Basis Reporting by Securities Brokers and Basis Determination for Stock, 64072-64105 [2010-25504]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 75, Number 200 (Monday, October 18, 2010)]
[Rules and Regulations]
[Pages 64072-64105]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-25504]



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Part III





Department of the Treasury





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Internal Revenue Service



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26 CFR Parts 1, 31, 301 et al.



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

Federal Register / Vol. 75 , No. 200 / Monday, October 18, 2010 / 
Rules and Regulations

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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1, 31, 301, and 602

[TD 9504]
RIN 1545-BI66


Basis Reporting by Securities Brokers and Basis Determination for 
Stock

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations on broker reporting 
of sales of securities and on the basis of securities. These final 
regulations reflect amendments under the Energy Improvement and 
Extension Act of 2008 that require brokers to report a customer's 
adjusted basis in sold securities and classify gain or loss as long-
term or short-term, and that allow taxpayers to compute the basis of 
certain stock by averaging. The regulations affect brokers and 
custodians that make sales or transfer securities on behalf of 
customers, issuers of securities, and taxpayers that purchase or sell 
securities. The regulations also reflect amendments that provide 
brokers and others until February 15 to furnish certain information 
statements to customers.

DATES: Effective Date: These regulations are effective on October 18, 
2010.
    Applicability Date: For dates of applicability, see Sec. Sec.  
1.1012-1(c)(10), 1.1012-1(e)(12), 1.6045A-1(d), and 1.6045B-1(g).

FOR FURTHER INFORMATION CONTACT: Concerning the regulations under 
sections 408, 6039, 6042, 6044, 6045, 6045A, 6045B, 6049, 6051, 6721, 
and 6722, Stephen Schaeffer of the Office of Associate Chief Counsel 
(Procedure and Administration) at (202) 622-4910; concerning the 
regulations under section 1012, Edward C. Schwartz of the Office of 
Associate Chief Counsel (Income Tax and Accounting) at (202) 622-4960 
(not toll-free numbers).

SUPPLEMENTARY INFORMATION: 

Paperwork Reduction Act

    The collection of information contained in these final regulations 
related to the furnishing of information in connection with the 
transfer of securities has been reviewed and approved by the Office of 
Management and Budget (OMB) in accordance with the Paperwork Reduction 
Act of 1995 (44 U.S.C. 3507(d)) under control number 1545-2186. The 
collection of information in these final regulations in Sec. Sec.  
1.6045-1(c)(3)(xi)(C) and 1.6045A-1 is 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)).
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law.

Background

    This document contains 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).
    On December 17, 2009, the Treasury Department and the IRS published 
in the Federal Register (74 FR 67010) proposed regulations (REG-101896-
09) relating to information reporting by brokers, transferors, and 
issuers of securities under sections 6045, 6045A, and 6045B of the 
Internal Revenue Code (Code), and the computation of basis under 
section 1012. Written and electronic comments responding to the notice 
of proposed rulemaking were received, and a public hearing was held on 
February 17, 2010.
    After considering the comments, the proposed regulations are 
adopted as amended by this Treasury decision. The comments and 
revisions are discussed in the preamble.

Summary of Comments and Explanation of Revisions

1. Effective Date

    Commentators requested a delay in the effective date of the 
reporting requirements to allow adequate time to administratively 
implement the rules. The final regulations do not adopt this request as 
inconsistent with the statutorily mandated effective dates. However, in 
order to promote industry readiness to comply with the reporting 
requirements beginning in 2011, a separate notice is being issued with 
these final regulations to provide transitional relief from the 
transfer reporting requirements under section 6045A (discussed in more 
detail later in this preamble). See Notice 2010-67. The notice provides 
that the IRS will not assert penalties under section 6722 for a failure 
to furnish a transfer statement for any transfer of stock in 2011 that 
is not incidental to the stock's purchase or sale. Further, a receiving 
broker may treat this stock as a noncovered security. See Sec.  
601.601(d)(2). Additionally, the IRS will continue to work closely with 
stakeholders to ensure the smooth implementation of the provisions in 
these regulations, including the mitigation of penalties in the early 
stages of implementation for all but particularly egregious cases.

2. Basis Determination--Average Basis Method

a. Definition of Dividend Reinvestment Plan
i. Acquisition of Stock
    Consistent with section 1012(d)(4)(B), the proposed regulations 
provided that stock is acquired in connection with a dividend 
reinvestment plan (DRP) if the stock is acquired under the DRP or if 
the dividends paid on the stock are subject to the DRP. A commentator 
stated that DRP classification under the proposed regulations is highly 
factual and brokers will have difficulty determining if stock is in a 
DRP. The commentator recommended that the final regulations provide 
that a broker should be required to treat stock as DRP stock only if 
the broker receives documentation that a plan is a DRP and knows or has 
reason to know that the stock is subject to the plan. The final 
regulations do not adopt this recommendation as unduly restrictive.
ii. Dividend Reinvestment
    Section 1012(d)(4)(A) defines a dividend reinvestment plan as an 
arrangement under which dividends are reinvested in identical stock. 
The proposed regulations provided that a plan qualifies as a DRP if the 
written plan documents require that at least 10 percent of every 
dividend paid on any share of stock is reinvested in identical stock.
    Several commentators recommended eliminating the 10 percent rule 
because it will require many existing plans to amend their plan 
documents at considerable expense. The commentators suggested that a 
plan should qualify as a DRP if the plan documents merely allow the 
reinvestment of dividends.
    The final regulations do not adopt this comment, which is 
inconsistent with the legislative intent that basis averaging is 
appropriate when dividends actually are reinvested. If a stock pays 
dividends, a plan should be required to reinvest a minimum percentage 
of dividends to qualify as a DRP. Ten percent is a reasonable minimum 
percentage.

