Property Traded on an Established Market, 1101-1105 [2011-83]
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Federal Register / Vol. 76, No. 5 / Friday, January 7, 2011 / Proposed Rules
your comments. For instructions on
submitting comments and accessing
documents related to this action, see
‘‘Submitting Comments and Accessing
Information’’ in the SUPPLEMENTARY
INFORMATION section of this document.
You may submit comments by any one
of the following methods.
Federal Rulemaking Web site: Go to
https://www.regulations.gov and search
for documents filed under Docket ID
NRC–2011–0003. Address questions
about NRC dockets to Carol Gallagher,
telephone: 301–492–3668; e-mail:
Carol.Gallagher@nrc.gov.
Mail comments to: Cindy Bladey,
Chief, Rules, Announcements, and
Directives Branch (RADB), Office of
Administration, Mail Stop: TWB–05–
B01M, U.S. Nuclear Regulatory
Commission, Washington, DC 20555–
0001.
Fax comments to: RADB at 301–492–
3446.
FOR FURTHER INFORMATION CONTACT: Gary
Comfort, Office of Federal and State
Materials and Environmental
Management Programs, U.S. Nuclear
Regulatory Commission, Washington,
DC 20555–0001, telephone: 301–415–
8106, e-mail: Gary.Comfort@nrc.gov.
SUPPLEMENTARY INFORMATION:
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Submitting Comments and Accessing
Information
Comments submitted in writing or in
electronic form will be posted on the
NRC Web site and on the Federal
Rulemaking Web site, https://
www.regulations.gov. Because your
comments will not be edited to remove
any identifying or contact information,
the NRC cautions you against including
any information in your submission that
you do not want to be publicly
disclosed. The NRC requests that any
party soliciting or aggregating comments
received from other persons for
submission to the NRC inform those
persons that the NRC will not edit their
comments to remove any identifying or
contact information, and therefore, they
should not include any information in
their comments that they do not want
publicly disclosed.
You can access publicly available
documents related to this document
using the following methods:
NRC’s Public Document Room (PDR):
The public may examine and have
copied for a fee publicly available
documents at the NRC’s PDR, Room O–
1F21, One White Flint North, 11555
Rockville Pike, Rockville, Maryland
20852.
NRC’s Agencywide Documents Access
and Management System (ADAMS):
Publicly available documents created or
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received at the NRC are available
electronically at the NRC’s Electronic
Reading Room at https://www.nrc.gov/
reading-rm/adams.html. From this page,
the public can gain entry into ADAMS,
which provides text and image files of
NRC’s public documents. If you do not
have access to ADAMS or if there are
problems in accessing the documents
located in ADAMS, contact the NRC’s
PDR reference staff at 1–800–397–4209,
or 301–415–4737, or by e-mail to
PDR.Resource@nrc.gov. The draft Part
40 implementation guidance is available
electronically under ADAMS Accession
Number ML103160241.
Federal Rulemaking Web site: Public
comments and supporting materials
related to the implementation guidance,
including the draft implementation
guidance, can be found at https://
www.regulations.gov by searching on
Docket ID NRC–2011–0003. Documents
related to the proposed rule can be
found by searching on Docket ID NRC–
2009–0084.
Discussion
The NRC published a proposed rule
(75 FR 43425; July 26, 2010) that would
amend its regulations in part 40 of Title
10 of the Code of Federal Regulations
(10 CFR) to require that the initial
distribution of source material to
exempt persons or general licensees be
explicitly authorized by a specific
license, which would include new
reporting requirements. This proposed
rule would affect manufacturers and
distributors of certain products and
materials containing source material
and certain persons using source
material under general license and
under exemptions from licensing. The
public comment period runs through
February 15, 2011.
In conjunction with the proposed
rule, the NRC has developed draft
implementation guidance. The draft
implementation document provides
guidance to a licensee or applicant for
implementation of proposed 10 CFR
Part 40, ‘‘Distribution of Source Material
to Exempt Persons and to General
Licensees and Revision of General
License and Exemptions.’’ It is intended
for use by applicants, licensees,
Agreement States, and NRC staff. The
document describes methods acceptable
to the NRC staff for implementing
proposed 10 CFR part 40. The
approaches and methods described in
the document are provided for
information only. Methods and
solutions different from those described
in the document are acceptable if they
meet the requirements in proposed 10
CFR part 40. The guidance is provided
in the form of questions and answers on
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1101
the provisions of the proposed rule. The
draft implementation guidance
document for proposed 10 CFR part 40
is available electronically under
ADAMS Accession Number
ML103160241, and can also be found at
https://www.regulations.gov by searching
on Docket ID NRC–2011–0003.
At this time, the NRC is announcing
the availability for public comment of
‘‘Implementation Guidance for 10 CFR
Part 40 Distribution of Source Material
to Exempt Persons and to General
Licensees and Revision of General
License and Exemptions.’’ The
document provides guidance on
implementing the provisions of
proposed 10 CFR part 40, ‘‘Distribution
of Source Material to Exempt Persons
and to General Licensees and Revision
of General License and Exemptions.’’
Dated at Rockville, Maryland, this 28th day
of December 2010.
For the Nuclear Regulatory Commission.
James Luehman,
Deputy Director, Licensing and Inspection
Directorate, Division of Materials Safety and
State Agreements, Office of Federal and State
Materials and Environmental Management
Programs.
[FR Doc. 2011–107 Filed 1–6–11; 8:45 am]
BILLING CODE 7590–01–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG–131947–10]
RIN 1545–BJ71
Property Traded on an Established
Market
Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of proposed rulemaking
and notice of public hearing.
AGENCY:
This document contains
proposed regulations relating to
determining when property is traded on
an established market (that is, publicly
traded) for purposes of determining the
issue price of a debt instrument. The
regulations amend the current
regulations to clarify the circumstances
that cause property to be publicly
traded. The regulations provide needed
guidance to issuers and holders of debt
instruments. This document also
provides a notice of a public hearing on
these proposed regulations.
DATES: Written or electronic comments
must be received by March 8, 2011.
Outlines of topics to be discussed at the
public hearing scheduled for April 13,
SUMMARY:
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2011, at 10 a.m. must be received by
March 4, 2011.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–131947–10), room
5203, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washington,
DC 20044. Submissions may be handdelivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to CC:PA:LPD:PR (REG–131947–10),
Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue,
NW., Washington, DC, or sent
electronically, via the Federal
eRulemaking Portal at https://
www.regulations.gov (IRS REG–131947–
10).
