer statement must be 
furnished in writing unless both the furnishing party and the receiving 
party agree to a different format or method prior to the transfer. If a 
transfer occurs between accounts at the same or affiliated entities, 
the transfer statement is deemed to have been furnished and received if 
the required information, including any adjustments required under this 
section to the basis, acquisition date, or date for computing whether 
any gain or loss with respect to the security is long-term or short-
term (within the meaning of section 1222) of the transferred 
securities, is incorporated into the records for the recipient account.
    (3) Applicable person effecting transfer. A person effecting a 
transfer of custody of securities must furnish a transfer statement if 
the person is an applicable person. Applicable person means a broker as 
described in Sec.  1.6045-1(a)(1), any person that acts as a custodian 
of securities in the ordinary course of a trade or business, any issuer 
of securities, and any agent of these persons. Applicable person does 
not include the beneficial owner of the securities, any governmental 
unit or agency or instrumentality of a governmental unit with respect 
to escheated securities, or any person that acts solely as a clearing 
organization with respect to the transfer.
    (4) Broker receiving custody. An applicable person must furnish the 
statement required under this section when transferring securities to 
the custody of any broker. Solely for purposes of this section, broker 
means any person described in Sec.  1.6045-1(a)(1), any person that 
acts as a custodian of securities in the ordinary course of a trade or 
business, any issuer of securities, and any agent of these persons. 
Broker does not include the beneficial owner of the securities, any 
governmental unit or agency or instrumentality of a governmental unit 
with respect to escheated securities, or any person acting solely as a 
clearing organization with respect to the transfer.
    (5) Time for furnishing statement. Each transfer statement with 
respect to a transfer must be furnished not later than fifteen days 
after the date of settlement for the transfer.
    (6) Examples. The following examples illustrate the rules of this 
paragraph (a):

    Example 1. Q owns securities in an account with J, a broker. J 
partners with K, a broker, so that K holds custody of the securities 
of J's customers including Q. Q instructs J to transfer his 
securities to an account with L, another broker. J informs K of the 
instruction. K transfers the securities to L. Because K is a broker, 
K is an applicable person within the meaning of paragraph (a)(3) of 
this section. Because K effects the transfer of custody, under 
paragraph (a)(3) of this section, K is the applicable person that 
must furnish the transfer statement. Because L is the broker 
receiving custody under paragraph (a)(4) of this section, K must 
furnish the transfer statement to L.
    Example 2. R owns securities in an account with L, a broker. R 
instructs L to transfer the securities to an account with M, a bank 
that acts as a custodian of securities in the ordinary course of a 
trade or business but does not stand ready to effect sales of 
securities. L transfers the securities to M. Because L effects the 
transfer of custody, under paragraph (a)(3) of this section, L is 
the applicable person that must furnish the transfer statement. 
Because M receives custody of the stock and acts as a custodian of 
securities in the ordinary course of a trade or business, M is the 
broker receiving custody under paragraph (a)(4) of this section. 
Therefore, L must furnish the transfer statement to M.
    Example 3. (i) S owns shares of stock in C, a corporation, in an 
account with N, a broker. S instructs N to transfer the C shares to 
C so that ownership is held on the books of the issuer. C uses the 
services of T, a transfer agent, to keep records of ownership of the 
company's stock, how that stock is held, and how many shares each 
investor owns. N transfers the securities to T.
    (ii) Because N effects the transfer of custody, under paragraph 
(a)(3) of this section, N is the applicable person that must furnish 
the transfer statement. Because T records ownership of S's stock on 
the books of C and is the agent of C, T is the broker receiving 
custody under paragraph (a)(4) of this section. Therefore, N must 
furnish the transfer statement to T.
    Example 4. Assume the same facts as in Example 3 except that S 
later instructs T to transfer the shares back to an account held by 
S with O, another broker. Because T is an agent of C, the issuer of 
the securities, T is an applicable person within the meaning of 
paragraph (a)(3) of this section. Under paragraphs (a)(3) and (a)(4) 
of this section, T must furnish a transfer statement to O.

    (b) Information required--(1) In general. Each transfer statement 
must include the information described in this paragraph (b)(1). The 
applicable person furnishing the transfer statement and the broker 
receiving the transfer statement may agree to combine the information 
in any format. For example, a single code representing the broker 
receiving custody of the security may substitute for a separate listing 
of the person's name, address, and telephone number.
    (i) Statement dates. The date the statement is furnished and the 
date of any previous statement with respect to the same transfer.
    (ii) Applicable person effecting transfer. The name, address, and 
telephone number of the applicable person furnishing the statement.
    (iii) Broker receiving custody. The name, address, and telephone 
number of the broker receiving custody of the security.
    (iv) Beneficial owners. The name, address, telephone number, 
taxpayer identification number, and account number of the beneficial 
owner or owners of the security prior to the transfer and, if 
different, the beneficial owner or owners after the transfer.
    (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 or units, security symbol (if applicable), lot numbers (if 
applicable), and classification of the security (such as stock).
    (vi) Transfer dates. The date the transfer was initiated and the 
settlement date of the transfer (if known when furnishing the 
statement).
    (vii) Adjusted basis and acquisition date. The total adjusted basis 
of the security, the original acquisition date of the security, and the 
date for computing

[[Page 67038]]

whether any gain or loss with respect to the security is long-term or 
short-term (within the meaning of section 1222) upon the subsequent 
sale. This information must be determined as provided under Sec.  
1.6045-1(d), except that any information reported on any issuer 
statement (as described in Sec.  1.6045B-1) regarding the effect on the 
security of any organizational actions does not need to be taken into 
account. If organizational actions reportable on an issuer statement 
are taken into account, the transfer statement must include the 
identifying number of the last issuer statement taken into account to 
indicate that the organizational action identified and all relevant 
prior organizational actions reported by the issuer are reflected on 
the transfer statement. The transfer statement must also identify and 
describe any other organizational actions reflected on the statement 
that the applicable person did not derive from an issuer statement. If 
the basis of the transferred security is determined using an average 
basis method (as described in Sec.  1.1012-1(e)), any securities 
acquired more than five years prior to the transfer may be reported on 
a single statement on which the original acquisition date is reported 
as ``VARIOUS,'' but only if the other information reported on the 
statement applies to all of the securities.
    (viii) Examples. The following examples illustrate the rules of 
this paragraph (b)(1):