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iii. Definition of Dividend
    The proposed regulations did not define the term dividend. 
Commentators recommended that the final regulations define dividend 
broadly to include any distribution on stock, including ordinary 
dividends, capital gains distributions, non-taxable returns of capital, 
and cash in lieu of fractional shares.
    The final regulations do not define dividend. They provide that 
only dividends within the meaning of section 316 are subject to the 10 
percent reinvestment requirement. The final regulations also clarify 
that a DRP may average the basis of stock acquired by reinvesting 
distributions that are not dividends under section 316.
b. Definition of Regulated Investment Company
    The proposed regulations did not address the definition of a 
regulated investment company (RIC). Under Sec.  1.1012-1(e)(5)(ii), a 
unit investment trust (UIT) is treated as a RIC for basis averaging 
purposes only if the UIT meets certain requirements. A commentator 
suggested that the regulations should delete this provision and allow 
all UITs that elect to be treated as RICs to use the average basis 
method.
    The proposed regulations did not address this issue. Therefore, the 
final regulations do not adopt this suggestion. The treatment of UITs 
as RICs for purposes of allowing basis averaging may be considered for 
future guidance.
c. Definition of Identical Stock
    The proposed regulations provided that stock is identical if it has 
the same Committee on Uniform Security Identification Procedures 
(CUSIP) number, except that stock in a DRP is not identical to stock 
not in a DRP. The proposed regulations also provided that stock 
acquired in connection with a DRP includes transfers of identical stock 
into a DRP. A commentator noted that, if stock in a DRP is not 
identical to stock not in a DRP, then a taxpayer could not transfer 
identical stock into a DRP.
    To address this comment, the final regulations delete from the 
definition of identical stock the rule that stock in a DRP is not 
identical to stock not in a DRP. Because this rule served to limit the 
average basis method to stock in a DRP, the final regulations provide 
that, for purposes of computing the average basis of identical stock, 
stock in a DRP is not identical to stock with the same CUSIP number 
that is not in a DRP.
d. Time and Manner of Making the Average Basis Method Election
i. Requirement for Affirmative Election
    A commentator requested clarification on whether a taxpayer is 
treated as electing the average basis method if the taxpayer fails to 
affirmatively elect a basis determination method and the average basis 
method is the broker's default method. In response to this comment, the 
final regulations clarify that a taxpayer's failure to notify a broker 
that the taxpayer elects a basis determination method is not an 
election of a method. Thus, a taxpayer that fails to affirmatively 
elect the average basis method has not made an election that the 
taxpayer may revoke. If the average basis method is the broker's 
default method, the taxpayer may change from that method prospectively.
ii. Scope of Average Basis Method Election
    The proposed regulations required a taxpayer to elect the average 
basis method separately for each account holding stock that is a 
covered security for which the method is permissible. A commentator 
suggested that the final regulations permit one average basis method 
election to encompass all eligible accounts with a custodian or agent, 
as well as future accounts with that custodian or agent. The final 
regulations adopt this comment. The final regulations also clarify that 
the average basis method election must identify each account and the 
stock in the account to which the election applies.
iii. Written Average Basis Method Election
    The proposed regulations provided that a taxpayer must notify a 
custodian or agent of the average basis method election in writing. A 
commentator stated that this requirement should be eliminated because 
it is difficult to implement and confusing to taxpayers who use the 
average basis method for RIC stock acquired before 2012. The 
commentator opined that the writing requirement will prevent brokers 
from using the average basis method as their default method.
    The final regulations do not adopt this comment. The writing 
requirement ensures that both taxpayers and brokers have a record of 
the fact and scope of the election. The requirement applies to a 
taxpayer's election to use average basis and does not prevent a broker 
from selecting average basis as a default method.
    Commentators requested that the final regulations clarify that a 
taxpayer may make a written average basis election electronically. The 
final regulations adopt this comment.
iv. Transition Rule From Double-Category Method
    The proposed regulations provided a transition rule effective on 
the publication date of the final regulations for stock for which a 
taxpayer uses the double-category method of determining average basis. 
A commentator requested that the final regulations delay the effective 
date of the transition rule to allow time for programming and 
accounting system changes. The final regulations adopt this comment and 
provide an April 1, 2011, effective date for the transition rule.
e. Change in Method of Accounting
    The proposed regulations stated that a change in basis 
determination method is a change in method of accounting requiring the 
consent of the Commissioner. A commentator opined that a change to or 
from the average basis method is not a change in method of accounting 
that requires the consent of the Commissioner. Another commentator 
requested that a change to or from the average basis method be allowed 
without the Commissioner's consent or that the process be simplified. 
The commentator suggested that the final regulations require taxpayers 
to notify their custodians or agents of the change.
    The final regulations provide rules governing the time and manner 
of electing or changing from the average basis method, determining the 
basis of stock following a change between the average basis method and 
a cost basis method, and identifying stock sold. The regulations permit 
taxpayers to elect or change from the average basis method at any time 
during a taxable year and to choose a method to identify stock sold on 
a sale-by-sale basis. These rules do not involve the elements of 
consistency and regularity inherent in methods of tax accounting, which 
generally apply on the basis of a taxable year. Therefore, the final 
regulations provide that a basis determination method for stock is not 
a method of accounting and a change in a method of determining basis 
for stock is not a change in method of accounting to which sections 446 
and 481 apply.
f. Account by Account Rules
    The proposed regulations provided that DRP or RIC stock acquired 
before January 1, 2012, is treated as held in a separate account from 
DRP or RIC stock acquired on or after that date. The proposed 
regulations also provided that