FOR FURTHER INFORMATION CONTACT:
Concerning the proposed regulations,
William E. Blanchard at (202) 622–3950;
concerning submission of comments,
the hearing, and/or to be placed on the
building access list to attend the
hearing, Oluwafunmilayo.P.Taylor@
irscounsel.treas.gov, at (202) 622–7180
(not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
The issue price of a debt instrument
is determined under section 1273(b) of
the Internal Revenue Code or, in the
case of certain debt instruments issued
for property, under section 1274.
Section 1273(b)(3) generally provides
that in the case of a debt instrument that
is issued for property and that is part of
an issue some or all of which is traded
on an established securities market
(often referred to as ‘‘publicly traded’’),
the issue price of the debt instrument is
the fair market value of the debt
instrument. Similarly, if the debt
instrument is issued for stock or
securities (or other property) that are
publicly traded, the issue price of the
debt instrument is the fair market value
of the property. Section
1.1273–2 of the Income Tax Regulations
(the ‘‘current regulations’’) also applies
to determine the issue price of a debt
instrument that is publicly traded or is
issued for publicly traded property.
Under § 1.1273–2(c)(1), the term
property means a debt instrument,
stock, security, contract, commodity, or
nonfunctional currency. Section
1.1273–2(f) defines when property is
traded on an established market (that is,
publicly traded) for purposes of section
1273(b)(3) and § 1.1273–2.
In general, under § 1.1273–2(f) of the
current regulations, a debt instrument is
traded on an established market if either
the debt instrument or the property for
which the debt instrument is exchanged
is described in § 1.1273–2(f)(2) through
(f)(5) in the time period 30 days before
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or after the exchange. Property is
described in § 1.1273–2(f)(2) if it is
listed on a specified exchange. Property
is described in § 1.1273–2(f)(3) if it is of
a kind that is traded on a contract
market designated by the Commodities
Futures Trading Commission or an
interbank market. Property is described
in § 1.1273–2(f)(4) if it appears on a
system of general circulation that
disseminates price quotations or recent
trading prices. Property is described in
§ 1.1273–2(f)(5) if price quotations are
readily available from dealers, brokers
or traders, subject to certain exceptions.
The issue price of a debt instrument
has important income tax consequences.
As an initial matter, the difference
between the issue price of a debt
instrument and its stated redemption
price at maturity measures whether
there is any original issue discount
associated with the instrument. A debtfor-debt exchange (including a
significant modification of existing debt)
in the context of a work-out may result
in a reduced issue price for the new
debt, which generally would produce
cancellation of indebtedness income for
the issuer, a loss to the holder whose
basis is greater than the issue price of
the new debt, and original issue
discount that generally must be
accounted for by both the issuer and the
holder of the new debt. These
consequences, exacerbated by recent
turmoil in the debt markets, have
focused attention on the definition of
when property is traded on an
established market for purposes of
§ 1.1273–2(f).
Commenters have criticized the
definition of an established market in
§ 1.1273–2(f) of the current regulations.
They argue that comparatively little
debt is listed on an exchange described
in § 1.1273–2(f)(2), and that even debt
that is listed rarely trades on the
exchange. They point out that the list of
foreign exchanges in § 1.1273–2(f)(2)(iii)
is outdated. Commenters also struggle to
interpret the meaning of an interbank
market in § 1.1273–2(f)(3).
Even more troublesome for
commenters is the question of what
constitutes a quotation medium for
purposes of § 1.1273–2(f)(4) of the
current regulations. Debt instruments
typically trade in various ways in the
current markets, but the vast majority of
debt instruments are purchased or sold
over-the-counter for a price negotiated
between a financial entity (such as a
securities dealer or broker) and a
customer. A dealer or broker may quote
a firm price, sometimes referred to as a
‘‘firm’’ or ‘‘executable’’ quote, entitling a
customer to purchase or sell at that
price, subject to volume limits or other
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specified restrictions. Alternatively, a
dealer, broker or listing service may
quote a price that indicates a
willingness to purchase and/or sell a
specified debt instrument, again subject
to volume limits or other limitations,
but not necessarily at the quoted price.
This is sometimes referred to as a ‘‘soft’’
or an ‘‘indicative’’ quote. The decision to
send a price quote to a customer (or
customers) may be initiated by a dealer
or broker, or a customer may request a
price quote from one or more dealers or
brokers. Additionally, a service provider
may provide subscribers with valuations
based on data collected from
contributors that may reflect actual
sales, price quotes, or any other
information it deems relevant to the
value of the debt instrument in
question. Commenters struggled to
apply the description of a quotation
medium in § 1.1273–2(f)(4) to this
informal marketplace, which has
evolved considerably since the
regulations were originally promulgated
in 1994.
Finally, commenters pointed out that
the general rule in § 1.1273–2(f)(5) of the
current regulations, which treats a debt
instrument as publicly traded if price
quotations are readily available from
dealers, brokers or traders could cause
almost every debt instrument to be
within this definition but for the safe
harbors in § 1.1273–2(f)(5)(ii).
Explanation of Provisions
As a general matter, the Treasury
Department and the IRS believe that the
‘‘traded on an established market’’
standard established by section
1273(b)(3) is intended to be interpreted
broadly. When section 1275(a)(4) was
repealed by section 11325(a)(2) of the
Revenue Reconciliation Act of 1990,
Public Law 101–508, 104 Stat. 1388,
1388–466 (1990), issue price was
required to be determined under section
1273 and section 1274 even in a debtfor-debt exchange that qualified as a
corporate reorganization. As the depth
of trading and the transparency of the
markets that trade debt instruments has
improved, the earlier concerns that
trading prices may not reflect the fair
market value of a debt instrument have
diminished. Thus, to the extent accurate
pricing information exists, whether it
derives from executed sales, reliable
price quotations, or valuation estimates
that are based on some combination of
sales and quotes, the Treasury
Department and the IRS believe that that
information should be the basis for the
issue price determined under section
1273(b)(3).
To address concerns with the current
regulations, the proposed regulations
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Federal Register / Vol. 76, No. 5 / Friday, January 7, 2011 / Proposed Rules
simplify and clarify the determination
of when property is traded on an
established market. The proposed
regulations identify four ways for
property to be traded on an established
market. In each case, the time period for
determining whether the property is
publicly traded is the 31-day period
ending 15 days after the issue date of
the debt instrument.
