Modifications of Certain Derivative Contracts, 43892-43893 [2011-18529]
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43892
Federal Register / Vol. 76, No. 141 / Friday, July 22, 2011 / Rules and Regulations
Background
The final and temporary regulations
that are the subject of this correction are
under section 956 of the Internal
Revenue Code.
Need for Correction
As published at (76 FR 36993), final
and temporary regulations (TD 9530)
contain an error that may prove to be
misleading and is in need of
clarification.
Correction of Publication
Accordingly, the publication of the
final and temporary regulations (TD
9530) which were the subject of FR Doc.
2011–15741 is corrected as follows:
On page 36995, column 3, in the
signature block, line 5, the name ‘‘Emily
S. Mahon’’ is corrected to read ‘‘Emily
S. McMahon’’.
LaNita Van Dyke,
Chief, Publications and Regulations Branch,
Legal Processing Division, Associate Chief
Counsel, Procedure and Administration.
[FR Doc. 2011–18469 Filed 7–21–11; 8:45 am]
BILLING CODE 4830–01–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9538]
RIN 1545–BK14
Modifications of Certain Derivative
Contracts
Internal Revenue Service (IRS),
Treasury.
ACTION: Final and temporary
regulations.
AGENCY:
This document contains final
and temporary regulations that address
when a transfer or assignment of certain
derivative contracts does not result in
an exchange to the nonassigning
counterparty for purposes of § 1.1001–
1(a). The text of these temporary
regulations also serves as the text of the
proposed regulations (REG–109006–11)
set forth in the Proposed Rules section
in this issue of the Federal Register.
DATES: Effective Date: These regulations
are effective on July 22, 2011.
Applicability Date: For the date of
applicability, see § 1.1001–4T(d).
FOR FURTHER INFORMATION CONTACT:
Andrea M. Hoffenson, (202) 622–3920
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
emcdonald on DSK2BSOYB1PROD with RULES
SUMMARY:
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Background
Section 1001 of the Internal Revenue
Code (Code) provides rules for the
computation and recognition of gain or
loss from a sale or other disposition of
property. For purposes of section 1001,
§ 1.1001–1(a) of the Income Tax
Regulations generally provides that gain
or loss is realized upon an exchange of
property for other property differing
materially either in kind or in extent. As
a general matter, the assignment of a
notional principal contract is treated as
a taxable disposition to a nonassigning
counterparty if the resulting contract
differs materially either in kind or in
extent. See Cottage Savings Association
v. Commissioner, 499 U.S. 554, 566
(1991) [1991–2 CB 34, 38] (‘‘Under [the
Court’s] interpretation of [section]
1001(a), an exchange of property gives
rise to a realization event so long as the
exchanged properties are ‘materially
different’—that is, so long as they
embody legally distinct entitlements.’’).
Section 1.1001–4(a) provides, however,
that the substitution of a new party on
a notional principal contract is not
treated as a deemed exchange of the
contract by the nonassigning party for
purposes of § 1.1001–1(a) if two
conditions are satisfied: the assignment
is between dealers in notional principal
contracts and the terms of the contract
permit the substitution.
Many notional principal contracts
permit assignment of the contract only
with the consent of the nonassigning
counterparty. There has been some
uncertainty as to whether a contract that
requires the consent of the nonassigning
counterparty as a condition to
assignment will satisfy the second
requirement of § 1.1001–4(a) as
described in the previous paragraph. In
addition, commenters have suggested
that the scope of § 1.1001–4 is too
narrow because it only applies to
notional principal contracts. The need
to amend § 1.1001–4 has been increased
by the Dodd-Frank Wall Street Reform
and Consumer Protection Act, Public
Law 111–203 (124 Stat 1376 (2010))
(Dodd-Frank), which in some cases will
necessitate the movement of entire
books of derivative contracts. In
particular, there is a concern that the
assignment of derivative contracts may
create a taxable event for the
nonassigning counterparties to the
assigned contracts.
The IRS and the Treasury Department
agree that § 1.1001–4 should be
amended and expanded to include
derivative contracts other than notional
principal contracts. These temporary
regulations replace the current, final
regulations of § 1.1001–4.
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Frm 00090
Fmt 4700
Sfmt 4700
Explanation of Provisions
These temporary regulations provide
that there is no exchange to the
nonassigning counterparty for purposes
of § 1.1001–1(a) solely because a dealer
in securities or a clearinghouse transfers
or assigns a derivative contract to
another dealer in securities or
clearinghouse, provided that the transfer
or assignment is permitted by the terms
of the contract. The derivative contracts
to which these regulations apply are
those described in section 475(c)(2)(D),
475(c)(2)(E), or 475(c)(2)(F). In addition,
these temporary regulations provide that
transfers or assignments are permitted
by the terms of the contract when
consent of the nonassigning
counterparty is required as well as those
transfers or assignments that do not
require consent. If consideration passes
between the assignor and assignee in
connection with the transfer or
assignment, the consideration will not
affect the treatment of the nonassigning
counterparty for purposes of § 1.1001–4.