    Example 1.  (i) In a single account with P, a broker, T 
purchases three lots of 100 shares of stock each in C, a 
corporation, at different prices on April 2, 2012, July 2, 2012, and 
October 1, 2012. T instructs P to enroll the shares of the C stock 
in P's dividend reinvestment plan and to average the basis of the 
shares of the C stock. All of the C stock purchased by P has the 
same CUSIP number. On September 13, 2013, less than five years after 
the acquisition dates for all three lots, T transfers all 300 shares 
of the C stock to an account with another broker.
    (ii) Under paragraphs (a)(1) and (b)(1) of this section, P must 
furnish three transfer statements in connection with the transfer: 
One reporting the transfer of 100 shares with an original 
acquisition date of April 2, 2012; one reporting the transfer of 100 
shares with an original acquisition date of July 2, 2012; and one 
reporting the transfer of 100 shares with an original acquisition 
date of October 1, 2012.
    Example 2.  Assume the same facts as in Example 1 except that T 
transfers the shares to the account with the other broker on 
September 13, 2017. For the 100 shares purchased on April 2, 2012, 
and the 100 shares purchased on July 2, 2012, under paragraph 
(b)(1)(vii) of this section, P may furnish a single transfer 
statement reporting the transfer of 200 shares with the original 
acquisition date as ``VARIOUS'' instead of furnishing two separate 
transfer statements.
    Example 3. (i) Assume the same facts as in Example 1 except 
that, on June 15, 2012, T sells the 100 shares purchased on April 2, 
2012 at a loss.
    (ii) When reporting the transfer, under paragraph (b)(1)(vii) of 
this section (incorporating Sec.  1.6045-1(d)(6)(iii) and 
(d)(7)(ii)), P must determine adjusted basis and the date for 
computing whether any gain or loss with respect to the stock is 
long-term or short-term (within the meaning of section 1222) by 
taking the rules for broker reporting of wash sales into account. On 
the transfer statement reporting the transfer of the 100 shares 
purchased on July 2, 2012, P must adjust the basis of this stock for 
the amount of the loss disallowed under section 1091 on the sale of 
the 100 shares purchased on April 2, 2012, and must also adjust the 
date for computing whether any gain or loss with respect to the 
stock is long-term or short-term (within the meaning of section 
1222) in accordance with section 1091.

    (2) Transfers of noncovered or excepted securities. (i) In the case 
of a transfer of a specified security that is a noncovered security (as 
described in Sec.  1.6045-1(a)(16)), reporting of the information 
described in paragraphs (b)(1)(vii), (b)(3), and (b)(4) of this section 
is not required provided that the transfer statement indicates that the 
transfer is a transfer of a noncovered security. An applicable person 
that chooses to report the information described in paragraphs 
(b)(1)(vii), (b)(3), and (b)(4) of this section with respect to a 
noncovered specified security is not subject to penalties under section 
6722 for any failure to report such information correctly, provided 
that the transfer statement indicates that the transfer is a transfer 
of a noncovered security. For purposes of this paragraph (b)(2)(i), a 
security that was excepted from all reporting under Sec.  1.6045-1 as 
described in Sec.  1.6045-1(c)(3) at the time of its acquisition is 
treated in the same manner as a noncovered security.
    (ii) Example. The following example illustrates the rules of this 
paragraph (b)(2):

    Example.  X instructs S, a broker, to give to Z shares of stock 
that X holds in an account with S. The stock consists of noncovered 
securities. On X's instruction, S transfers custody of the shares to 
T, Z's broker. The transfer settles on August 15, 2013. Under 
paragraph (b)(2)(i) of this section, S is not required to state 
adjusted basis or acquisition date for the shares, the date of the 
gift, the fair market value of the shares on that date, or that the 
shares are gifted securities on the transfer statement, provided 
that S indicates that the transfer is a transfer of a noncovered 
security. If the transfer statement fails to indicate that the 
transfer is a transfer of a noncovered security, the transfer is 
deemed to be a transfer of covered securities and S is subject to 
penalties for any failure to report the required information.

    (3) Transfers pursuant to an inheritance--(i) In general. In the 
case of a transfer of a security described in paragraph (a) of this 
section from a decedent or decedent's estate, in addition to the 
information described in paragraph (b)(1) of this section, the transfer 
statement must indicate that the transfer consists of an inherited 
security. The transfer statement must also report the date of death as 
the original acquisition date and must report adjusted basis according 
to the instructions or valuations provided by an authorized 
representative of the estate, taking into account any additional 
adjustments to basis required under this Title for property acquired 
from a decedent.
    (ii) Transfers without instructions from the estate. If the 
authorized estate representative does not provide complete instructions 
or valuations to the applicable person effecting the transfer regarding 
the basis of the transferred security at the time the representative 
requests the transfer of the security, the applicable person effecting 
the transfer must ask the representative for instructions or valuations 
regarding such basis before preparing the transfer statement. The 
applicable person is not required to make this request more than once 
for each transferred security. Subsequent to this request, if complete 
instructions are not received before the transfer statement is 
prepared, the transfer statement must indicate that the transfer 
consists of an inherited security but may otherwise report the security 
as if it were a noncovered security. If the applicable person receives 
complete instructions or valuations from an authorized estate 
representative after furnishing a transfer statement for a security 
that was a covered security in the hands of the decedent, the 
applicable person must furnish, within fifteen days of receiving the 
complete instructions or valuations, a corrected statement that no 
longer reports the security as a noncovered security and includes the 
information required in paragraph (b)(3)(i) of this section.
    (iii) Transfers of shares to satisfy a cash legacy. If the security 
is transferred from a decedent or a decedent's estate in order to 
satisfy a cash legacy, then the rules of paragraph (b)(1) of this 
section apply, and paragraphs (b)(3)(i) and (b)(3)(ii) of this section 
do not apply.
    (iv) Examples. The following examples illustrate the rules of this 
paragraph (b)(3):

    Example 1.  V owns shares of stock in C, a publicly traded 
company, in an account with Q, a broker. The shares of stock are 
covered securities. V dies on May 15, 2013.