First, property that is listed on an
exchange continues to be publicly
traded property under § 1.1273–2(f)(2)
of the proposed regulations. Although
relatively few debt instruments are
listed or traded on an exchange, the
regulations may still apply to other
property that is listed, such as stock for
which a debt instrument is issued in a
debt-for-stock exchange. The proposed
regulations, however, delete the
reference to an interdealer quotation
system that is sponsored by a national
securities association registered under
section 15A of the Securities Exchange
Act of 1934 because none exist or are
contemplated. Rather than list foreign
exchanges, the proposed regulations
specify that a foreign securities
exchange that is officially recognized,
sanctioned, regulated or supervised by a
governmental authority of the foreign
country in which the market is located
is an exchange that causes property to
be publicly traded.
Second, § 1.1273–2(f)(3) of the
proposed regulations treats property as
publicly traded when a sales price for
the property is reasonably available.
Market participants have access to
information about the securities markets
from a variety of sources, which are
constantly changing and evolving. If
information about the sales price of a
debt instrument (or information
sufficient to calculate the sales price)
appears in a medium that is made
available to persons that regularly
purchase or sell debt instruments, or
persons that broker purchases or sales of
debt instruments, the sales price will be
considered reasonably available. For
example, in the case of a debt
instrument, a sale that is reported
electronically at any time in the 31-day
time period, such as in the Trade
Reporting and Compliance Engine
(‘‘TRACE’’) database maintained by the
Financial Industry Regulatory
Authority, would cause the instrument
to be publicly traded, as would other
pricing services and trading platforms
that report prices of executed sales on
a general basis or to subscribers.
Third, property is considered to be
traded on an established market if a firm
price quote to buy or sell the property
is available. A firm, or executable, price
quote may be labeled as such, or a price
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quote may function as a firm quote as
a matter of law or industry practice. In
either case, § 1.1273–2(f)(4) of the
proposed regulations treats property
with a firm quote as publicly traded.
Finally, a price quote (other than a
firm quote) that is provided by a dealer,
a broker, or a pricing service (an
indicative quote) will cause property to
be publicly traded under § 1.1273–
2(f)(5) of the proposed regulations.
The proposed regulations provide that
the fair market value of property
described in § 1.1273–2(f) will be
presumed to be equal to its trading
price, sales price, or quoted price,
whichever is applicable. However, if
there is more than one price or quote,
a taxpayer is permitted to reconcile
competing prices or quotes in a
reasonable manner. In the case of an
indicative quote, if a taxpayer
determines that the quoted price or
prices misrepresents the fair market
value of the property by a material
amount, § 1.1273–2(f)(6)(ii) of the
proposed regulations permits the
taxpayer to use any method that
provides a reasonable basis to determine
the fair market value of the property,
provided the taxpayer can establish that
the method chosen more accurately
reflects the value of the property than
the extant quote or quotes for the
property.
In response to commenters, the
proposed regulations also contain
guidance in areas ancillary to publicly
traded debt, such as proposed
regulations clarifying and revising the
rules to determine when an issue of debt
instruments is eligible to be part of a
qualified reopening under § 1.1275–2(k)
and proposed regulations clarifying the
treatment of a debt instrument issued in
a debt-for-debt exchange under the
potentially abusive rules in section
1274(b)(3). In addition, in response to
commenters, the proposed regulations
include a business day convention to
determine if certain stated interest
payments affect whether the payments
are qualified stated interest.
Proposed Effective Date
The regulations, as proposed, apply to
debt instruments that have an issue date
on or after the publication date of the
Treasury decision adopting these rules
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
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1103
553(b) of the Administrative Procedure
Act (5 U.S.C. chapter 5) does not apply
to these regulations, and because the
regulation does not impose a collection
of information on small entities, the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Pursuant to
section 7805(f) of the Internal Revenue
Code, these regulations have 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 comments (a signed original and
eight (8) copies) or electronic comments
that are submitted timely to the IRS. The
IRS and the Treasury Department
request comments on the clarity of the
proposed rules 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 April 13, 2011, beginning at 10 a.m.
in the Auditorium, Internal Revenue
Building, 1111 Constitution Avenue,
NW., Washington, DC. Due to building
security procedures, visitors must enter
at the Constitution Avenue entrance. 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 electronic or written
comments and an outline of the topics
to be discussed and the time to be
devoted to each topic by March 4, 2011.
A period of 10 minutes will be allotted
to each person for making comments.
An agenda showing the scheduling of
the 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
These regulations were drafted by
personnel in the Office of Associate
Chief Counsel (Financial Institutions
and Products) and the Treasury
Department.
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Federal Register / Vol. 76, No. 5 / Friday, January 7, 2011 / Proposed Rules
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is
proposed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.1273–1 is amended
by adding a new paragraph (c)(6) to read
as follows:
§ 1.1273–1
Definition of OID.
*
*
*
*
*
(c) * * *
(6) Business day convention—(i) Rule.
For purposes of this paragraph (c), if a
scheduled payment date for stated
interest falls on a Saturday, Sunday, or
Federal holiday (within the meaning of
5 U.S.C. 6103) but, under the terms of
the debt instrument, the stated interest
is payable on the first business day that
immediately follows the scheduled
payment date, the stated interest is
treated as payable on the scheduled
payment date, provided no additional
interest is payable as a result of the
deferral.
(ii) Effective/applicability date.
Paragraph (c)(6)(i) of this section applies
to debt instruments that are issued on or
after the date of publication of the
Treasury decision adopting these rules
as final regulations in the Federal
Register. A taxpayer, however, may rely
on paragraph (c)(6)(i) of this section for
debt instruments issued before that date.
*
*
*
*
*
Par. 3. Section 1.1273–2 is amended
by revising paragraph (f) to read as
follows:
§ 1.1273–2 Determination of issue price
and issue date.
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*
*
*
*
*
(f) Traded on an established market
(publicly traded)—(1) In general. Except
as provided in paragraph (f)(7) or (f)(8)
of this section, property (including a
debt instrument described in paragraph
(b)(1) of this section) is traded on an
established market for purposes of this
section if, at any time during the 31-day
period ending 15 days after the issue
date—
(i) The property is listed on an
exchange described in paragraph (f)(2)
of this section;
(ii) There is a sales price for the
property as described in paragraph (f)(3)
of this section;
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(iii) There are one or more firm quotes
for the property as described in
paragraph (f)(4) of this section; or
(iv) There are one or more indicative
quotes for the property as described in
paragraph (f)(5) of this section.