If any consideration is paid to or
received by the nonassigning
counterparty, however, the payment or
receipt of the consideration is analyzed
under the general principles of section
1001 to determine its effect on the
nonassigning counterparty. In addition,
any changes to the terms of the contract
are analyzed under the general
principles of section 1001 to determine
whether there has been a sale or
disposition of the contract by the
parties.
Special Analyses
It has been determined that this
Treasury decision is not a significant
regulatory action as defined in
Executive Order 12866. Therefore, a
regulatory assessment is not required. It
has also 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
regulations do 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 Code, these
regulations have been submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment
on their impact on small business.
Drafting Information
The principal author of these
regulations is Andrea M. Hoffenson,
Office of Associate Chief Counsel
(Financial Institutions and Products).
However, other personnel from the IRS
and the Treasury Department
participated in their development.
E:\FR\FM\22JYR1.SGM
22JYR1
Federal Register / Vol. 76, No. 141 / Friday, July 22, 2011 / Rules and Regulations
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
Amendments to the Regulations
Accordingly, 26 CFR part 1 is
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 1.1001–4 is revised to
read as follows:
■
§ 1.1001–4 Modifications of certain
derivative contracts.
(a) through (d) [Reserved]. For further
guidance, see § 1.1001–4T(a) through
(d).
■ Par. 3. Section 1.1001–4T is added to
read as follows:
emcdonald on DSK2BSOYB1PROD with RULES
§ 1.1001–4T Modifications of certain
derivative contracts (temporary).
(a) Certain assignments. For purposes
of § 1.1001–1(a), the transfer or
assignment of a derivative contract is
not treated by the nonassigning
counterparty as a deemed exchange of
the original contract for a modified
contract that differs materially either in
kind or in extent if—
(1) Both the party transferring or
assigning its rights and obligations
under the derivative contract and the
party to which the rights and obligations
are transferred or assigned are either a
dealer in securities or a clearinghouse;
(2) The terms of the derivative
contract permit the transfer or
assignment of the contract, whether or
not the consent of the nonassigning
counterparty is required for the transfer
or assignment to be effective; and
(3) The terms of the derivative
contract are not otherwise modified in
a manner that results in a taxable
exchange under section 1001.
(b) Definitions. (1) Dealer in
securities. For purposes of this section,
a dealer in securities is a taxpayer who
meets the definition of a dealer in
securities in section 475(c)(1).
(2) Clearinghouse. For purposes of
this section, a clearinghouse is a
derivatives clearing organization (as
such term is defined in section 1a of the
Commodity Exchange Act (7 U.S.C. 1a))
or a clearing agency (as such term is
defined in section 3 of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)))
that is registered, or exempt from
registration, under each respective Act.
(3) Derivative contract. For purposes
of this section, a derivative contract is
a contract described in section
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Jkt 223001
475(c)(2)(D), 475(c)(2)(E), or 475(c)(2)(F)
without regard to the last sentence of
section 475(c)(2) referencing section
1256.
(c) Consideration for the assignment.
Any consideration for the transfer or
assignment that passes between the
party transferring or assigning its rights
and obligations under the contract and
the party to which the rights and
obligations are transferred or assigned
will not affect the treatment of the
nonassigning counterparty for purposes
of this section.
(d) Effective/applicability date. This
section applies to transfers or
assignments of derivative contracts on
or after July 22, 2011.
(e) Expiration date. The applicability
of this section expires on or before July
21, 2014.
Steven T. Miller,
Deputy Commissioner for Services and
Enforcement.
Approved: July 15, 2011.
Emily S. McMahon,
Assistant Secretary of the Treasury (Tax
Policy).
[FR Doc. 2011–18529 Filed 7–21–11; 8:45 am]
BILLING CODE 4830–01–P
DEPARTMENT OF HOMELAND
SECURITY
Coast Guard
33 CFR Part 100
[USCG–2011–0648]
RIN 1625–AA08
Special Local Regulations; Port Huron
to Mackinac Island Sail Race
Coast Guard, DHS.
Temporary final rule.
AGENCY:
ACTION:
The Coast Guard will
establish a temporary special local
regulation for the annual Port Huron to
Mackinac Island Sail Race. This action
is necessary to safely control vessel
movements in the vicinity of the race’s
starting point and to provide for the
safety of the general boating public and
commercial shipping. No person or
vessel may enter the regulated area
without the permission of the Ninth
District Commander or the Coast Guard
Patrol Commander (PATCOM).
DATES: This temporary final rule is
effective from 9 a.m. through 4 p.m. on
July 23, 2011.