[[Page 67039]]

In her will, V directs that W receive all of her shares of stock in 
C. Following the terms of V's will and upon the instruction of an 
authorized representative of the estate that the basis of the 
transferred securities should be adjusted to the fair market value 
as of the date of V's death, Q transfers custody of the stock to R, 
W's broker. Under paragraph (b)(3)(i) of this section, the transfer 
statement must report that the shares are inherited or bequeathed 
securities with an original acquisition date of May 15, 2013, and an 
adjusted basis that reflects the instructions of the authorized 
representative of the estate.
    Example 2. Assume the same facts as in Example 1 except that the 
instruction from the authorized representative of the estate to 
transfer the securities to W does not include an instruction 
regarding the basis of the shares of stock in C. Under paragraph 
(b)(3)(ii) of this section, Q must contact the authorized 
representative and ask for an instruction or valuation regarding the 
basis of the shares of stock in C before preparing the transfer 
statement. Under paragraph (b)(3)(ii) of this section, if Q still 
does not receive an instruction regarding the basis of the shares of 
stock in C, Q may treat the shares of stock in C as noncovered 
securities when transferring the stock. If Q receives complete 
instructions or valuations from the authorized representative after 
furnishing the transfer statement, under paragraph (b)(3)(ii) of 
this section, Q must furnish a corrected statement within fifteen 
days of receiving the instruction or valuation from the authorized 
representative that no longer reports the shares of stock in C as a 
noncovered security and reflects the instruction or valuation from 
the authorized representative.
    Example 3.  Assume the same facts as in Example 1 except that V 
directs in her will that W receive $3,000. To satisfy this legacy, Q 
transfers custody of the shares of stock in C to R on a date when 
the stock has a fair market value of $3,000. Because the shares are 
transferred from V's estate to satisfy a cash legacy, under 
paragraph (b)(3)(iii) of this section, paragraph (b)(1) of this 
section applies and paragraphs (b)(3)(i) and (b)(3)(ii) of this 
section do not apply. Under paragraph (b)(1) of this section, the 
transfer statement must report that the adjusted basis is $3,000 and 
that the original acquisition date is the date of settlement for the 
transfer. Additionally, the transfer statement must not indicate 
that the securities are inherited or bequeathed securities.

    (4) Gift or deemed gift transfers--(i) In general. In the case of a 
transfer of securities described in paragraph (a) of this section that 
effects a change of ownership of a security (other than transfers from 
a decedent or decedent's estate), in addition to the information 
described in paragraph (b)(1) of this section, the transfer statement 
must indicate that the security is a gift and must report the date of 
the gift (if known when furnishing the statement) and the fair market 
value of the gift on that date (if known or readily ascertainable at 
the time the transfer statement is prepared). Additionally, for 
purposes of paragraph (b)(1) of this section, the adjusted basis and 
original acquisition date are equal to the adjusted basis and original 
acquisition date of the security in the hands of the donor. The 
requirement to identify the security as a gift does not apply to a 
transfer between persons for whom gift-related basis adjustments are 
inapplicable or to a transfer between accounts that share at least one 
common owner.
    (ii) Subsequent transfers of gifts with no change in ownership. If 
a security described in paragraph (b)(4)(i) of this section is 
subsequently transferred to a different account of the same owner, the 
applicable person effecting the subsequent transfer must include the 
information described in paragraphs (b)(1) and (b)(4)(i) of this 
section on the transfer statement. The date of the gift and the fair 
market value of the gift on that date must be included on the transfer 
statement unless they are not known or readily ascertainable at the 
time the transfer statement is prepared and if the applicable person 
effecting the subsequent transfer has not received a transfer statement 
that included them.
    (iii) Examples. The following examples illustrate the rules of this 
paragraph (b)(4):

    Example 1.  X instructs S, a broker, to give to Y shares of 
stock in a publicly traded company that X holds in an account with 
S. The shares of stock are covered securities. On X's instruction, S 
transfers custody of the stock to T, Y's broker. The transfer 
settles on August 15, 2013. Under paragraph (b)(4)(i) of this 
section, S must indicate on the transfer statement that the transfer 
is a transfer of gifted securities and report X's adjusted basis and 
original acquisition date. S must also indicate that the date of the 
gift was August 15, 2013, if the settlement date was known when S 
furnished the statement, and the fair market value of the shares on 
that date.
    Example 2.  Assume the same facts as in Example 1 except that, 
one year later, Y transfers the shares to an account in his name 
with U, another broker. Under paragraph (b)(4)(ii) of this section, 
T must indicate on the transfer statement that the transfer is a 
transfer of gifted securities and report the adjusted basis and 
original acquisition date of the shares. Under paragraph (b)(4)(ii) 
of this section, if the date of the gift and its fair market value 
were not reported on the initial transfer statement, T must indicate 
on the transfer statement that the date of the gift was August 15, 
2013, and include the fair market value of the shares on that date, 
if known or readily ascertainable.