(2) Exchange listed property. Property
is listed on an exchange for purposes of
this paragraph (f)(2) if it is listed on—
(i) A national securities exchange
registered under section 6 of the
Securities Exchange Act of 1934 (15
U.S.C. 78f);
(ii) A board of trade designated as a
contract market by the Commodities
Futures Trading Commission;
(iii) A foreign securities exchange that
is officially recognized, sanctioned,
regulated or supervised by a
governmental authority of the foreign
country in which the market is located;
or
(iv) Any other exchange, board of
trade, or other market which the
Commissioner identifies in guidance
published in the Internal Revenue
Bulletin (see § 601.601(d)(2)(ii)) as an
exchange for purposes of this paragraph
(f)(2).
(3) Sales price—(i) In general. A sales
price exists if the price for an executed
purchase or sale of the property is
reasonably available.
(ii) Pricing information for a debt
instrument. For purposes of paragraph
(f)(3)(i) of this section, the price of a
debt instrument is considered
reasonably available if the sales price (or
information sufficient to calculate the
sales price) appears in a medium that is
made available to persons that regularly
purchase or sell debt instruments
(including a price provided only to
certain customers or to subscribers), or
persons that broker purchases or sales of
debt instruments.
(4) Firm quote. A firm quote is
considered to exist when a price quote
is available from at least one broker,
dealer, or pricing service (including a
price provided only to certain customers
or to subscribers) for property and the
quoted price is substantially the same as
the price for which the property could
be purchased or sold. The identity of the
person providing the quote must be
reasonably ascertainable for a quote to
be considered a firm quote for purposes
of this paragraph (f)(4). A quote will be
considered a firm quote if market
participants typically purchase or sell,
as the case may be, at the quoted price,
even if the party providing the quote is
not legally obligated to do so.
(5) Indicative quote. An indicative
quote is considered to exist when a
price quote is available from at least one
broker, dealer, or pricing service
(including a price provided only to
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certain customers or to subscribers) for
property and the price quote is not a
firm quote described in paragraph (f)(4)
of this section.
(6) Presumption that price or quote is
equal to fair market value—(i) In
general. The fair market value of
property described in this section will
be presumed to be equal to its trading
price on an exchange described in
paragraph (f)(2) of this section, or its
sales price or quoted price determined
under paragraphs (f)(3) through (f)(5) of
this section. If there is more than one
trading price under paragraph (f)(2) of
this section, sales price under paragraph
(f)(3) of this section, or quoted price
under paragraph (f)(4) or (f)(5) of this
section, a taxpayer may use any
reasonable method, consistently
applied, to determine the price.
(ii) Special rule for property for which
there is only an indicative quote. If
property is described only in paragraph
(f)(5) of this section, and the taxpayer
determines that the quote (or an average
of the quotes) materially misrepresents
the fair market value of the property, the
taxpayer can use any method that
provides a reasonable basis to determine
the fair market value of the property. A
taxpayer must establish that the method
chosen more accurately reflects the
value of the property than the quote or
quotes for the property to use the
method provided in this paragraph
(f)(6)(ii). For an equity or debt
instrument, a volume discount or
control premium will not be considered
to create a material misrepresentation of
value for purposes of this paragraph
(f)(6).
(7) Exception for property for which
there is de minimis trading—(i) In
general. Notwithstanding any other
provision in this section, property will
not be treated as traded on an
established market if there is no more
than de minimis trading of the property.
(ii) Definition of de minimis trading
for debt instruments. For purposes of
paragraph (f)(7)(i) of this section, a debt
instrument will be treated as traded in
de minimis quantities only if—
(A) Each trade of such debt
instrument during the 31-day period
ending 15 days after the issue date is for
quantities of US$1 million or less (or,
for debt denominated in a currency
other than the U.S. dollar, the
equivalent amount in the currency in
which the debt is denominated); and
(B) The aggregate amount of all such
trades does not exceed US$5 million (or,
for debt denominated in a currency
other than the U.S. dollar, the
equivalent amount in the currency in
which the debt is denominated).
E:\FR\FM\07JAP1.SGM
07JAP1
Federal Register / Vol. 76, No. 5 / Friday, January 7, 2011 / Proposed Rules
(8) Exception for small debt issues.
Notwithstanding any other provision in
this section, a debt instrument will not
be treated as traded on an established
market if the original stated principal
amount of the issue that includes the
debt instrument does not exceed US$50
million (or, for debt denominated in a
currency other than the U.S. dollar, the
equivalent amount in the currency in
which the debt is denominated).
(9) Anti-abuse rules—(i) Effect of
certain temporary restrictions on
trading. If there is any temporary
restriction on trading, a purpose of
which is to avoid the characterization of
the property as one that is traded on an
established market for Federal income
tax purposes, then the property is
treated as traded on an established
market. For purposes of the preceding
sentence, a temporary restriction on
trading need not be imposed by the
issuer.
(ii) Artificial pricing information. If a
principal purpose for the existence of
any sale or price quotation is to
materially misrepresent the value of
property, that sale or price quotation
may be disregarded.
(10) Convertible debt instruments. A
debt instrument is not treated as traded
on an established market solely because
the debt instrument is convertible into
property that is so traded.
(11) Effective/applicability date.
Paragraph (f) of this section applies to
a debt instrument issued on or after the
date of publication of the Treasury
decision adopting these rules as final
regulations in the Federal Register.
*
*
*
*
*
Par. 4. Section 1.1274–3 is amended
by adding a new paragraph (b)(4) to read
as follows:
§ 1.1274–3
defined.
Potentially abusive situations
jdjones on DSK8KYBLC1PROD with PROPOSALS-1
*
*
*
*
*
(b) * * *
(4) Debt-for-debt exchange—(i) Rule.
A debt instrument issued in a debt-fordebt exchange, including a deemed
exchange under § 1.1001–3, will not be
treated as the subject of a recent sales
transaction for purposes of section
1274(b)(3)(B)(ii)(I) even if the debt
instrument exchanged for the newly
issued debt instrument was recently
acquired prior to the exchange.
Therefore, the issue price of the debt
instrument will not be determined
under section 1274(b)(3). However, if
the debt instrument or the property for
which the debt instrument is issued is
publicly traded within the meaning of
§ 1.1273–2(f), the rules of § 1.1273–2
will apply to determine the issue price
of the debt instrument.