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covered and noncovered securities are treated as held in separate 
accounts.
    The purpose of the separate account rule is to ensure that covered 
securities and noncovered securities are treated as held in separate 
accounts. DRP and RIC stock acquired before January 1, 2012, are 
noncovered securities. Therefore, the two separate account rules are 
duplicative. The final regulations eliminate the separate account rule 
for DRP and RIC stock based on the date the stock is acquired and 
retain the separate account rule for covered and noncovered securities 
because this rule is more precise.
g. Single-Account Election
i. Identity of Account Ownership
    A commentator requested clarification on whether a single-account 
election may apply to an account owned by a taxpayer singly and an 
account a taxpayer owns jointly with another party. In response to this 
comment, the final regulations clarify that a single-account election 
applies only to accounts with the same ownership.
ii. Effect on the Single-Account Election of Revoking or Changing From 
the Average Basis Method
    The proposed regulations provided that a RIC, DRP, or broker may 
make an irrevocable election to treat as held in a single account 
identical RIC stock or DRP stock held or treated as held in separate 
accounts for which the taxpayer has elected to use the average basis 
method. The proposed regulations also allowed a taxpayer to revoke an 
average basis method election by the earlier of one year from the date 
of the election or the first disposition of the stock. The basis of 
stock to which a revocation applies is its basis before averaging. 
After the revocation period expires, a taxpayer may change from the 
average basis method to another method prospectively. The basis of 
stock to which a change applies is the basis immediately before the 
change.
    Commentators asked how a taxpayer's revocation of or change from 
the average basis method affects a single-account election. In response 
to this comment, the final regulations provide that a taxpayer's 
revocation of an average basis method election for a particular stock 
voids the single-account election for that stock. Thus, taxpayers and 
brokers must retain pre-election basis information for averaged shares 
for as long as the taxpayer may revoke the average basis method 
election. Stock that becomes a covered security only as a result of a 
single-account election no longer is a covered security after the 
single-account election is voided.
    After a taxpayer changes from, rather than revokes, the average 
basis method, the shares that were treated as held in a single account 
before the change continue to be covered securities and treated as held 
in a single account, and the basis of each share of stock remains the 
same as the basis immediately before the change.
iii. Accurate Basis Information Requirement
    Under the proposed regulations, a RIC, DRP, or broker may make a 
single-account election only for stock for which it has accurate basis 
information, which is information that the RIC, DRP, or broker neither 
knows nor has reason to know is inaccurate.
    Commentators suggested eliminating the accuracy requirement for the 
single-account election because it is subjective and increases 
uncertainty. A commentator noted that the accuracy requirement may 
deter RICs from making a single-account election because of uncertainty 
over whether basis determination practices in earlier years satisfy the 
standard. A commentator suggested permitting the use of any data that 
has been maintained to determine the basis of noncovered stock included 
in the single-account election. A commentator recommended that brokers 
be permitted to use taxpayer-provided information to determine the 
basis of noncovered stock in making the single-account election. A 
commentator requested penalty relief if a broker lacks actual knowledge 
that information is inaccurate.
    The final regulations retain the accuracy requirement and the 
``neither knows nor has reason to know'' standard as striking an 
appropriate balance between the need for accuracy and flexibility. The 
``neither knows nor has reason to know'' test is consistent with 
existing standards familiar to brokers for demonstrating reasonable 
cause for penalty relief under section 6724.

3. Other Basis Determination Issues

a. Use of Agent To Select Basis Determination Method
    Commentators suggested that the final regulations explicitly allow 
a taxpayer's agent, such as an asset manager, investment advisor, or 
introducing broker, to select a basis determination method for a 
taxpayer. The final regulations do not adopt this comment. However, a 
taxpayer may authorize an agent to select a basis determination method 
under general agency principles.
b. Cost Basis of Multiple Lots Purchased on One Day
    Commentators suggested that the final regulations allow brokers to 
average the basis of identical stock purchased or sold on the same day. 
In response to this comment, the final regulations provide that a 
taxpayer must determine the basis of identical stock by averaging the 
basis of each share if the stock is purchased at separate times on the 
same calendar day in executing a single trade order and the broker 
executing the trade provides a single confirmation that reports an 
aggregate total cost or an average cost per share. However, a taxpayer 
may determine the basis of the stock by the actual cost per share if 
the taxpayer notifies the broker in writing of this intent. The 
taxpayer must notify the broker by the earlier of the date of the sale 
of any of the stock for which the taxpayer received the confirmation or 
one year after the date of the confirmation. A broker may extend the 
one-year period but the taxpayer must notify the broker no later than 
the date of sale of any of the stock.
c. Identification of Securities Sold
i. Standing Orders
    The proposed regulations stated that a standing order for the 
specific identification of stock is treated as an adequate 
identification. A commentator suggested that the final regulations 
clarify that brokers are not required to accept standing orders. The 
proposed regulations allowed standing orders to serve as an adequate 
identification but did not require taxpayers or brokers to use or 
accept them. Therefore, the final regulations do not adopt this 
comment.
ii. Confirmation of Sales
    The proposed regulations retained the rule that brokers or other 
agents must supply written confirmation of a taxpayer's specific 
identification following a sale or transfer. A commentator stated that 
the final regulations should eliminate this requirement and opined that 
the Form 1099-B, ``Proceeds From Broker and Barter Exchange 
Transactions,'' provides a sufficient confirmation of the transaction. 
Alternatively, the commentator suggested eliminating the confirmation 
requirement if the stock was identified by standing order. Another 
commentator suggested that a periodic customer account statement should 
qualify as a written confirmation.
    The final regulations retain the requirement for written 
confirmation of all sales and transfers of specifically identified 
stock as a reasonable

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safeguard that specific identification orders are properly executed. 
However, in response to these comments, the final regulations provide 
that account statements or other documents a broker or agent 
periodically provides to a taxpayer may serve as written confirmation 
if provided to the taxpayer within a reasonable time after the sale or 
transfer.
iii. Application of FIFO Rule Account by Account
    The proposed regulations provided that if a taxpayer sells or 
transfers stock and does not adequately identify the stock sold or 
transferred, the shares of stock deemed sold or transferred are the 
earliest acquired shares (FIFO rule). A commentator suggested that the 
final regulations clarify that the FIFO rule applies on an account by 
account basis.
    The account by account rule in section 1012(c)(1) relates to stock 
eligible for the average basis method. This rule overrides the earlier 
requirement that taxpayers must apply the average basis method across 
accounts and does not mandate similar treatment for cost basis stock. 
Incorporating an account by account requirement into the FIFO rule 
creates unnecessary complexity. Therefore, the final regulations do not 
adopt this comment.