    (5) Transfers of borrowed securities. If the transferred security 
is borrowed from or through the applicable person effecting the 
transfer (for example, as part of a transaction to close a short 
position with the broker receiving custody of the security), the 
transfer statement must indicate that the transferred security is 
borrowed and that the adjusted basis of the security is zero. The 
transfer statement must also instruct the broker receiving custody to 
provide the applicable person effecting the transfer with information 
about any short position potentially being closed by the transfer or 
other disposition of the securities. See Sec.  1.6045-1(c)(3)(xi)(C).
    (6) Transfers of less than the entire position of a security in an 
account. In the case of a transfer of less than the entire position of 
a security described in paragraph (a) of this section acquired in an 
account on different dates or at different prices, the transfer 
statement must report the transfer on a first-in, first-out basis 
within the account unless the customer notifies the applicable person 
furnishing the transfer statement by means of making an adequate and 
timely identification in the same manner as for a sales transaction 
under the rules in Sec.  1.1012-1(c).
    (7) Information from other parties and other accounts--(i) Prior 
transfer statements. When reporting the transfer of a covered security, 
an applicable person furnishing the transfer statement must take into 
account all information reported on any transfer statement (as 
described in this section) received in connection with a previous 
transfer of the security to the custody of the applicable person and 
all instructions and valuations provided by an authorized 
representative of the estate of a decedent unless the applicable person 
knows that the information presented on the previous transfer statement 
or by the personal representative is incorrect. With respect to 
penalties under section 6722, any failure to report correct information 
that arises solely from this reliance is deemed to be due to reasonable 
cause. See Sec.  301.6724-1(a)(1) of this chapter.
    (ii) Other information. An applicable person furnishing a transfer 
statement is permitted, but not required, to take into account any 
other information that is not reflected on a prior transfer statement 
within the meaning of paragraph (b)(7)(i) of this section, including 
any information the applicable person has about securities held by the 
same customer in the custody of the applicable person furnishing the 
transfer statement. With respect to penalties under section 6722, an 
applicable person that takes into account information received from a 
customer or third party other than information reflected on a prior 
transfer statement or information received from an authorized 
representative of the estate of a decedent is deemed to have relied 
upon the information in good

[[Page 67040]]

faith if the applicable person neither knows nor has reason to know 
that the information is incorrect. See Sec.  301.6724-1(c)(6) of this 
chapter.
    (8) Failure to receive a complete transfer statement. A broker that 
receives custody of a security but does not receive a complete transfer 
statement by the transfer statement due date as described in paragraph 
(a)(5) of this section must notify the applicable person effecting the 
transfer and request a complete statement. The broker receiving custody 
of the security is not required to make this request more than once. If 
the broker receiving custody of the security does not receive a 
complete transfer statement after making this request, the broker 
receiving custody of the security may designate the security as 
noncovered on any subsequent transfer statement. A transfer statement 
is incomplete if it fails to include the information described in 
paragraph (b) of this section. A failure to include the information 
listed in paragraph (b)(1)(vii) of this section does not make a 
transfer statement incomplete if the transfer statement reports that 
the transferred securities are noncovered securities.
    (c) Corrected transfer statements. If a person that furnishes a 
transfer statement receives a statement for an earlier transfer of the 
securities that reports that the transferred securities are covered 
securities and includes information inconsistent with the subsequent 
transfer statement, the person that furnished the subsequent transfer 
statement must furnish a corrected transfer statement within fifteen 
days of receipt of the prior transfer statement.
    (d) Effective/applicability dates. This section applies to 
transfers of specified securities other than shares of stock in a 
regulated investment company (as described in Sec.  1.1012-1(e)(5)) 
that occur on or after January 1, 2011, and to transfers of shares of 
stock in a regulated investment company that occur on or after January 
1, 2012.
    Par. 13. Section 1.6045B-1 is added to read as follows:


Sec.  1.6045B-1  Returns relating to actions affecting basis of 
specified securities.

    (a) General rule--(1) In general. Any issuer of a specified 
security (within the meaning of Sec.  1.6045-1(a)(14)) that takes an 
organizational action that affects the basis of the security must file 
an issuer return setting forth the following information and any other 
information specified in the return form and instructions:
    (i) Reporting issuer. The name and taxpayer identification number 
of the reporting issuer.
    (ii) Security identifiers. The identifiers of each security 
involved in the organizational action including, as applicable, the 
Committee on Uniform Security Identification Procedures (CUSIP) number 
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), classification of the 
security (such as stock), account number, serial number, and ticker 
symbol, as well as any descriptions about the class of security 
affected.
    (iii) Contact at reporting issuer. The name, address, e-mail 
address, and telephone number of a contact person at the issuer.
    (iv) Information about action. The type or nature of the 
organizational action including, as applicable, the date of the action 
or the date against which shareholders' ownership is measured for the 
action.
    (v) Effect of the action. The quantitative effect of the 
organizational action on the basis of the security in the hands of a 
U.S. taxpayer as an adjustment per share or as a percentage of old 
basis, including a description of the calculation, the applicable 
Internal Revenue Code section and subsection upon which the tax 
treatment is based, the data supporting the calculation such as the 
market values of securities and valuation dates, any other information 
necessary to implement the adjustment including the reportable taxable 
year, and whether any resulting loss may be recognized.
    (vi) Reporting date and sequence number. A sequential 
identification number determined separately by security and assigned to 
each announced organizational action or corrected action for each 
security prefixed by the year the return is filed (for example, 2013003 
for the third issuer return regarding the quantitative effect of a 
corporate action on the basis of a security with a specific CUSIP 
number that is reported in 2013).
    (2) Time for filing the return--(i) In general. The issuer return 
must be filed with the Internal Revenue Service (IRS) pursuant to the 
prescribed form and instructions on or before the 45th day following 
the organizational action, or, if earlier, January 15 of the year 
following the calendar year in which the organizational action occurs. 
The issuer may file the return prior to the date of the organizational 
action if the quantitative effect on basis is determinable beforehand.
    (ii) Reasonable assumptions. In order to report the quantitative 
effect on basis by the due date in paragraph (a)(2)(i) of this section, 
an issuer may make reasonable assumptions about facts that cannot be 
determined prior to this due date and must file a corrected return 
within forty-five days of determining the facts necessary to report the 
correct quantitative effect on basis. Under this paragraph (a)(2)(ii), 
it is expected that an issuer will treat a payment that may be a 
dividend consistently with its treatment of the payment under section 
6042(b)(3) and Sec.  1.6042-3(c).
    (3) Exception for public reporting. An issuer is not required to 
file a return with the IRS under this paragraph (a) if, by the due date 
described in paragraph (a)(2)(i) of this section, the issuer posts the 
return with the required information in a readily accessible format in 
an area of its primary public Web site dedicated to this purpose and 
keeps the return accessible to the public.
    (4) Exception when holders are exempt recipients. No reporting is 
required under this paragraph (a) if the issuer reasonably determines 
that all of the holders of the security are exempt recipients under 
paragraph (b)(5) of this section.
    (b) Statements to nominees and certificate holders--(1) In general. 
An issuer required to file an information return under this section 
must furnish a written statement with the same information to each 
holder of record of the security or to the holder's nominee, if any. 
This issuer statement must indicate that the information is being 
reported to the IRS. An issuer may satisfy this requirement by 
furnishing a copy of the information return.
    (2) Time for furnishing statements. The issuer statement must be 
furnished on or before January 15th of the year following the year of 
the organizational action. The issuer may furnish the statement prior 
to the date of the organizational action if the quantitative effect on 
basis is determinable beforehand.
    (3) Recipients of statements. An issuer must furnish a separate 
statement to each holder of record of the security as of the date of 
the organizational action and all subsequent holders of record up to 
the date the issuer furnishes the statement required under this 
section. If the issuer holds the security on its books in the name of a 
nominee, the issuer must furnish the statement to the nominee recorded 
on its books unless the nominee is the issuer, an agent of the issuer, 
or a plan operated by the issuer.
    (4) Exception for public reporting. An issuer is not required to 
furnish an