VerDate Mar<15>2010
15:28 Jan 06, 2011
Jkt 223001
(ii) Effective/applicability date.
Paragraph (b)(4)(i) of this section applies
to a debt instrument issued on or after
the date of publication of the Treasury
decision adopting these rules as final
regulations in the Federal Register.
*
*
*
*
*
Par. 5. Section 1.1275–2 is amended
by revising paragraphs (k)(3)(ii)(A),
(k)(3)(iii)(A) and (k)(5) and adding a
new paragraph (k)(3)(v) to read as
follows:
as final regulations in the Federal
Register.
§ 1.1275–2 Special rules relating to debt
instruments.
26 CFR Parts 1 and 31
*
1105
[REG–146097–09]
*
*
*
*
(k) * * *
(3) * * *
(ii) * * *
(A) The original debt instruments are
publicly traded (within the meaning of
§ 1.1273–2(f)) as of the reopening date of
the additional debt instruments;
*
*
*
*
*
(iii) * * *
(A) The original debt instruments are
publicly traded (within the meaning of
§ 1.1273–2(f)) as of the reopening date of
the additional debt instruments;
*
*
*
*
*
(v) Non-publicly traded debt issued
for cash. Notwithstanding paragraphs
(k)(3)(ii)(A) and (k)(3)(iii)(A) of this
section, a qualified reopening includes
a reopening of original debt instruments
if the additional debt instruments are
issued for cash to persons unrelated to
the issuer (as determined under section
267(b) or 707(b)) for an arm’s length
price and the other requirements in
paragraph (k)(3)(ii) or (k)(3)(iii) of this
section are satisfied, whichever is
applicable. For purposes of paragraph
(k)(3)(ii)(C) of this section, the yield test
is satisfied if, on the reopening date of
the additional debt instruments, the
yield of the additional debt instruments
(based on their cash purchase price) is
not more than 110 percent of the yield
of the original debt instruments on their
issue date (or, if the original debt
instruments were issued with no more
than a de minimis amount of OID, the
coupon rate).
*
*
*
*
*
(5) Effective/applicability dates—(i)
Except as provided in paragraph
(k)(5)(ii) of this section, this paragraph
(k) applies to debt instruments that are
part of a reopening where the reopening
date is on or after March 13, 2001.
(ii) Paragraph (k)(3)(v) of this section
applies to debt instruments that are part
of a reopening if the reopening date is
on or after the date of publication of the
Treasury decision adopting these rules
PO 00000
Frm 00010
Fmt 4702
Sfmt 4702
Steven T. Miller,
Deputy Commissioner for Services and
Enforcement.
[FR Doc. 2011–83 Filed 1–6–11; 8:45 am]
BILLING CODE 4830–01–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
RIN 1545–BJ01
Guidance on Reporting Interest Paid to
Nonresident Aliens
Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of proposed rulemaking;
notice of public hearing; and
withdrawal of previously proposed
rulemaking.
AGENCY:
This document contains
proposed regulations that provide
guidance on the reporting requirements
for interest on deposits maintained at
U.S. offices of certain financial
institutions and paid to nonresident
alien individuals. These proposed
regulations affect persons making
payments of interest with respect to
such deposits. This document also
provides a notice of public hearing on
these proposed regulations and
withdraws the notice of proposed
rulemaking published on August 2,
2002 (67 FR 50386).
DATES: Written or electronic comments
must be received by April 7, 2011.
Outlines of topics to be discussed at the
public hearing scheduled for April 28,
2011, at 10 a.m. must be received by
April 8, 2011. The proposed rule
published on August 2, 2002 is
withdrawn as of January 7, 2011.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–146097–09), room
5203, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washington,
DC 20044. Submissions may be handdelivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to: CC:PA:LPD:PR (REG–146097–09),
Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue,
NW., Washington, DC 20224 or sent
electronically via the Federal
eRulemaking Portal at https://
www.regulations.gov (IRS REG–146097–
09). The public hearing will be held in
auditorium of the Internal Revenue
Building, 1111 Constitution Avenue,
NW., Washington, DC.
SUMMARY:
E:\FR\FM\07JAP1.SGM
07JAP1
]]>Agencies
[Federal Register Volume 76, Number 5 (Friday, January 7, 2011)]
[Proposed Rules]
[Pages 1101-1105]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-83]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-131947-10]
RIN 1545-BJ71
Property Traded on an Established Market
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
-----------------------------------------------------------------------
SUMMARY: This document contains proposed regulations relating to
determining when property is traded on an established market (that is,
publicly traded) for purposes of determining the issue price of a debt
instrument. The regulations amend the current regulations to clarify
the circumstances that cause property to be publicly traded. The
regulations provide needed guidance to issuers and holders of debt
instruments. This document also provides a notice of a public hearing
on these proposed regulations.
DATES: Written or electronic comments must be received by March 8,
2011. Outlines of topics to be discussed at the public hearing
scheduled for April 13,
[[Page 1102]]
2011, at 10 a.m. must be received by March 4, 2011.
ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-131947-10), 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-
131947-10), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue, NW., Washington, DC, or sent electronically, via the Federal
eRulemaking Portal at https://www.regulations.gov (IRS REG-131947-10).
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
William E. Blanchard at (202) 622-3950; concerning submission of
comments, the hearing, and/or to be placed on the building access list
to attend the hearing, Oluwafunmilayo.P.Taylor@irscounsel.treas.gov, at
(202) 622-7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
The issue price of a debt instrument is determined under section
1273(b) of the Internal Revenue Code or, in the case of certain debt
instruments issued for property, under section 1274. Section 1273(b)(3)
generally provides that in the case of a debt instrument that is issued
for property and that is part of an issue some or all of which is
traded on an established securities market (often referred to as
``publicly traded''), the issue price of the debt instrument is the
fair market value of the debt instrument. Similarly, if the debt
instrument is issued for stock or securities (or other property) that
are publicly traded, the issue price of the debt instrument is the fair
market value of the property. Section 1.1273-2 of the Income Tax
Regulations (the ``current regulations'') also applies to determine the
issue price of a debt instrument that is publicly traded or is issued
for publicly traded property. Under Sec. 1.1273-2(c)(1), the term
property means a debt instrument, stock, security, contract, commodity,
or nonfunctional currency. Section 1.1273-2(f) defines when property is
traded on an established market (that is, publicly traded) for purposes
of section 1273(b)(3) and Sec. 1.1273-2.