4. Returns of Brokers

a. Form and Manner of Broker Reporting Requirements
    The proposed regulations provided that brokers must report on Form 
1099-B adjusted basis and whether any gain or loss is long-term or 
short-term for a covered security. A commentator suggested that the 
final regulations allow long-term and short-term sales to be reported 
on the same return to improve reconciliation between the broker's Form 
1099-B and the customer's Schedule D, ``Capital Gains and Losses.'' The 
final regulations do not adopt the suggestion. As noted by another 
commentator, brokers that use substitute statements may already 
segregate long-term sales from short-term sales on the same statement 
in the same manner as on Schedule D, which segregates long-term 
transactions from short-term transactions.
    Consistent with the rule for aggregating the cost basis of multiple 
lots purchased on one day (discussed earlier in this preamble), the 
final regulations provide that a broker must report the basis of 
purchased stock and the gross proceeds of sold stock by averaging the 
basis or proceeds of each share if the stock is purchased or sold at 
separate times on the same calendar day in executing a single trade 
order and the broker executing the trade provides a single confirmation 
to the taxpayer that reports an aggregate total price or an average 
price per share. However, the final regulations do not permit a broker 
to average the basis or proceeds of stock if the customer timely 
notifies the broker in writing of an intent to determine the basis or 
proceeds by the actual cost or proceeds per share. A notification of an 
intent to determine the basis by the actual cost per share is timely if 
made in accordance with Sec.  1.1012-1(c)(1)(ii). A notification of an 
intent to determine the proceeds by the actual proceeds per share is 
timely if the broker receives the notification by January 15 of the 
calendar year following the year of the sale. A broker may extend the 
January 15 deadline but not beyond the due date for filing Form 1099-B.
    The proposed regulations moved the modifier ``for cash'' in the 
definition of sale to clarify that Form 1099-B reporting is required 
under section 6045 for a sale only when and to the extent cash proceeds 
are paid to the seller. Commentators suggested further clarifying that 
this limitation applied to all disposition events listed in the 
definition. The final regulations adopt this request.
    Currently, sales of fractional shares of less than $20 are exempted 
from broker reporting. Commentators recommended expanding this 
exception to sales of fractional shares of less than $100. The final 
regulations do not adopt this request.
b. Identification of a Security as Stock
    Under section 6045(g)(3)(C), the reporting requirements before 2013 
apply only to stock. The proposed regulations provided that, for basis 
reporting purposes, any security an issuer classifies solely as stock 
is treated as stock. If an issuer has not classified the security, the 
security is not treated as stock unless the broker knows, or has reason 
to know, that the security reasonably is classified as stock under 
general tax principles.
    Commentators suggested that issuers should be required to classify 
securities and that a security should be classified as stock only if 
the issuer has classified it as stock. The final regulations do not 
adopt these suggestions. It is appropriate to require a broker to 
report basis if the broker knows the security is stock for Federal tax 
purposes even if the issuer has not classified the security.
    Commentators suggested that the IRS create and maintain a list of 
every security classified as stock. The final regulations do not adopt 
this comment.
    Commentators requested that brokers only treat securities as stock 
if they know that the security is reasonably classified as stock under 
general tax principles instead of when they have reason to know. The 
final regulations adopt this comment.
    Commentators requested guidance addressing when an issuer fails to 
classify a security and brokers disagree whether the security is stock 
for Federal tax purposes. The final regulations clarify that a broker 
is not bound by another broker's classification. As long as the issuer 
has not classified the security as stock, a broker is not required to 
treat a security as stock despite another broker's classification 
unless the broker knows that the security is stock for Federal tax 
purposes.
    The proposed regulations treated any share of stock in a 
corporation described in Sec.  301.7701-2(b) as stock for basis 
reporting purposes. Commentators asked whether interests in a real 
estate investment trust (REIT) or exchange-traded fund (ETF) are 
treated as stock under that definition. The final regulations clarify 
that any share of stock or any interest treated as stock in an entity 
organized as, or treated for Federal tax purposes as, a corporation 
(foreign or domestic) is stock for basis reporting purposes. Therefore, 
interests treated as stock in REITs and ETFs are treated as stock for 
basis reporting purposes if the issuers are taxable as corporations 
under the Code.
    Commentators also asked whether a depositary receipt representing 
shares of stock in a foreign corporation (an ADR) is treated as stock. 
The final regulations clarify that an ADR is stock for basis reporting 
purposes.
c. Covered Securities
    The proposed regulations defined covered security to include a 
specified security acquired through a sale transaction. Commentators 
asked whether stock acquired through a stock split, the exercise of 
rights distributed by an issuer, the grant of restricted stock by an 
employer, and other scenarios constituted acquisitions through sale 
transactions. In response to these comments, the final regulations 
eliminate the sale-transaction rule and define covered security to 
include a specified security acquired for cash. Therefore, stock 
acquired through the exercise of rights distributed by an issuer is a 
covered security while restricted stock granted by an employer is not a 
covered security because the former is acquired for cash and the latter

