Source of Income From Qualified Fails Charges, 9846-9847 [2012-3909]
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Federal Register / Vol. 77, No. 34 / Tuesday, February 21, 2012 / Rules and Regulations
Need for Correction
As published on December 19, 2011
(76 FR 78553), final regulation (TD
9567) contains errors which may prove
to be misleading and are in need of
correction.
Correction of Publication
Accordingly, the publication of the
final regulations (TD 9567), which were
the subject of FR Doc. 2011–32263, is
corrected as follows:
1. On page 78557, the first column, in
the preamble, in paragraph (J), line 7
from the bottom of the paragraph, the
language ‘‘Investment Company or a
Qualified’’ is corrected to read
‘‘Investment Company or Qualified’’.
2. On page 78557, the third column,
in the preamble, lines one and two in
the first paragraph of paragraph (C) the
language ‘‘Except as described in
sections 5(D) and 5(E) of this
explanation, for’’ is corrected to read
‘‘Except as described in sections 4(D)
and 4(E) of this explanation, for’’.
Guy R. Traynor,
Federal Register Liaison, Legal Processing
Division, Publications & Regulations Br.,
Procedure & Administration.
[FR Doc. 2012–3936 Filed 2–17–12; 8:45 am]
BILLING CODE 4830–01–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9579]
RIN 1545–BJ78
Source of Income From Qualified Fails
Charges
Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations and removal of
temporary regulations.
AGENCY:
This document contains final
regulations that prescribe the source of
income received on a qualified fails
charge under section 863 of the Internal
Revenue Code (Code). The regulations
finalize proposed regulations and
withdraw temporary regulations
published on December 8, 2010, and
affect persons that pay or are entitled to
receive qualified fails charges, including
withholding agents.
DATES: Effective Date. These regulations
are effective on February 21, 2012.
Applicability Date. For the date of
applicability, see § 1.863–10(g).
FOR FURTHER INFORMATION CONTACT:
Karen Walny, Office of Associate Chief
mstockstill on DSK4VPTVN1PROD with RULES
SUMMARY:
VerDate Mar<15>2010
16:13 Feb 17, 2012
Jkt 226001
Counsel (International) (202) 622–3870
(not a toll free call).
SUPPLEMENTARY INFORMATION:
Background
In response to persistent delivery
failures in delivery-versus-payment
transactions involving U.S. Treasury
securities (Treasuries), the Treasury
Market Practices Group (TMPG) and the
Securities Industry and Financial
Markets Association published a trading
practice governing failed deliveries of
Treasuries in 2008. In July, 2009, the
Treasury Department and the Internal
Revenue Service (IRS) issued Notice
2009–61 (2009–2 CB 181), which
provided that the IRS will not challenge
the position taken by a taxpayer or a
withholding agent that a fails charge
paid with respect to a Treasury on or
before December 31, 2010 is not subject
to U.S. gross basis taxation. On
December 8, 2010, the Treasury
Department and the IRS issued
temporary and proposed regulations
that establish source rules for a fails
charge paid with respect to a Treasury,
with a correction to the temporary
regulations on December 28, 2010. 75
FR 76262, 75 FR 76321, and 75 FR
81457, respectively.
The temporary and proposed
regulations provide that the source of
income from a qualified fails charge is
generally determined by reference to the
residence of the taxpayer that is the
recipient of the qualified fails charge
income, with two exceptions. Qualified
fails charge income earned by a
qualified business unit (QBU) of a
taxpayer is sourced to the country in
which the QBU is engaged in a trade or
business, and qualified fails charge
income that arises from a transaction the
income from which is effectively
connected to a United States trade or
business is sourced in the United States
and treated as effectively connected to
the conduct of a United States trade or
business.
No comments were received on the
proposed regulations, and no hearing
was requested or held. This Treasury
decision adopts the proposed
regulations with the changes discussed
in this preamble.
Explanation of Provisions
These final regulations adopt, with
one substantive change, the proposed
regulations on the source of a qualified
fails charge. The final regulations also
make a number of clarifying changes to
the language of the regulations.
The preamble to the temporary
regulations noted that no trading
practice existed at that time for fails
charges on securities other than
PO 00000
Frm 00010
Fmt 4700
Sfmt 4700
Treasuries, but that if a fails charge
trading practice pertaining to other
securities was endorsed by the TMPG or
an agency of the United States
government, the Treasury Department
and the IRS would consider whether the
source rule in the regulations should be
extended to those fails charges. The
TMPG has subsequently endorsed a
trading practice for debentures issued
by the Federal National Mortgage
Association (Fannie Mae), the Federal
Home Loan Mortgage Corporation
(Freddie Mac), and the Federal Home
Loan Banks and agency pass-through
mortgage-backed securities issued or
guaranteed by the Government National
Mortgage Association (Ginnie Mae),
Fannie Mae, and Freddie Mac (Agency
Debt and Agency MBS, respectively)
beginning in February, 2012.