In general, under Sec. 1.1273-2(f) of the current regulations, a
debt instrument is traded on an established market if either the debt
instrument or the property for which the debt instrument is exchanged
is described in Sec. 1.1273-2(f)(2) through (f)(5) in the time period
30 days before or after the exchange. Property is described in Sec.
1.1273-2(f)(2) if it is listed on a specified exchange. Property is
described in Sec. 1.1273-2(f)(3) if it is of a kind that is traded on
a contract market designated by the Commodities Futures Trading
Commission or an interbank market. Property is described in Sec.
1.1273-2(f)(4) if it appears on a system of general circulation that
disseminates price quotations or recent trading prices. Property is
described in Sec. 1.1273-2(f)(5) if price quotations are readily
available from dealers, brokers or traders, subject to certain
exceptions.
The issue price of a debt instrument has important income tax
consequences. As an initial matter, the difference between the issue
price of a debt instrument and its stated redemption price at maturity
measures whether there is any original issue discount associated with
the instrument. A debt-for-debt exchange (including a significant
modification of existing debt) in the context of a work-out may result
in a reduced issue price for the new debt, which generally would
produce cancellation of indebtedness income for the issuer, a loss to
the holder whose basis is greater than the issue price of the new debt,
and original issue discount that generally must be accounted for by
both the issuer and the holder of the new debt. These consequences,
exacerbated by recent turmoil in the debt markets, have focused
attention on the definition of when property is traded on an
established market for purposes of Sec. 1.1273-2(f).
Commenters have criticized the definition of an established market
in Sec. 1.1273-2(f) of the current regulations. They argue that
comparatively little debt is listed on an exchange described in Sec.
1.1273-2(f)(2), and that even debt that is listed rarely trades on the
exchange. They point out that the list of foreign exchanges in Sec.
1.1273-2(f)(2)(iii) is outdated. Commenters also struggle to interpret
the meaning of an interbank market in Sec. 1.1273-2(f)(3).
Even more troublesome for commenters is the question of what
constitutes a quotation medium for purposes of Sec. 1.1273-2(f)(4) of
the current regulations. Debt instruments typically trade in various
ways in the current markets, but the vast majority of debt instruments
are purchased or sold over-the-counter for a price negotiated between a
financial entity (such as a securities dealer or broker) and a
customer. A dealer or broker may quote a firm price, sometimes referred
to as a ``firm'' or ``executable'' quote, entitling a customer to
purchase or sell at that price, subject to volume limits or other
specified restrictions. Alternatively, a dealer, broker or listing
service may quote a price that indicates a willingness to purchase and/
or sell a specified debt instrument, again subject to volume limits or
other limitations, but not necessarily at the quoted price. This is
sometimes referred to as a ``soft'' or an ``indicative'' quote. The
decision to send a price quote to a customer (or customers) may be
initiated by a dealer or broker, or a customer may request a price
quote from one or more dealers or brokers. Additionally, a service
provider may provide subscribers with valuations based on data
collected from contributors that may reflect actual sales, price
quotes, or any other information it deems relevant to the value of the
debt instrument in question. Commenters struggled to apply the
description of a quotation medium in Sec. 1.1273-2(f)(4) to this
informal marketplace, which has evolved considerably since the
regulations were originally promulgated in 1994.
Finally, commenters pointed out that the general rule in Sec.
1.1273-2(f)(5) of the current regulations, which treats a debt
instrument as publicly traded if price quotations are readily available
from dealers, brokers or traders could cause almost every debt
instrument to be within this definition but for the safe harbors in
Sec. 1.1273-2(f)(5)(ii).
Explanation of Provisions
As a general matter, the Treasury Department and the IRS believe
that the ``traded on an established market'' standard established by
section 1273(b)(3) is intended to be interpreted broadly. When section
1275(a)(4) was repealed by section 11325(a)(2) of the Revenue
Reconciliation Act of 1990, Public Law 101-508, 104 Stat. 1388, 1388-
466 (1990), issue price was required to be determined under section
1273 and section 1274 even in a debt-for-debt exchange that qualified
as a corporate reorganization. As the depth of trading and the
transparency of the markets that trade debt instruments has improved,
the earlier concerns that trading prices may not reflect the fair
market value of a debt instrument have diminished. Thus, to the extent
accurate pricing information exists, whether it derives from executed
sales, reliable price quotations, or valuation estimates that are based
on some combination of sales and quotes, the Treasury Department and
the IRS believe that that information should be the basis for the issue
price determined under section 1273(b)(3).
To address concerns with the current regulations, the proposed
regulations
[[Page 1103]]
simplify and clarify the determination of when property is traded on an
established market. The proposed regulations identify four ways for
property to be traded on an established market. In each case, the time
period for determining whether the property is publicly traded is the
31-day period ending 15 days after the issue date of the debt
instrument.
First, property that is listed on an exchange continues to be
publicly traded property under Sec. 1.1273-2(f)(2) of the proposed
regulations. Although relatively few debt instruments are listed or
traded on an exchange, the regulations may still apply to other
property that is listed, such as stock for which a debt instrument is
issued in a debt-for-stock exchange. The proposed regulations, however,
delete the reference to an interdealer quotation system that is
sponsored by a national securities association registered under section
15A of the Securities Exchange Act of 1934 because none exist or are
contemplated. Rather than list foreign exchanges, the proposed
regulations specify that a foreign securities exchange that is
officially recognized, sanctioned, regulated or supervised by a
governmental authority of the foreign country in which the market is
located is an exchange that causes property to be publicly traded.
Second, Sec. 1.1273-2(f)(3) of the proposed regulations treats
property as publicly traded when a sales price for the property is
reasonably available. Market participants have access to information
about the securities markets from a variety of sources, which are
constantly changing and evolving. If information about the sales price
of a debt instrument (or information sufficient to calculate the sales
price) appears in a medium that is made available to persons that
regularly purchase or sell debt instruments, or persons that broker
purchases or sales of debt instruments, the sales price will be
considered reasonably available. For example, in the case of a debt
instrument, a sale that is reported electronically at any time in the
31-day time period, such as in the Trade Reporting and Compliance
Engine (``TRACE'') database maintained by the Financial Industry
Regulatory Authority, would cause the instrument to be publicly traded,
as would other pricing services and trading platforms that report
prices of executed sales on a general basis or to subscribers.