[[Page 67041]]

issuer statement under this paragraph (b) if the issuer satisfies the 
public reporting requirements of paragraph (a)(3) of this section.
    (5) Exempt recipients. An issuer is not required to furnish an 
issuer statement under this paragraph (b) to the following holders or 
to persons serving as nominees solely for the following holders:
    (i) Any holder that is an exempt recipient under Sec.  1.6045-
1(c)(3)(i)(B) if the issuer has actual knowledge that the holder is 
described in that section or has a properly completed exemption 
certificate from the holder asserting that the holder is an exempt 
recipient (as provided in Sec.  31.3406(h)-3 of this chapter). The 
issuer may treat a shareholder as an exempt recipient based on the 
applicable indicators described in Sec.  1.6049-4(c)(1)(ii)(B) through 
(M).
    (ii) Any holder that the issuer, prior to the transaction, 
associates with documentation upon which the issuer may rely in order 
to treat payments to the holder as made to a foreign beneficial owner 
in accordance with Sec.  1.1441-1(e)(1)(ii) or as made to a foreign 
payee in accordance with Sec.  1.6049-5(d)(1) or presumed to be made to 
a foreign payee under Sec.  1.6049-5(d)(2) or (3). For purposes of this 
paragraph (b)(5)(ii), the provisions in Sec.  1.6049-5(c) (regarding 
rules applicable to documentation of foreign status and definition of 
U.S. payor and non-U.S. payor) apply. Rules similar to the rules of 
Sec.  1.1441-1 apply by using the terms ``issuer'' and ``holder'' in 
place of the terms ``withholding agent'' and ``payee'' and without 
regard to the limitation to amounts subject to withholding under 
chapter 3 of the Internal Revenue Code. Rules similar to the rules of 
Sec.  1.6049-5(d) apply by using the terms ``issuer'' and ``holder'' in 
place of the terms ``payor'' and ``payee.''
    (c) Special rule for S corporations. Any corporation for which an 
election under section 1362(a) is in effect is deemed to have satisfied 
the requirements of paragraphs (a) and (b) of this section for any 
organizational action affecting the basis of its stock if the 
corporation reports the effect of the organizational action on a timely 
filed Schedule K-1 (Form 1120S), ``Shareholder's Share of Income, 
Deductions, Credits, etc.,'' for each shareholder and timely furnishes 
copies of these schedules to all proper parties.
    (d) Successor entities. A successor entity of an issuer that fails 
to satisfy the reporting obligations of paragraphs (a) or (b) of this 
section must satisfy these reporting obligations. If neither the issuer 
nor the successor entity satisfies these reporting obligations, both 
parties are jointly and severally liable for any applicable penalties.
    (e) Penalties. For penalties for failure to comply with the 
requirements of this section, see sections 6721 through 6724.
    (f) Examples. The following examples illustrate the rules of this 
section:

    Example 1. (i) C, a corporation, distributes stock to 
shareholders on March 31, 2013.
    (ii) Under paragraph (a)(2)(i) of this section, C must file an 
issuer return with the IRS on or before May 15, 2013, reporting the 
quantitative effect of this distribution on the basis of C's stock. 
This date is 45 days after the date of the distribution. Under 
paragraph (b)(2) of this section, C must furnish issuer statements 
to its nominees and certificate holders on or before January 15, 
2014.
    (iii) Alternatively, under paragraphs (a)(3) and (b)(4) of this 
section, C may post by May 15, 2013, the return with the required 
information in a readily accessible format in an area of its primary 
public Web sites dedicated to this purpose and keep the return 
accessible to the public.
    Example 2. (i) D, a corporation, makes a cash distribution to 
shareholders on December 31, 2013.
    (ii) Under paragraphs (a)(2)(i) and (b)(2) of this section, D is 
required to file an issuer return with the IRS and furnish issuer 
statements to its nominees and certificate holders on or before 
January 15, 2014.
    (iii) On January 15, 2014, D is unsure whether the distribution 
will exceed its earnings and profits for the fiscal year. For 
purposes of section 6042(b)(3) and Sec.  1.6042-3(c), the 
distribution must be treated as a dividend. Therefore, under 
paragraph (a)(2)(ii) of this section, it is expected that D will 
treat the distribution as a dividend, and D is therefore not 
required to file an issuer return. If D later determines that this 
treatment was incorrect, D must determine and report the correct 
quantitative effect on basis.
    Example 3. E, a corporation, undertakes a stock split as of 
April 1, 2014. E furnishes issuer statements under paragraph (b) of 
this section on April 1, 2014, at which time the books and records 
of E show that 90 percent of its outstanding stock is owned by 
shareholders through a clearing organization as their nominee, 7 
percent is owned by 5,000 individuals, and the remaining 3 percent 
is owned by a dividend reinvestment plan operated by E that has 
1,000 members. Under paragraph (b)(3) of this section, E must 
furnish statements to the clearing organization, the 5,000 
individuals, and the 1,000 members of the dividend reinvestment 
plan.