The Treasury Department and the IRS
have determined that the same source
rule should apply to fails charges
incurred with respect to Agency Debt
and Agency MBS as to fails charges on
Treasuries. Accordingly, these final
regulations expand the scope of a
qualified fails charge to fails charges
paid with respect to Agency Debt. The
sourcing rule in the final regulations
also applies to a fails charge on Agency
MBS guaranteed by Fannie Mae,
Freddie Mac, and Ginnie Mae (for tax
purposes, Fannie Mae, Freddie Mac,
and Ginnie Mae do not issue Agency
MBS). The final regulations do not
address the source of any other
payment, including a fails charge that is
not a qualified fails charge.
The Treasury Department and the IRS
are considering whether separate
guidance is needed on the source of
income attributable to certain payments,
other than qualified fails charges, that
arise in securities lending transactions
or repurchase transactions and request
comments regarding this issue.
Effective Date
These regulations are effective on
February 21, 2012.
Applicability Date
These regulations apply to a qualified
fails charge paid or accrued on or after
December 8, 2010.
Special Analyses
It has been determined that this
Treasury decision is not a significant
regulatory action as defined in
Executive Order 12866, as
supplemented by Executive Order
13563. Therefore, a regulatory
assessment is not required. It has also
been determined that section 553(b) of
the Administrative Procedure Act
(5 U.S.C. chapter 5) does not apply to
E:\FR\FM\21FER1.SGM
21FER1
Federal Register / Vol. 77, No. 34 / Tuesday, February 21, 2012 / Rules and Regulations
these regulations, and because these
regulations do not impose a collection
of information on small entities, the
provisions of the Regulatory Flexibility
Act (5 U.S.C. chapter 6) do not apply.
Pursuant to section 7805(f) of the Code,
the proposed regulations preceding
these regulations were submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment
on its impact on small business.
Drafting Information
The principal author of these
regulations is Karen Walny, Office of the
Associate Chief Counsel (International).
However, other persons from the Office
of Associate Chief Counsel
(International) and the Treasury
Department participated in their
development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
Adoption of 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. 863(a) and 7805
* * *
Par. 2. Section 1.863–10 is added to
read as follows:
■
mstockstill on DSK4VPTVN1PROD with RULES
§ 1.863–10 Source of income from a
qualified fails charge.
(a) In general. Except as provided in
paragraphs (b) and (c) of this section,
the source of income from a qualified
fails charge shall be determined by
reference to the residence of the
taxpayer as determined under section
988(a)(3)(B)(i).
(b) Qualified business unit exception.
The source of income from a qualified
fails charge shall be determined by
reference to the residence of a qualified
business unit (as defined in section 989)
of a taxpayer if—
(1) The taxpayer’s residence,
determined under section
988(a)(3)(B)(i), is the United States;
(2) The qualified business unit’s
residence, determined under section
988(a)(3)(B)(ii), is outside the United
States;
(3) The qualified business unit is
engaged in the conduct of a trade or
business in the country where it is a
resident; and
(4) The transaction to which the
qualified fails charge relates is
VerDate Mar<15>2010
16:13 Feb 17, 2012
Jkt 226001
attributable to the qualified business
unit. A transaction will be treated as
attributable to a qualified business unit
if it satisfies the principles of § 1.864–
4(c)(5)(iii) (substituting ‘‘qualified
business unit’’ for ‘‘U.S. office’’).
(c) Effectively connected income
exception. Qualified fails charge income
that arises from a transaction any
income from which is (or would be if
the transaction produced income)
effectively connected with a United
States trade or business pursuant to
§ 1.864–4(c) is treated as from sources
within the United States, and the
income from the qualified fails charge is
treated as effectively connected to the
conduct of a United States trade or
business.
(d) Qualified fails charge. For
purposes of this section, a qualified fails
charge is a payment that—
(1) Compensates a party to a
transaction that provides for delivery of
a designated security (as defined in
paragraph (e) of this section) in
exchange for the payment of cash
(delivery-versus-payment settlement) for
another party’s failure to deliver the
specified designated security on the
settlement date specified in the relevant
agreement; and
(2) Is made pursuant to—
(i) A trading practice or similar
guidance approved or adopted by either
an agency of the United States
government or the Treasury Market
Practices Group, or
(ii) Any trading practice, program,
policy or procedure approved by the
Commissioner in guidance published in
the Internal Revenue Bulletin.