Third, property is considered to be traded on an established market
if a firm price quote to buy or sell the property is available. A firm,
or executable, price quote may be labeled as such, or a price quote may
function as a firm quote as a matter of law or industry practice. In
either case, Sec. 1.1273-2(f)(4) of the proposed regulations treats
property with a firm quote as publicly traded.
Finally, a price quote (other than a firm quote) that is provided
by a dealer, a broker, or a pricing service (an indicative quote) will
cause property to be publicly traded under Sec. 1.1273-2(f)(5) of the
proposed regulations.
The proposed regulations provide that the fair market value of
property described in Sec. 1.1273-2(f) will be presumed to be equal to
its trading price, sales price, or quoted price, whichever is
applicable. However, if there is more than one price or quote, a
taxpayer is permitted to reconcile competing prices or quotes in a
reasonable manner. In the case of an indicative quote, if a taxpayer
determines that the quoted price or prices misrepresents the fair
market value of the property by a material amount, Sec. 1.1273-
2(f)(6)(ii) of the proposed regulations permits the taxpayer to use any
method that provides a reasonable basis to determine the fair market
value of the property, provided the taxpayer can establish that the
method chosen more accurately reflects the value of the property than
the extant quote or quotes for the property.
In response to commenters, the proposed regulations also contain
guidance in areas ancillary to publicly traded debt, such as proposed
regulations clarifying and revising the rules to determine when an
issue of debt instruments is eligible to be part of a qualified
reopening under Sec. 1.1275-2(k) and proposed regulations clarifying
the treatment of a debt instrument issued in a debt-for-debt exchange
under the potentially abusive rules in section 1274(b)(3). In addition,
in response to commenters, the proposed regulations include a business
day convention to determine if certain stated interest payments affect
whether the payments are qualified stated interest.
Proposed Effective Date
The regulations, as proposed, apply to debt instruments that have
an issue date on or after the publication date of the Treasury decision
adopting these rules 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 these regulations, and because
the regulation does not impose a collection of information on small
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f) of the Internal Revenue Code, these
regulations have 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 comments (a signed original
and eight (8) copies) or electronic comments that are submitted timely
to the IRS. The IRS and the Treasury Department request comments on the
clarity of the proposed rules 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 April 13, 2011, beginning
at 10 a.m. in the Auditorium, Internal Revenue Building, 1111
Constitution Avenue, NW., Washington, DC. Due to building security
procedures, visitors must enter at the Constitution Avenue entrance.
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 electronic or
written comments and an outline of the topics to be discussed and the
time to be devoted to each topic by March 4, 2011. A period of 10
minutes will be allotted to each person for making comments. An agenda
showing the scheduling of the 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
These regulations were drafted by personnel in the Office of
Associate Chief Counsel (Financial Institutions and Products) and the
Treasury Department.
[[Page 1104]]
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.1273-1 is amended by adding a new paragraph
(c)(6) to read as follows:
Sec. 1.1273-1 Definition of OID.
* * * * *
(c) * * *
(6) Business day convention--(i) Rule. For purposes of this
paragraph (c), if a scheduled payment date for stated interest falls on
a Saturday, Sunday, or Federal holiday (within the meaning of 5 U.S.C.
6103) but, under the terms of the debt instrument, the stated interest
is payable on the first business day that immediately follows the
scheduled payment date, the stated interest is treated as payable on
the scheduled payment date, provided no additional interest is payable
as a result of the deferral.
(ii) Effective/applicability date. Paragraph (c)(6)(i) of this
section applies to debt instruments that are issued on or after the
date of publication of the Treasury decision adopting these rules as
final regulations in the Federal Register. A taxpayer, however, may
rely on paragraph (c)(6)(i) of this section for debt instruments issued
before that date.
* * * * *
Par. 3. Section 1.1273-2 is amended by revising paragraph (f) to
read as follows:
Sec. 1.1273-2 Determination of issue price and issue date.
* * * * *
(f) Traded on an established market (publicly traded)--(1) In
general. Except as provided in paragraph (f)(7) or (f)(8) of this
section, property (including a debt instrument described in paragraph
(b)(1) of this section) is traded on an established market for purposes
of this section if, at any time during the 31-day period ending 15 days
after the issue date--
(i) The property is listed on an exchange described in paragraph
(f)(2) of this section;
(ii) There is a sales price for the property as described in
paragraph (f)(3) of this section;
(iii) There are one or more firm quotes for the property as
described in paragraph (f)(4) of this section; or
(iv) There are one or more indicative quotes for the property as
described in paragraph (f)(5) of this section.
(2) Exchange listed property. Property is listed on an exchange for
purposes of this paragraph (f)(2) if it is listed on--
(i) A national securities exchange registered under section 6 of
the Securities Exchange Act of 1934 (15 U.S.C. 78f);
(ii) A board of trade designated as a contract market by the
Commodities Futures Trading Commission;
(iii) A foreign securities exchange that is officially recognized,
sanctioned, regulated or supervised by a governmental authority of the
foreign country in which the market is located; or
(iv) Any other exchange, board of trade, or other market which the
Commissioner identifies in guidance published in the Internal Revenue
Bulletin (see Sec. 601.601(d)(2)(ii)) as an exchange for purposes of
this paragraph (f)(2).
(3) Sales price--(i) In general. A sales price exists if the price
for an executed purchase or sale of the property is reasonably
available.
(ii) Pricing information for a debt instrument. For purposes of
paragraph (f)(3)(i) of this section, the price of a debt instrument is
considered reasonably available if the sales price (or information
sufficient to calculate the sales price) appears in a medium that is
made available to persons that regularly purchase or sell debt
instruments (including a price provided only to certain customers or to
subscribers), or persons that broker purchases or sales of debt
instruments.
(4) Firm quote. A firm quote is considered to exist when a price
quote is available from at least one broker, dealer, or pricing service
(including a price provided only to certain customers or to
subscribers) for property and the quoted price is substantially the
same as the price for which the property could be purchased or sold.
The identity of the person providing the quote must be reasonably
ascertainable for a quote to be considered a firm quote for purposes of
this paragraph (f)(4). A quote will be considered a firm quote if
market participants typically purchase or sell, as the case may be, at
the quoted price, even if the party providing the quote is not legally
obligated to do so.