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is not. The final regulations also treat a security acquired due to a 
stock dividend, stock split, reorganization, redemption, stock 
conversion, recapitalization, corporate division, or other similar 
action as if it were acquired for cash and, therefore, as a covered 
security if the basis of the new security is determined from the basis 
of a covered security.
    The proposed regulations treated all stock acquired in 2011 as 
covered securities except RIC stock and DRP stock, which are not 
covered securities unless acquired in 2012 or later. Commentators 
suggested that stock acquired in 2011 no longer be a covered security 
if placed into a DRP. In response to this comment, the final 
regulations provide that stock acquired in 2011 no longer is a covered 
security if transferred to a DRP in 2011, but remains a covered 
security if transferred to a DRP after 2011.
    The final regulations also clarify that a security acquired by a 
foreign person that Sec.  1.6045-1(g)(1)(i) exempts from Form 1099-B 
reporting at the time of acquisition is not a covered security even if 
the customer later loses this exemption, unless the broker knows or 
should have known (including by reason of information that the broker 
is required to collect under section 1471 or 1472) that the customer is 
not a foreign person when the security is acquired.
    A commentator requested that a broker selling stock owned by a 
domestic partnership be exempted from basis reporting if the broker 
also prepared the customer's Form 1065, ``U.S. Return of Partnership 
Income,'' because the partnership return also reports the basis of 
securities sold by the partnership. The final regulations do not adopt 
this request. The commentator also requested that a broker selling 
stock owned by a foreign partnership be exempted from basis reporting 
when reporting the sale directly to U.S. partners under Sec.  1.6049-
5(d)(3)(ii) because any cost basis information reported by the broker 
would be erroneous. The final regulations adopt this request.
d. Foreign Intermediaries
    The proposed regulations included in the definition of broker non-
U.S. payors and non-U.S. middlemen to the extent provided in a 
withholding agreement described in Sec.  1.1441-1(e)(5)(iii) between a 
qualified intermediary and the IRS. Commentators requested that the 
regulations instead exempt all foreign qualified intermediaries from 
basis reporting. In response to these comments, the final regulations 
do not adopt the proposed changes to the definition of broker. Thus, a 
qualified intermediary that is not a U.S. payor or U.S. middleman as 
described in Sec.  1.6049-5(c)(5) will not be treated as a broker with 
respect to sales effected at an office outside the United States. The 
Treasury Department and the IRS also note that the recently enacted 
provisions of chapter 4 of Subtitle A of the Code will impose certain 
information reporting requirements on foreign financial institutions 
that enter into an agreement with the IRS under section 1471(b). The 
Treasury Department and the IRS intend to issue future guidance 
coordinating the reporting requirements under section 6045 with the 
reporting requirements under section 1471. In addition, section 1471 
allows a person who has entered into an agreement under section 1471(b) 
to elect to report certain information required under sections 6041, 
6042, 6045, and 6049. The Treasury Department and IRS anticipate that, 
if a foreign financial institution that has entered into an agreement 
under section 1471(b) makes such an election, the agreement would 
specify the extent of such person's reporting obligations with respect 
to information required to be reported under section 6045.
    Commentators requested that the regulations also exempt 
nonqualified intermediaries from basis reporting, even if the 
nonqualified intermediary is treated as a broker under Sec.  1.6045-1 
(for example, where the nonqualified intermediary effects the sale 
within the United States). The regulations do not adopt this request as 
contrary to the purposes of the statute.
e. Treatment of Foreign Securities
    Commentators requested that a security issued by a non-U.S. issuer 
be excluded from the definition of a covered security. The commentators 
questioned whether foreign issuers will comply with section 6045B and 
report the U.S. tax consequences of their corporate actions. The final 
regulations do not adopt this comment because section 6045 does not 
distinguish between U.S. and non-U.S. issuers of securities. The 
regulations permit but do not require a broker to adjust basis for 
unreported corporate actions.
f. Determination of Basis and Whether Gain or Loss on the Sale Is Long-
Term or Short-Term
    The proposed regulations required brokers to adjust the reported 
basis to reflect information received on a transfer statement or issuer 
return (discussed in more detail later in this preamble) but otherwise 
do not require brokers to consider transactions, elections, or events 
occurring outside the account. Commentators asked whether brokers must 
apply certain Code provisions in determining reported basis.
i. Regulated Investment Companies and Real Estate Investment Trusts
    Under sections 852(b)(4)(A) and 857(b)(8), a loss on the sale of 
RIC or REIT shares held 6 months or less is long-term to the extent of 
capital gain dividends (distributed and undistributed) on the shares. 
One commentator asked whether brokers are required to adjust the 
character of the loss for the effects of sections 852(b)(4)(A) or 
857(b)(8). Under section 852(b)(4)(B), if a shareholder in a RIC sells 
shares at a loss and held the shares for six months or less, the loss 
is disallowed to the extent the shareholder received a tax-exempt 
dividend. One commentator asked whether brokers are required to adjust 
the amount of the loss for the effects of section 852(b)(4)(B). The 
final regulations clarify that adjustments under sections 852(b)(4)(A), 
857(b)(8), and 852(b)(4)(B) are not required because the payment of 
tax-exempt dividends and the existence of capital gain dividends 
(distributed and undistributed) may or may not occur in the same 
account as the sale. Further, requiring adjustments would also 
necessitate requiring brokers to include information on transfer 
statements about whether and when these types of dividends have been 
received or reported.
    A commentator requested the IRS to exercise its authority under 
section 852(b)(4)(E) to shorten the holding period under section 
852(b)(4) to 31 days. This request is outside the scope of the current 
project and may be considered for future guidance.
    A commentator requested limiting the application of section 852(f), 
relating to load charges on the purchase of RIC stock, to reinvestments 
in securities with the same CUSIP consistent with proposed legislation 
that would limit section 852(f) to reinvestments by January 31st of the 
year following the disposition of the load-paying shares. The final 
regulations do not adopt this suggestion.
ii. Straddles and Hedging Transactions
    Several commentators asked whether brokers are required to adjust 
their determination of holding period for securities in a single 
account if the securities are part of a hedging transaction, as defined 
in Sec.  1.1221-2(b), or a straddle, as defined in section 1092. They 
also asked whether the provisions of section 1233(b) must be applied to

[[Page 64077]]