ADDRESSES: Documents indicated in this
preamble as being available in the
docket are part of docket USCG–2011–
0648 and are available online by going
SUMMARY:
PO 00000
Frm 00091
Fmt 4700
Sfmt 4700
43893
to https://www.regulations.gov, inserting
USCG–2011–0648 in the Docket ID box,
and then clicking ‘‘Search.’’ This
material is also available for inspection
or copying at the Docket Management
Facility (M–30), U.S. Department of
Transportation, West Building Ground
Floor, Room W12–140, 1200 New
Jersey, Avenue SE., Washington, DC
20590, between 9 a.m. and 5 p.m.,
Monday through Friday, except Federal
holidays.
FOR FURTHER INFORMATION CONTACT: If
you have questions concerning this
temporary rule, call or e-mail Mr. Frank
Jennings, Jr., Auxiliary and Boating
Safety Branch, Ninth Coast Guard
District, via e-mail at:
Frank.T.Jennings@uscg.mil or by phone
at (216) 902–6094. If you have questions
on viewing the docket, call Renee V.
Wright, Program Manager, Docket
Operations, telephone 202–366–9826.
SUPPLEMENTARY INFORMATION:
Regulatory Information
The Coast Guard is issuing this
temporary final rule without prior
notice and opportunity to comment
pursuant to authority under section 4(a)
of the Administrative Procedure Act
(APA) (5 U.S.C. 553(b)). This provision
authorizes an agency to issue a rule
without prior notice and opportunity to
comment when the agency, for good
cause, finds that those procedures are
‘‘impracticable, unnecessary, or contrary
to the public interest.’’ Under 5 U.S.C.
553(b)(B), the Coast Guard finds that
good cause exists for not publishing a
notice of proposed rulemaking (NPRM)
with respect to this rule because doing
so is unnecessary and contrary to the
public interest. Publishing an NPRM for
this rule is unnecessary and contrary to
the public interest because the event is
well-known, non-controversial, and the
impact of the regulation on navigation
and the public is very low. This event
is well-known in the community. This
year will be the 87th annual running of
this race, and regulations have been
published relating to this event since
1995. From 1995 to 2008, this event was
listed in a recurring marine events list
in the Code of Federal Regulations. This
event is non-controversial. In the
various regulations and notices
published for this event in the last
sixteen years, no negative comments
have ever been received and few, if any
Notices of Violation have been issued.
This regulation will have very little
impact on the boating public. The
regulation is for less than one day, for
a regulated area which remains open to
navigation, though subject to the control
of the Patrol Commander.
E:\FR\FM\22JYR1.SGM
22JYR1
]]>Agencies
[Federal Register Volume 76, Number 141 (Friday, July 22, 2011)]
[Rules and Regulations]
[Pages 43892-43893]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-18529]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9538]
RIN 1545-BK14
Modifications of Certain Derivative Contracts
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final and temporary regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final and temporary regulations that
address when a transfer or assignment of certain derivative contracts
does not result in an exchange to the nonassigning counterparty for
purposes of Sec. 1.1001-1(a). The text of these temporary regulations
also serves as the text of the proposed regulations (REG-109006-11) set
forth in the Proposed Rules section in this issue of the Federal
Register.
DATES: Effective Date: These regulations are effective on July 22,
2011.
Applicability Date: For the date of applicability, see Sec.
1.1001-4T(d).
FOR FURTHER INFORMATION CONTACT: Andrea M. Hoffenson, (202) 622-3920
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
Section 1001 of the Internal Revenue Code (Code) provides rules for
the computation and recognition of gain or loss from a sale or other
disposition of property. For purposes of section 1001, Sec. 1.1001-
1(a) of the Income Tax Regulations generally provides that gain or loss
is realized upon an exchange of property for other property differing
materially either in kind or in extent. As a general matter, the
assignment of a notional principal contract is treated as a taxable
disposition to a nonassigning counterparty if the resulting contract
differs materially either in kind or in extent. See Cottage Savings
Association v. Commissioner, 499 U.S. 554, 566 (1991) [1991-2 CB 34,
38] (``Under [the Court's] interpretation of [section] 1001(a), an
exchange of property gives rise to a realization event so long as the
exchanged properties are `materially different'--that is, so long as
they embody legally distinct entitlements.''). Section 1.1001-4(a)
provides, however, that the substitution of a new party on a notional
principal contract is not treated as a deemed exchange of the contract
by the nonassigning party for purposes of Sec. 1.1001-1(a) if two
conditions are satisfied: the assignment is between dealers in notional
principal contracts and the terms of the contract permit the
substitution.