    (g) Effective/applicability dates. This section applies to 
organizational actions affecting the basis of specified securities (as 
described in Sec.  1.6045-1(a)(14)) other than stock in a regulated 
investment company (as described in Sec.  1.1012-1(e)(5)) that occur on 
or after January 1, 2011, and to organizational actions affecting stock 
in a regulated investment company that occur on or after January 1, 
2012.
    Par. 14. Section 1.6049-6 is amended by adding two new sentences to 
the end of paragraphs (c) and (e)(2) to read as follows:


Sec.  1.6049-6  Statements to recipients of interest payments and 
holders of obligations for attributed original issue discount.

* * * * *
    (c) * * * However, if the statement is furnished in a consolidated 
reporting statement under section 6045, the February 15 due date set 
forth in section 6045 applies to the statement. See Sec. Sec.  1.6045-
1(k)(3), 1.6045-2(d)(2), 1.6045-3(e)(2), 1.6045-4(m)(3), and 1.6045-
5(a)(3)(ii).
* * * * *
    (e) * * *
    (2) * * * However, if the statement is furnished in a consolidated 
reporting statement under section 6045, the February 15 due date set 
forth in section 6045 applies to the statement. See Sec. Sec.  1.6045-
1(k)(3), 1.6045-2(d)(2), 1.6045-3(e)(2), 1.6045-4(m)(3), and 1.6045-
5(a)(3)(ii).
* * * * *

PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT THE 
SOURCE

    Par. 15. The authority citation for part 31 continues to read in 
part as follows:

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

    Par. 16. Section 31.3406(b)(3)-2 is amended by revising paragraph 
(b)(4) to read as follows:


Sec.  31.3406(b)(3)-2  Reportable barter exchanges and gross proceeds 
of sales of securities or commodities by brokers.

* * * * *
    (b) * * *
    (4) Security short sales--(i) Short sales closed before January 1, 
2011--(A) Amount subject to backup withholding. The amount subject to 
withholding under section 3406 with respect to a short sale of 
securities closed before January 1, 2011, is the gross proceeds (as 
defined in Sec.  1.6045-1(d)(5) of this chapter) of the short sale. At 
the option of the broker, however, the amount subject to withholding 
may be the gain upon the closing of the short sale (if any); 
consequently, the obligation to withhold under section 3406 is deferred 
until the closing transaction. A broker may use this alternative method 
of determining the amount subject to withholding under section 3406 for 
a short sale only if at the time the short sale is initiated, the 
broker expects that the amount of gain realized upon the closing of the 
short sale will be determinable from the broker's records.

[[Page 67042]]

If, due to events unforeseen at the time the short sale was initiated, 
the broker is unable to determine the basis of the property used to 
close the short sale, the property is assumed for this purpose to have 
a basis of zero.
    (B) Time of backup withholding. For short sales closed before 
January 1, 2011, the determination of whether a short seller is subject 
to withholding under section 3406 must be made on the date of the 
initiation or closing, as the case may be, or on the date that the 
initiation or closing, as the case may be, is entered on the broker's 
books and records.
    (ii) Short sales closed on or after January 1, 2011. For short 
sales closed on or after January 1, 2011, the obligation to withhold 
under section 3406 is deferred until the short sale is considered 
closed under section 1233. The determination of whether a short seller 
is subject to withholding under section 3406 may be made as of either 
this date or the date that the closing transaction is entered on the 
broker's books and records. The amount subject to withholding under 
section 3406 is the gross proceeds (as defined in Sec.  1.6045-1(d)(5) 
of this chapter) of the short sale. At the option of the broker, 
however, the amount subject to withholding may be the gain upon the 
closing of the short sale (if any) if the broker reports both the gross 
proceeds and basis of the securities on the return of information 
required by section 6045.
* * * * *
    Par. 17. Section 31.6051-4 is amended by adding two new sentences 
at the end of paragraph (d) to read as follows:


Sec.  31.6051-4  Statement required in case of backup withholding.

* * * * *
    (d) * * * However, if the statement is furnished in a consolidated 
reporting statement under section 6045, the February 15 due date set 
forth in section 6045 applies to the statement. See Sec. Sec.  1.6045-
1(k)(3), 1.6045-2(d)(2), 1.6045-3(e)(2), 1.6045-4(m)(3), and 1.6045-
5(a)(3)(ii) of this chapter.
* * * * *

PART 301--PROCEDURE AND ADMINISTRATION

    Par. 18. The authority citation for part 301 continues to read in 
part as follows:

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

    Par. 19. Section 301.6721-1 is amended by revising paragraphs 
(g)(2) and (g)(3) to read as follows:


Sec.  301.6721-1  Failure to file correct information returns.