adjust the holding period or character of gain of a security when a 
customer has, in a single account, sold short some securities and holds 
or later acquires substantially identical securities. The fact patterns 
that fall under sections 1092 and 1233(b) and Sec.  1.1221-2(b) include 
situations when the CUSIPs of the positions may not be identical as 
well as situations when the CUSIPs of the positions are identical. 
Regardless, under the final regulations, brokers are not required to 
adjust the holding period or character of gain under sections 1092 and 
1233(b) and Sec.  1.1221-2(b).
iii. Events Occurring Outside the Account
    The proposed regulations required a broker to take into account in 
determining basis any corporate action reported by an issuer of the 
security. Commentators requested clarification on how to determine 
basis after a corporate action that results in different treatment for 
minority shareholders than for a majority shareholder. The final 
regulations permit a broker to treat all customers after a corporate 
action as minority shareholders of the corporation unless the broker 
knows that the customer is a majority shareholder and the issuer 
reports the action's effect on the basis of majority shareholders.
    The proposed regulations did not permit brokers to apply section 
1259 (regarding constructive sales) and section 475 (regarding the 
mark-to-market method of accounting) when reporting adjusted basis and 
whether any gain or loss on the sale of a security is long-term or 
short-term. A commentator requested that reporting adjustments be 
permitted under these sections even if not required. The final 
regulations adopt this request. Another commentator asked whether 
brokers must apply section 1296 (regarding mark-to-market accounting 
for marketable stock in a passive foreign investment company). The 
final regulations provide that these adjustments are not required. A 
broker should inform customers of any non-required adjustments so that 
customers will not duplicate these adjustments.
iv. Basis Determination Method
    The proposed regulations required brokers to report basis using the 
basis determination method a customer elects. Commentators requested 
that brokers be permitted to offer limited basis reporting methods even 
if this practice would force a customer that wanted a different method 
to move his or her account to a broker that offered reporting under 
that method. The final regulations do not adopt this request 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.
v. Long-Term or Short-Term Gain or Loss
    Section 1222 defines long-term or short-term gain or loss by 
reference to whether a taxpayer has held a capital asset for more than 
one year. A commentator noted that accounting standards may define a 
year in different ways and requested that the final regulations adopt a 
uniform definition of a year for reporting purposes, such as 360 or 365 
days. The final regulations do not adopt this comment. The rules for 
determining whether a taxpayer has held an asset for more than one year 
are well established. No good justification exists for adopting a 
different rule solely for broker reporting purposes.
vi. Commissions and Options Proceeds
    The proposed regulations required brokers to adjust basis for 
commissions and transfer taxes incurred from a purchase and, if not 
subtracted from gross proceeds, commissions charged for a sale and 
transfer taxes incurred on a sale. Commentators requested that the 
final regulations expand the definition of gross proceeds to explicitly 
permit adjustments for transfer taxes incurred on sale. The final 
regulations incorporate this suggestion.
    The proposed regulations did not alter the current rule under which 
some brokers report proceeds reduced by sales commissions and inform 
customers of this fact through a flag in Box 2 on Form 1099-B. Instead, 
in requiring brokers to account for sales commissions, the proposed 
regulations permitted brokers to either reduce the reported proceeds or 
increase the reported basis by the amount of the sales commissions. 
Commentators requested that all brokers be required to reduce the 
reported proceeds for commissions and transfer taxes from the sale. 
This suggestion is not adopted but may be considered in future 
guidance.
    Commentators requested that brokers be permitted to adjust basis 
for option premiums when an option is exercised in purchasing or 
selling a security even though this reporting is not mandatory until 
2013. The proposed regulations permitted this treatment, which is also 
permitted under the final regulations.
vii. Employee Compensation-Related Issues
    Section 6045(h) requires certain basis reporting adjustments to 
account for income recognized on options granted or acquired beginning 
in 2013. Because the option reporting requirements do not take effect 
until 2013, the proposed regulations provided that, for stock acquired 
in 2011 and 2012 in connection with employee stock purchase plans and 
incentive stock options, brokers did not need to adjust basis to 
account for the income recognized by the purchaser. Commentators 
suggested that this stock be excluded from basis reporting until 2013 
because purchasers may improperly rely on the reported basis. The final 
regulations do not adopt this suggestion. Purchasers will be assisted 
by IRS forms and publications, including Form 3921, ``Exercise of an 
Incentive Stock Option Under Section 422(b)'' (in development), and 
Form 3922, ``Transfer of Stock Acquired Through an Employee Stock 
Purchase Plan Under Section 423(c)'' (in development), in determining 
basis for stock acquired in 2011 and 2012.
    Commentators also requested that the final regulations not require 
basis reporting for stock acquired through an employee stock purchase 
plan because Form 3922 will report the exercise price per share and the 
fair market value of the stock on both the grant date and the exercise 
date. The final regulations do not adopt this comment because Form 3922 
must be filed when a purchaser first transfers legal title to the 
stock, not necessarily when the purchaser sells the stock, and these 
events may occur many years apart. Further, Form 3922 will not identify 
which shares are sold and will not reflect stock splits or other 
corporate actions between the date of reporting on Form 3922 and the 
date of sale.
viii. Payments in a Foreign Currency
    The proposed regulations provided that brokers receiving payments 
made in foreign currency should report the amounts paid by converting 
each payment to a U.S. dollar amount using a spot rate or spot rate 
convention determined at the time the broker receives the payment. 
Commentators expressed the concern that determining the spot rate on 
the payment receipt date treats all sales as if the customer had 
elected under section 988 to incorporate the amount of gain or loss on 
the currency into the gain or loss on the sale of the security. 
However, the section 988(d) election is only relevant in the context of 
certain hedges. In the non-hedging context, long-standing

[[Page 64078]]

rules provide that investors must always compute gain or loss by 
determining adjusted basis using the spot rate as of the payment 
receipt date. See Rev. Rul. 54-105 (1954-1 CB 12). Even in the hedging 
context, investors must compute gain or loss under these same rules 
unless they make the election under section 988. The final regulations 
therefore adopt the proposed rule. See Sec.  601.601(d)(2).
    Commentators asked whether the payment receipt date is the date the 
broker receives payment from the customer or the settlement date of the 
purchase. The final regulations continue to treat the payment receipt 
date as the date the broker receives payment but clarify that, for 
securities traded on an established securities market, the payment 
receipt date is the settlement date of the purchase. See Sec.  1.988-
2(a)(2)(iv). The final regulations also clarify that the same foreign 
currency reporting rules apply to transfer statements.
g. Customer Identification of Securities
    The proposed regulations required brokers to report the sales of 
securities on a first-in, first-out basis within an account unless the 
customer notified the broker by means of making an adequate and timely 
identification of the securities to be sold. Commentators asked that, 
for reporting purposes, brokers be permitted to rely on customers' 
standing orders or instructions for the sale or transfer of shares of 
stock. The proposed rule by cross reference to Sec.  1.1012-1(c) 
already permitted standing orders to serve as an adequate 
identification for both sales and transfers of stock. Therefore, the 
final regulations adopt the proposed rule.
    Commentators asked how to apply the first-in, first-out reporting 
rule when the broker does not know the acquisition date of some shares 
of the security within the account. The final regulations clarify that 
brokers must report the sale of any shares or units of a security in 
the account with unknown acquisition dates first. Customers are 
expected to report basis consistently with broker reporting.
h. Reporting of Wash Sales
    Section 6045(g)(2)(B)(ii) requires that, except as otherwise 
provided by the Secretary, a broker must apply the wash sale rules of 
section 1091 when reporting the adjusted basis of a covered security if 
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). A commentator objected to limiting 
broker reporting of wash sales to instances in which the purchase and 
sale transactions occur in the same account and are for identical 
securities. The final regulations retain these two statutory 
limitations but do not prohibit brokers from reporting wash sales 
across accounts or for substantially identical securities.
    A commentator asked whether brokers must report wash sales when the 
purchase and sale transactions are initiated in different accounts but 
the purchased shares are later transferred into the account of the sold 
shares. The final regulations clarify that brokers need not report wash 
sales in these circumstances because the purchase and sale transactions 
do not occur in the same account.
    Another commentator asked whether brokers must report wash sales 
when the purchase and sale transactions occur in the same account but 
the purchased security is transferred out of the account prior to the 
wash sale. The commentator opposed applying the wash sale reporting 
rules in this scenario because the rules would require a broker to 
adjust basis for a security no longer in the broker's custody. The 
final regulations clarify that brokers do not need to report a wash 
sale if the purchased security is transferred to another account before 
the wash sale.
    Commentators asked whether brokers must report wash sales when 
stock is treated as held in a separate account under the basis method 
determination rules of Sec.  1.1012-1. The final regulations clarify 
that the account limitation for wash sale reporting applies to stock 
treated as held in separate accounts. Thus, a broker is not required to 
report a wash sale involving a covered security and a noncovered 
security unless a single-account election is in effect. Similarly, a 
broker is not required to report a wash sale involving stock in a DRP 
and identical stock that is not in a DRP.
    Commentators requested exclusions from broker reporting of wash 
sales for de minimis amounts, sales of fractional shares, automatic 
dividend reinvestments, or compensation-related acquisitions. The final 
regulations do not adopt these proposals because, as other commentators 
noted, the substantive wash sale rules under section 1091 do not 
exclude these items. Creating additional exclusions solely for broker 
reporting purposes would introduce further discrepancies between broker 
reporting and customer reporting of wash sales.
    Commentators requested an exclusion from broker reporting of wash 
sales for customers that have made valid and timely mark-to-market 
accounting method elections under section 475 or, in the alternative, 
for customers that execute 10,000 trades in a single year. Other 
commentators stated that excluding these customers may be more 
burdensome than reporting wash sales for these accounts. The final 
regulations permit brokers to exclude from wash sales reporting a 
customer that has informed the broker in writing that the customer has 
made an election under section 475(f)(1). The exclusion only applies to 
the accounts identified by the customer as solely containing securities 
subject to the election. The final regulations also clarify that a 
taxpayer that is not a trader in securities within the meaning of 
section 475(f)(1) does not become a trader in securities, or create an 
inference that it is a trader in securities, by notifying a broker that 
it has made a valid and timely election under section 475(f)(1).
    Commentators asked that Form 1099-B and the transfer statement 
indicate whether the holding period of a security has been adjusted to 
reflect a wash sale. The final regulations do not adopt this 
suggestion. The rules require the holding period reported on Form 1099-
B and transfer statements to reflect any wash sale adjustments.
    Commentators asked how the holding period rules such as section 
1223(3) apply to wash sales. One commentator asked about the proper 
treatment of a wash sale when the sale and purchase transactions occur 
over a period of time and a corporate event occurs during that period 
that causes one pre-event share to not be economically equivalent to 
one post-event share. These and other comments requesting guidance on 
how the wash sale reporting rule applies to various types of activity 
within an account relate to the substantive rules under section 1091 
and are outside the scope of these regulations.
i. Reporting of Short Sales
    Beginning in 2011, section 6045(g)(5) requires gross proceeds and 
basis reporting for short sales 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 opened. The proposed 
regulations included a transition rule requiring brokers to report all 
short sales opened on or after January 1, 2010, for the year in which 
the short sale is closed. Commentators asked that this transition rule 
be modified to permit 2010 reporting of all short sales opened in 2010 
even if the short sale remained open at the end of