Many notional principal contracts permit assignment of the contract
only with the consent of the nonassigning counterparty. There has been
some uncertainty as to whether a contract that requires the consent of
the nonassigning counterparty as a condition to assignment will satisfy
the second requirement of Sec. 1.1001-4(a) as described in the
previous paragraph. In addition, commenters have suggested that the
scope of Sec. 1.1001-4 is too narrow because it only applies to
notional principal contracts. The need to amend Sec. 1.1001-4 has been
increased by the Dodd-Frank Wall Street Reform and Consumer Protection
Act, Public Law 111-203 (124 Stat 1376 (2010)) (Dodd-Frank), which in
some cases will necessitate the movement of entire books of derivative
contracts. In particular, there is a concern that the assignment of
derivative contracts may create a taxable event for the nonassigning
counterparties to the assigned contracts.
The IRS and the Treasury Department agree that Sec. 1.1001-4
should be amended and expanded to include derivative contracts other
than notional principal contracts. These temporary regulations replace
the current, final regulations of Sec. 1.1001-4.
Explanation of Provisions
These temporary regulations provide that there is no exchange to
the nonassigning counterparty for purposes of Sec. 1.1001-1(a) solely
because a dealer in securities or a clearinghouse transfers or assigns
a derivative contract to another dealer in securities or clearinghouse,
provided that the transfer or assignment is permitted by the terms of
the contract. The derivative contracts to which these regulations apply
are those described in section 475(c)(2)(D), 475(c)(2)(E), or
475(c)(2)(F). In addition, these temporary regulations provide that
transfers or assignments are permitted by the terms of the contract
when consent of the nonassigning counterparty is required as well as
those transfers or assignments that do not require consent. If
consideration passes between the assignor and assignee in connection
with the transfer or assignment, the consideration will not affect the
treatment of the nonassigning counterparty for purposes of Sec.
1.1001-4. If any consideration is paid to or received by the
nonassigning counterparty, however, the payment or receipt of the
consideration is analyzed under the general principles of section 1001
to determine its effect on the nonassigning counterparty. In addition,
any changes to the terms of the contract are analyzed under the general
principles of section 1001 to determine whether there has been a sale
or disposition of the contract by the parties.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in Executive Order 12866.
Therefore, a regulatory assessment is not required. It has also 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
regulations do 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 Code, these regulations have
been submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on their impact on small business.
Drafting Information
The principal author of these regulations is Andrea M. Hoffenson,
Office of Associate Chief Counsel (Financial Institutions and
Products). However, other personnel from the IRS and the Treasury
Department participated in their development.
[[Page 43893]]
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. Section 1.1001-4 is revised to read as follows:
Sec. 1.1001-4 Modifications of certain derivative contracts.
(a) through (d) [Reserved]. For further guidance, see Sec. 1.1001-
4T(a) through (d).
0
Par. 3. Section 1.1001-4T is added to read as follows:
Sec. 1.1001-4T Modifications of certain derivative contracts
(temporary).
(a) Certain assignments. For purposes of Sec. 1.1001-1(a), the
transfer or assignment of a derivative contract is not treated by the
nonassigning counterparty as a deemed exchange of the original contract
for a modified contract that differs materially either in kind or in
extent if--
(1) Both the party transferring or assigning its rights and
obligations under the derivative contract and the party to which the
rights and obligations are transferred or assigned are either a dealer
in securities or a clearinghouse;
(2) The terms of the derivative contract permit the transfer or
assignment of the contract, whether or not the consent of the
nonassigning counterparty is required for the transfer or assignment to
be effective; and
(3) The terms of the derivative contract are not otherwise modified
in a manner that results in a taxable exchange under section 1001.
(b) Definitions. (1) Dealer in securities. For purposes of this
section, a dealer in securities is a taxpayer who meets the definition
of a dealer in securities in section 475(c)(1).
(2) Clearinghouse. For purposes of this section, a clearinghouse is
a derivatives clearing organization (as such term is defined in section
1a of the Commodity Exchange Act (7 U.S.C. 1a)) or a clearing agency
(as such term is defined in section 3 of the Securities Exchange Act of
1934 (15 U.S.C. 78c(a))) that is registered, or exempt from
registration, under each respective Act.
(3) Derivative contract. For purposes of this section, a derivative
contract is a contract described in section 475(c)(2)(D), 475(c)(2)(E),
or 475(c)(2)(F) without regard to the last sentence of section
475(c)(2) referencing section 1256.
(c) Consideration for the assignment. Any consideration for the
transfer or assignment that passes between the party transferring or
assigning its rights and obligations under the contract and the party
to which the rights and obligations are transferred or assigned will
not affect the treatment of the nonassigning counterparty for purposes
of this section.
(d) Effective/applicability date. This section applies to transfers
or assignments of derivative contracts on or after July 22, 2011.
(e) Expiration date. The applicability of this section expires on
or before July 21, 2014.
Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
Approved: July 15, 2011.
Emily S. McMahon,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2011-18529 Filed 7-21-11; 8:45 am]
BILLING CODE 4830-01-P