(5) Indicative quote. An indicative quote is considered to exist
when a price quote is available from at least one broker, dealer, or
pricing service (including a price provided only to certain customers
or to subscribers) for property and the price quote is not a firm quote
described in paragraph (f)(4) of this section.
(6) Presumption that price or quote is equal to fair market value--
(i) In general. The fair market value of property described in this
section will be presumed to be equal to its trading price on an
exchange described in paragraph (f)(2) of this section, or its sales
price or quoted price determined under paragraphs (f)(3) through (f)(5)
of this section. If there is more than one trading price under
paragraph (f)(2) of this section, sales price under paragraph (f)(3) of
this section, or quoted price under paragraph (f)(4) or (f)(5) of this
section, a taxpayer may use any reasonable method, consistently
applied, to determine the price.
(ii) Special rule for property for which there is only an
indicative quote. If property is described only in paragraph (f)(5) of
this section, and the taxpayer determines that the quote (or an average
of the quotes) materially misrepresents the fair market value of the
property, the taxpayer can use any method that provides a reasonable
basis to determine the fair market value of the property. A taxpayer
must establish that the method chosen more accurately reflects the
value of the property than the quote or quotes for the property to use
the method provided in this paragraph (f)(6)(ii). For an equity or debt
instrument, a volume discount or control premium will not be considered
to create a material misrepresentation of value for purposes of this
paragraph (f)(6).
(7) Exception for property for which there is de minimis trading--
(i) In general. Notwithstanding any other provision in this section,
property will not be treated as traded on an established market if
there is no more than de minimis trading of the property.
(ii) Definition of de minimis trading for debt instruments. For
purposes of paragraph (f)(7)(i) of this section, a debt instrument will
be treated as traded in de minimis quantities only if--
(A) Each trade of such debt instrument during the 31-day period
ending 15 days after the issue date is for quantities of US$1 million
or less (or, for debt denominated in a currency other than the U.S.
dollar, the equivalent amount in the currency in which the debt is
denominated); and
(B) The aggregate amount of all such trades does not exceed US$5
million (or, for debt denominated in a currency other than the U.S.
dollar, the equivalent amount in the currency in which the debt is
denominated).
[[Page 1105]]
(8) Exception for small debt issues. Notwithstanding any other
provision in this section, a debt instrument will not be treated as
traded on an established market if the original stated principal amount
of the issue that includes the debt instrument does not exceed US$50
million (or, for debt denominated in a currency other than the U.S.
dollar, the equivalent amount in the currency in which the debt is
denominated).
(9) Anti-abuse rules--(i) Effect of certain temporary restrictions
on trading. If there is any temporary restriction on trading, a purpose
of which is to avoid the characterization of the property as one that
is traded on an established market for Federal income tax purposes,
then the property is treated as traded on an established market. For
purposes of the preceding sentence, a temporary restriction on trading
need not be imposed by the issuer.
(ii) Artificial pricing information. If a principal purpose for the
existence of any sale or price quotation is to materially misrepresent
the value of property, that sale or price quotation may be disregarded.
(10) Convertible debt instruments. A debt instrument is not treated
as traded on an established market solely because the debt instrument
is convertible into property that is so traded.
(11) Effective/applicability date. Paragraph (f) of this section
applies to a debt instrument issued on or after the date of publication
of the Treasury decision adopting these rules as final regulations in
the Federal Register.
* * * * *
Par. 4. Section 1.1274-3 is amended by adding a new paragraph
(b)(4) to read as follows:
Sec. 1.1274-3 Potentially abusive situations defined.
* * * * *
(b) * * *
(4) Debt-for-debt exchange--(i) Rule. A debt instrument issued in a
debt-for-debt exchange, including a deemed exchange under Sec. 1.1001-
3, will not be treated as the subject of a recent sales transaction for
purposes of section 1274(b)(3)(B)(ii)(I) even if the debt instrument
exchanged for the newly issued debt instrument was recently acquired
prior to the exchange. Therefore, the issue price of the debt
instrument will not be determined under section 1274(b)(3). However, if
the debt instrument or the property for which the debt instrument is
issued is publicly traded within the meaning of Sec. 1.1273-2(f), the
rules of Sec. 1.1273-2 will apply to determine the issue price of the
debt instrument.
(ii) Effective/applicability date. Paragraph (b)(4)(i) of this
section applies to a debt instrument issued on or after the date of
publication of the Treasury decision adopting these rules as final
regulations in the Federal Register.
* * * * *
Par. 5. Section 1.1275-2 is amended by revising paragraphs
(k)(3)(ii)(A), (k)(3)(iii)(A) and (k)(5) and adding a new paragraph
(k)(3)(v) to read as follows:
Sec. 1.1275-2 Special rules relating to debt instruments.
* * * * *
(k) * * *
(3) * * *
(ii) * * *
(A) The original debt instruments are publicly traded (within the
meaning of Sec. 1.1273-2(f)) as of the reopening date of the
additional debt instruments;
* * * * *
(iii) * * *
(A) The original debt instruments are publicly traded (within the
meaning of Sec. 1.1273-2(f)) as of the reopening date of the
additional debt instruments;
* * * * *
(v) Non-publicly traded debt issued for cash. Notwithstanding
paragraphs (k)(3)(ii)(A) and (k)(3)(iii)(A) of this section, a
qualified reopening includes a reopening of original debt instruments
if the additional debt instruments are issued for cash to persons
unrelated to the issuer (as determined under section 267(b) or 707(b))
for an arm's length price and the other requirements in paragraph
(k)(3)(ii) or (k)(3)(iii) of this section are satisfied, whichever is
applicable. For purposes of paragraph (k)(3)(ii)(C) of this section,
the yield test is satisfied if, on the reopening date of the additional
debt instruments, the yield of the additional debt instruments (based
on their cash purchase price) is not more than 110 percent of the yield
of the original debt instruments on their issue date (or, if the
original debt instruments were issued with no more than a de minimis
amount of OID, the coupon rate).
* * * * *
(5) Effective/applicability dates--(i) Except as provided in
paragraph (k)(5)(ii) of this section, this paragraph (k) applies to
debt instruments that are part of a reopening where the reopening date
is on or after March 13, 2001.
(ii) Paragraph (k)(3)(v) of this section applies to debt
instruments that are part of a reopening if the reopening date is on or
after the date of publication of the Treasury decision adopting these
rules as final regulations in the Federal Register.
Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2011-83 Filed 1-6-11; 8:45 am]
BILLING CODE 4830-01-P