[[Page 64079]]

2010. The final regulations adopt this request.
    Commentators requested that, for short sales opened before 2011 and 
closed in 2011 or later years, the regulations permit brokers to report 
the short sale for both the year the short sale is opened and the year 
the short sale is closed. The final regulations do not adopt this 
suggestion because no penalty is imposed for filing a nonrequired 
return.
    Reportable payments on securities sales under section 6045 are 
subject to backup withholding as provided in section 3406(b)(3)(C). 
When backup withholding applies to a short sale, current regulations at 
Sec.  31.3406(b)(3)-2(b)(4) require backup withholding when the short 
sale is opened but permit a broker to delay withholding until the short 
sale is closed if, at the time the short sale is opened, the broker 
expects that the amount of gain realized upon the closing of the short 
sale will be determinable from the broker's records. The proposed 
regulations required backup withholding only when the short sale was 
closed and the short sale became subject to reporting under section 
6045(g)(5). Commentators asked that backup withholding on short sales 
continue to be permitted when the short sale is opened because the 
broker has cash proceeds from the sale on which to withhold. The final 
regulations adopt this comment and leave in place the current rule 
permitting a broker to perform backup withholding when the short sale 
is opened or closed. The proposed amendment to Sec.  31.3406(b)(3)-
2(b)(4) is therefore not adopted.
    As a result of retaining the current backup withholding rule, a 
broker may perform backup withholding in a year before the short sale 
is closed. Current regulations at Sec.  31.6051-4 require the broker to 
report the withholding on a Form 1099-B for the year of the withholding 
in addition to reporting the sale for the year the short sale is 
closed. The final regulations amend Sec.  31.6051-4 to permit the IRS 
to determine whether to require gross proceeds to be reported only when 
the short sale is closed.
j. Reporting of Sales by S Corporations
    Currently, no broker reporting on Form 1099-B is required for 
customers that are corporations, including S corporations. Section 
6045(g)(4) requires brokers to begin Form 1099-B reporting for S 
corporations (other than a financial institution) for sales of covered 
securities acquired on or after January 1, 2012. The proposed 
regulations accordingly removed corporations for which an election 
under section 1362(a) is in effect from the list of exempt Form 1099-B 
recipients for sales of covered securities acquired beginning in 2012. 
Commentators requested that the regulations instead refer to the 
definition of S corporation at section 1361(a). The final regulations 
adopt this comment for all references to an S corporation.
    Also, for sales of covered securities acquired beginning in 2012, 
the proposed regulations eliminated the so-called ``eyeball test'' 
allowing brokers to rely solely on the name of the customer to 
determine whether the customer is a corporation exempt from reporting. 
The proposed regulations retained the actual knowledge rule so that a 
broker does not need to obtain an exemption certificate for a customer 
that the broker knows is exempt. Commentators asked that the final 
regulations retain the eyeball test because brokers otherwise may be 
required to seek a certification from all corporate customers. The 
regulations do not adopt this comment because brokers generally cannot 
determine from a customer's name alone whether the customer is taxed as 
an S corporation or C corporation. The final regulations retain a 
limited eyeball test for insurance companies and foreign corporations, 
however, because insurance companies and foreign corporations are 
ineligible to be S corporations.
    Commentators requested that the final regulations retain current 
rules that allow brokers to determine that a customer is a foreign 
corporation by relying upon the name of the customer or upon a 
certification on a Form W-8 such as Form W-8BEN, ``Certificate of 
Foreign Status of Beneficial Owner for United States Tax Withholding.'' 
These current rules were not retained in the proposed regulations. The 
final regulations adopt the suggestion to retain these current rules.
    A commentator requested that brokers be permitted to rely on Form 
8832, ``Entity Classification Election,'' to determine that a customer 
is a C corporation if the customer has elected on Form 8832 to be 
classified as an association taxable as a corporation. According to the 
commentator, reliance on Form 8832 is appropriate because the form's 
instructions provide that an entity that is separately filing an 
election to be classified as an S corporation need not file Form 8832. 
The final regulations do not adopt the suggestion because an S 
corporation may still file Form 8832 or may have filed Form 8832 before 
electing to be classified as an S corporation.
    Commentators requested that accounts opened by S corporations 
before 2012 be excepted from reporting. The regulations do not adopt 
this request as contrary to the statute.
k. Reporting to Trust Interest Holders in a WHFIT
    The proposed regulations provided that, with respect to a widely 
held fixed investment trust (WHFIT), the requirements of section 
6045(g), to the extent applicable, are met by compliance with the WHFIT 
reporting rules in Sec.  1.671-5. One commentator noted that Sec.  
1.671-5(d)(2)(ii)(H) requires that a trustee or middleman filing a Form 
1099 for an interest in a WHFIT provide, in addition to the items 
listed in Sec.  1.671-5(d)(2)(ii), any other information required by 
the Form 1099. The commentator noted that this requirement could create 
confusion for reporting basis information to the extent the Form 1099-B 
is modified to require basis information. In response, the final 
regulations continue to provide that the requirements of section 
6045(g) are met by compliance with the WHFIT rules. The IRS intends to 
address the commentator's concern in the instructions to the Form 1099-
B.
l. Due Date for Payee Statements Furnished in a Consolidated Reporting 
Statement
    Section 6045(b) extended the due date to furnish payee statements 
to customers from January 31 to February 15, effective for statements 
required to be furnished after December 31, 2008. Section 6045(b) also 
provides that this February 15 due date applies to any other statement 
required to be furnished on or before January 31 of the same year if 
furnished in a consolidated reporting statement with a statement 
required under section 6045.
    The proposed regulations defined consolidated reporting statement 
as a grouping of statements that includes a required section 6045 
statement and is furnished to the same customer or group of customers 
on the same date. The proposed regulations also permitted a broker to 
treat any customer as receiving a required section 6045 statement if 
the customer had an account for which section 6045 would require a 
statement if a sale occurred during the year. In response to a request 
from a commentator, the final regulations clarify that a customer may 
be treated as receiving a required section 6045 statement under this 
rule even if the customer's account holds only cash or shares of money 
market funds.
    Commentators requested that the definition of consolidated 
reporting