* * * * *
    (g) * * *
    (2) Statements. The statements subject to this section are the 
statements required by--
    (i) Section 6041(a) or (b) (relating to certain information at 
source, generally reported on Form 1099-MISC, ``Miscellaneous Income''; 
Form W-2, ``Wage and Tax Statement''; Form W-2G, ``Certain Gambling 
Winnings''; and Form 1099-INT, ``Interest Income'');
    (ii) Section 6042(a)(1) (relating to payments of dividends, 
generally reported on Form 1099-DIV, ``Dividends and Distributions'');
    (iii) Section 6044(a)(1) (relating to payments of patronage 
dividends, generally reported on Form 1099-PATR, ``Taxable 
Distributions Received From Cooperatives'');
    (iv) Section 6049(a) (relating to payments of interest, generally 
reported on Form 1099-INT or Form 1099-OID, ``Original Issue 
Discount'');
    (v) Section 6050A(a) (relating to reporting requirements of certain 
fishing boat operators, generally reported on Form 1099-MISC);
    (vi) Section 6050N(a) (relating to payments of royalties, generally 
reported on Form 1099-INT);
    (vii) Section 6051(d) (relating to information returns with respect 
to income tax withheld, generally reported on Form W-2);
    (viii) Section 6050R (relating to returns relating to certain 
purchases of fish, generally reported on Form 1099-MISC);
    (ix) Section 110(d) (relating to qualified lessee construction 
allowances for short-term leases, generally reported by attaching a 
statement to an income tax return);
    (x) Section 408(i) (relating to reports with respect to individual 
retirement accounts or annuities on Form 1099-R, ``Distributions From 
Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, 
Insurance Contracts, etc.''); or
    (xi) Section 6047(d) (relating to reports by employers, plan 
administrators, etc., on Form 1099-R).
    (3) Returns. The returns subject to this section are the returns 
required by--
    (i) Section 6041A(a) or (b) (relating to returns of direct sellers, 
generally reported on Form 1099-MISC);
    (ii) Section 6043A(a) (relating to returns relating to taxable 
mergers and acquisitions);
    (iii) Section 6045(a) or (d) (relating to returns of brokers, 
generally reported on Form 1099-B, ``Proceeds from Broker and Barter 
Exchange Transactions,'' for broker transactions; Form 1099-S, 
``Proceeds from Real Estate Transactions,'' for gross proceeds from the 
sale or exchange of real estate; and Form 1099-MISC for certain 
substitute payments and payments to attorneys);
    (iv) Section 6045B(a) (relating to returns relating to actions 
affecting basis of specified securities);
    (v) Section 6050H(a) or (h)(1) (relating to mortgage interest 
received in trade or business from individuals, generally reported on 
Form 1098, ``Mortgage Interest Statement'');
    (vi) Section 6050I(a) or (g)(1) (relating to cash received in trade 
or business, etc., generally reported on Form 8300, ``Report of Cash 
Payments Over $10,000 Received In a Trade or Business'');
    (vii) Section 6050J(a) (relating to foreclosures and abandonments 
of security, generally reported on Form 1099-A, ``Acquisition or 
Abandonment of Secured Property'');
    (viii) Section 6050K(a) (relating to exchanges of certain 
partnership interests, generally reported on Form 8308, ``Report of a 
Sale or Exchange of Certain Partnership Interests'');
    (ix) Section 6050L(a) (relating to returns relating to certain 
dispositions of donated property, generally reported on Form 8282, 
``Donee Information Return'');
    (x) Section 6050P (relating to returns relating to the cancellation 
of indebtedness by certain financial entities, generally reported on 
Form 1099-C, ``Cancellation of Debt'');
    (xi) Section 6050Q (relating to certain long-term care benefits, 
generally reported on Form 1099-LTC, ``Long Term Care and Accelerated 
Death Benefits'');
    (xii) Section 6050S (relating to returns relating to payments for 
qualified tuition and related expenses, generally reported on Form 
1098-E, ``Student Loan Interest Statement,'' or Form 1098-T, ``Tuition 
Statement'');
    (xiii) Section 6050T (relating to returns relating to credit for 
health insurance costs of eligible individuals, generally reported on 
Form 1099-H, ``Health Coverage Tax Credit (HCTC) Advance Payments'');
    (xiv) Section 6052(a) (relating to reporting payment of wages in 
the form of group-life insurance, generally reported on Form W-2);
    (xv) Section 6050V (relating to returns relating to applicable 
insurance contracts in which certain exempt organizations hold 
interests, generally reported on Form 8921, ``Applicable Insurance 
Contract Information Return'');
    (xvi) Section 6053(c)(1) (relating to reporting with respect to 
certain tips,

[[Page 67043]]

generally reported on Form 8027, ``Employer's Annual Information Return 
of Tip Income and Allocated Tips'');
    (xvii) Section 1060(b) (relating to reporting requirements of 
transferors and transferees in certain asset acquisitions, generally 
reported on Form 8594, ``Asset Acquisition Statement''), or section 
1060(e) (relating to information required in the case of certain 
transfers of interests in entities (effective for acquisitions after 
October 9, 1990, except any acquisition pursuant to a written binding 
contract in effect on October 9, 1990, and at all times thereafter 
before such acquisition));
    (xviii) Section 4101(d) (relating to information reporting with 
respect to fuel oils (effective for information returns required to be 
filed after November 30, 1990));
    (xix) Section 338(h)(10)(C) (relating to information required to be 
furnished to the Secretary in case of elective recognition of gain or 
loss (effective for acquisitions after October 9, 1990, except any 
acquisition pursuant to a written binding contract in effect on October 
9, 1990, and at all times thereafter before such acquisition));
    (xx) Section 264(f)(5)(A)(iv) (relating to reporting with respect 
to certain life insurance and annuity contracts);
    (xxi) Section 6050U (relating to charges or payments for qualified 
long-term care insurance contracts under combined arrangements, 
generally reported on Form 1099-R);
    (xxii) Section 6039(a) (relating to returns required with respect 
to certain options); or
    (xxiii) Section 6050W (relating to information returns with respect 
to payments made in settlement of payment card and third party network 
transactions).
* * * * *
    Par. 20. Section 301.6722-1 is amended by revising paragraph (d)(2) 
to read as follows:


Sec.  301.6722-1  Failure to furnish correct payee statements.

* * * * *
    (d) * * *
    (2) Payee statement. The term payee statement means any statement 
required to be furnished under--
    (i) Section 6031(b) or (c), 6034A, or 6037(b) (relating to 
statements furnished by certain pass-thru entities, generally a 
Schedule K-1 (Form 1065), ``Partner's Share of Income, Deductions, 
Credits, etc.,'' for section 6031(b) or (c), a copy of the Schedule K-1 
(Form 1041), ``Beneficiary's Share of Income, Deductions, Credits, 
etc.,'' for section 6034A, and a copy of Schedule K-1 (Form 1120S), 
``Shareholder's Share of Income, Deductions, Credits, etc.,'' for 
section 6037(b));
    (ii) Section 6039(b) (relating to information required in 
connection with certain options);
    (iii) Section 6041(d) (relating to information at source, generally 
the recipient copy of Form 1099-MISC, ``Miscellaneous Income''; Form W-
2, ``Wage and Tax Statement''; Form 1099-INT, ``Interest Income''; and 
the winner's copies of Form W-2G, ``Certain Gambling Winnings'');
    (iv) Section 6041A(e) (relating to returns regarding payments of 
remuneration for services and direct sales, generally the recipient 
copy of Form 1099-MISC);
    (v) Section 6042(c) (relating to returns regarding payments of 
dividends and corporate earnings and profits, generally the recipient 
copy of Form 1099-DIV, ``Dividends and Distributions'');
    (vi) Section 6043A(b) or (d) (relating to returns relating to 
taxable mergers and acquisitions);
    (vii) Section 6044(e) (relating to returns regarding payments of 
patronage dividends, generally the recipient copy of Form 1099-PATR, 
``Taxable Distributions Received From Cooperatives'');
    (viii) Section 6045(b) or (d) (relating to returns of brokers, 
generally the recipient copy of Form 1099-B, ``Proceeds from Broker and 
Barter Exchange Transactions,'' for broker transactions; the transferor 
copy of Form 1099-S, ``Proceeds from Real Estate Transactions,'' for 
reporting proceeds from real estate transactions; and the recipient 
copy of Form 1099-MISC for certain substitute payments and payments to 
attorneys);
    (ix) Section 6045A (relating to information required in connection 
with transfers of covered securities to brokers);
    (x) Section 6045B(c) or (e) (relating to returns relating to 
actions affecting basis of specified securities);
    (xi) Section 6049(c) (relating to returns regarding payments of 
interest, generally the recipient copy of Form 1099-INT or Form 1099-
OID, ``Original Issue Discount'');
    (xii) Section 6050A(b) (relating to reporting requirements of 
certain fishing boat operators, generally the recipient copy of Form 
1099-MISC);
    (xiii) Section 6050H(d) or (h)(2) (relating to returns relating to 
mortgage interest received in trade or business from individuals, 
generally the payor copy of Form 1098, ``Mortgage Interest 
Statement'');
    (xiv) Section 6050I(e), (g)(4), or (g)(5) (relating to returns 
relating to cash received in trade or business, etc., generally a copy 
of Form 8300, ``Report of Cash Payments Over $10,000 Received In a 
Trade or Business'');
    (xv) Section 6050J(e) (relating to returns relating to foreclosures 
and abandonments of security, generally the borrower copy of Form 1099-
A, ``Acquisition or Abandonment of Secured Property'');
    (xvi) Section 6050K(b) (relating to returns relating to exchanges 
of certain partnership interests, generally a copy of Form 8308, 
``Report of a Sale or Exchange of Certain Partnership Interests'');
    (xvii) Section 6050L(c) (relating to returns relating to certain 
dispositions of donated property, generally a copy of Form 8282, 
``Donee Information Return'');
    (xviii) Section 6050N(b) (relating to returns regarding payments of 
royalties, generally the recipient copy of Form 1099-MISC);
    (xix) Section 6050P(d) (relating to returns relating to the 
cancellation of indebtedness by certain financial entities, generally 
the recipient copy of Form 1099-C, ``Cancellation of Debt'');
    (xx) Section 6050Q(b) (relating to certain long-term care benefits, 
generally the policyholder and insured copies of Form 1099-LTC, ``Long 
Term Care and Accelerated Death Benefits'');
    (xxi) Section 6050R(c) (relating to returns relating to certain 
purchases of fish, generally the recipient copy of Form 1099-MISC);
    (xxii) Section 6051 (relating to receipts for employees, generally 
the employee copy of Form W-2);
    (xxiii) Section 6052(b) (relating to returns regarding payment of 
wages in the form of group-term life insurance, generally the employee 
copy of Form W-2);
    (xxiv) Section 6053(b) or (c) (relating to reports of tips, 
generally the employee copy of Form W-2);
    (xxv) Section 6048(b)(1)(B) (relating to foreign trust reporting 
requirements, generally copies of the owner and beneficiary statements 
of Form 3520-A, ``Annual Information Return of Foreign Trust With a 
U.S. Owner'');
    (xxvi) Section 408(i) (relating to reports with respect to 
individual retirement plans on the recipient copies of Form 1099-R, 
``Distributions From Pensions, Annuities, Retirement or Profit-Sharing 
Plans, IRAs, Insurance Contracts, etc.'');
    (xxvii) Section 6047(d) (relating to reports by plan administrators 
on the recipient copies of Form 1099-R);
    (xxviii) Section 6050S(d) (relating to returns relating to 
qualified tuition and related expenses, generally the borrower copy of 
Form 1098-E, ``Student Loan

[[Page 67044]]

Interest Statement,'' or the student copy of Form 1098-T, ``Tuition 
Statement'');
    (xxix) Section 264(f)(5)(A)(iv) (relating to reporting with respect 
to certain life insurance and annuity contracts);
    (xxx) Section 6050T (relating to returns relating to credit for 
health insurance costs of eligible individuals, generally the recipient 
copy of Form 1099-H, ``Health Coverage Tax Credit (HCTC) Advance 
Payments'');
    (xxxi) Section 6050U (relating to charges or payments for qualified 
long-term care insurance contracts under combined arrangements, 
generally the recipient copy of Form 1099-R); or
    (xxxii) Section 6050W (relating to information returns with respect 
to payments made in settlement of payment card and third party network 
transactions).
* * * * *

Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
[FR Doc. E9-29855 Filed 12-16-09; 8:45 am]
BILLING CODE 4830-01-P