[[Page 64080]]

statement include all statements a broker sends to a customer, whether 
or not the broker includes a required section 6045 statement to that 
customer, if the broker includes a required section 6045 statement to 
one of its customers. Other commentators supported the rule in the 
proposed regulations requiring brokers to continue to furnish in 
January pension statements and other statements to customers that hold 
only nontaxable accounts. The final regulations do not adopt the 
suggestion to broaden the definition of consolidated reporting 
statement. The suggested definition is inconsistent with statutory 
intent to limit the extended due date to statements that are or can be 
provided with other required section 6045 reporting.
    A commentator also requested that the rules for consolidated 
reporting by brokers refer to ``reporting entities'' instead of 
``brokers'' because custodians for individual retirement accounts 
(IRAs) may not stand ready to effect sales to be made by others and, 
therefore, may not be considered brokers under section 6045. The final 
regulations do not adopt this comment because an entity that is not 
considered a broker under section 6045 may not furnish a consolidated 
reporting statement.

5. Reporting Required in Connection With Transfers of Securities

a. Scope of Transfer Reporting
    The proposed regulations identified brokers, persons acting as 
custodians of securities in the ordinary course of a trade or business, 
issuers of securities, and their agents as applicable persons required 
to furnish a transfer statement. Commentators asked whether agents of 
an issuer such as a transfer agent or administrator of an employee 
stock purchase plan are applicable persons. The final regulations 
clarify that agents of an issuer are applicable persons required to 
furnish transfer statements and provide additional examples to 
illustrate these agency arrangements.
    A commentator requested that stock transfer agents that do not file 
Form 1099-B be excluded from transfer reporting. The final regulations 
do not adopt this comment as inconsistent with the statutory purpose of 
transfer reporting. A broker selling a transferred security is only 
able to report basis if informed of the basis. The regulations properly 
place the duty to furnish the transfer statement to the selling broker 
on the person transferring custody of the security.
    Commentators requested an exclusion for transfers excepted from all 
section 6045 reporting (including gross proceeds reporting) at the time 
of the transfer. The final regulations adopt this suggestion. 
Commentators also requested exclusions for transfers to or from a 
nontaxable account. Sales of securities in nontaxable accounts are 
always excepted from all reporting under section 6045. The final 
regulations accordingly provide an exclusion for transfers to trustees 
and custodians of individual retirement plans. However, the exclusion 
does not apply to transfers from these accounts to a customer subject 
to reporting under section 6045(a).
    Commentators requested that transfer statements for securities 
distributed from a nontaxable account to an owner or an heir report the 
new owner's basis as the fair market value of the security as of the 
date of distribution or date of death, whichever applies. The final 
regulations do not adopt this comment because securities held in 
individual retirement plans generally are treated as noncovered 
securities. Transferors of securities from nontaxable accounts need not 
report basis although they may choose to do so.
    Commentators requested that all trustees or fiduciaries of a trust 
or estate be required to furnish transfer statements when assets are 
distributed to the beneficiaries or heirs. The final regulations do not 
adopt this suggestion. A trustee or fiduciary must furnish a transfer 
statement if the trustee is also the broker effecting the transfer. If 
a trustee merely distributes securities in a transfer effected by a 
separate broker, then the broker must furnish the transfer statement.
    Commentators requested an exclusion for securities transferred in 
connection with a loan or under a repurchase agreement or securities 
collateral agreement because the lender's basis in the securities is 
not relevant to the borrower. The final regulations adopt this request 
only to the extent that the transferor lends or borrows securities as a 
principal (for example, when a customer opens or closes a short sale). 
When a transferor otherwise lends or borrows securities for a customer 
whose transfers are not otherwise exempt from transfer reporting, 
transfer statements will ensure that securities returned to the lender 
or collateral provider remain covered securities even if the securities 
are returned to a different account. Further, the broker for the 
borrower or secured party may not know that the securities it receives 
are exempted from reporting under the proposed exclusion and would be 
compelled to ask for a transfer statement if none were provided.
    Commentators requested an exclusion for money market funds because 
brokers do not currently report their sales on Form 1099-B. The final 
regulations adopt this comment and also exempt money market funds from 
issuer reporting under section 6045B.
b. Information Furnished on a Transfer Statement
    The proposed regulations required transfer statements to include 
information regarding the ``beneficial owner'' of securities. 
Commentators suggested that ``beneficial owner'' is not an appropriate 
term because securities are often transferred f