(e) Designated security. For purposes
of this section, a designated security
means any—
(i) Debt instrument (as defined in
§ 1.1275–1(d)) issued by the United
States Treasury Department, the Federal
National Mortgage Association, the
Federal Home Loan Mortgage
Corporation, or any Federal Home Loan
Bank; or
(ii) Pass-through mortgage-backed
security guaranteed by the Federal
National Mortgage Association, the
Federal Home Loan Mortgage
Corporation, or the Government
National Mortgage Association.
(g) Effective/applicability date. This
section is effective on February 21,
2012. This section applies to a qualified
fails charge paid or accrued on or after
December 8, 2010.
PO 00000
Frm 00011
Fmt 4700
Sfmt 4700
§ 1.863–10T
■
9847
[Removed]
Par. 3. Section 1.863–10T is removed.
Steven T. Miller,
Deputy Commissioner for Services and
Enforcement.
Approved: February 14, 2012.
Emily S. McMahon,
Acting Assistant Secretary of the Treasury,
Tax Policy.
[FR Doc. 2012–3909 Filed 2–17–12; 8:45 am]
BILLING CODE 4830–01–P
DEPARTMENT OF THE TREASURY
Office of the Secretary
31 CFR Part 1
RIN 1505–AC33
Privacy Act of 1974; Implementation
Correction
In rule document 2011–29385
appearing on pages 70640–70644 the
issue of Tuesday, November 15, 2011
make the following correction:
§ 1.36
[Corrected]
On page 70644, in § 1.36, in paragraph
(g)(1)(viii), in the untitled table, the
third row of the table should read:
‘‘IRS 90.002 . . . . . Chief Counsel
Litigation and Advice (Civil) Records’’
■
[FR Doc. C1–2011–29385 Filed 2–17–12; 8:45 am]
BILLING CODE 1505–01–D
DEPARTMENT OF HOMELAND
SECURITY
Coast Guard
33 CFR Part 165
[Docket No. USCG–2012–0067]
RIN 1625–AA00
Safety Zone; Kinnickinnic River
Containment and Cleanup; Milwaukee,
WI
Coast Guard, DHS.
Temporary final rule.
AGENCY:
ACTION:
The Coast Guard is
establishing a temporary safety zone on
the Kinnickinnic River in Milwaukee,
Wisconsin. This zone is intended to
restrict vessels from a portion of the
Kinnickinnic River due to the petroleum
cleanup efforts. This temporary safety
zone is necessary to protect the
surrounding public and vessels from the
hazards associated with the removal of
petroleum product from this area of the
Kinnickinnic River.
SUMMARY:
E:\FR\FM\21FER1.SGM
21FER1
]]>Agencies
[Federal Register Volume 77, Number 34 (Tuesday, February 21, 2012)]
[Rules and Regulations]
[Pages 9846-9847]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-3909]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9579]
RIN 1545-BJ78
Source of Income From Qualified Fails Charges
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations and removal of temporary regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final regulations that prescribe the
source of income received on a qualified fails charge under section 863
of the Internal Revenue Code (Code). The regulations finalize proposed
regulations and withdraw temporary regulations published on December 8,
2010, and affect persons that pay or are entitled to receive qualified
fails charges, including withholding agents.
DATES: Effective Date. These regulations are effective on February 21,
2012.
Applicability Date. For the date of applicability, see Sec. 1.863-
10(g).
FOR FURTHER INFORMATION CONTACT: Karen Walny, Office of Associate Chief
Counsel (International) (202) 622-3870 (not a toll free call).
SUPPLEMENTARY INFORMATION:
Background
In response to persistent delivery failures in delivery-versus-
payment transactions involving U.S. Treasury securities (Treasuries),
the Treasury Market Practices Group (TMPG) and the Securities Industry
and Financial Markets Association published a trading practice
governing failed deliveries of Treasuries in 2008. In July, 2009, the
Treasury Department and the Internal Revenue Service (IRS) issued
Notice 2009-61 (2009-2 CB 181), which provided that the IRS will not
challenge the position taken by a taxpayer or a withholding agent that
a fails charge paid with respect to a Treasury on or before December
31, 2010 is not subject to U.S. gross basis taxation. On December 8,
2010, the Treasury Department and the IRS issued temporary and proposed
regulations that establish source rules for a fails charge paid with
respect to a Treasury, with a correction to the temporary regulations
on December 28, 2010. 75 FR 76262, 75 FR 76321, and 75 FR 81457,
respectively.
The temporary and proposed regulations provide that the source of
income from a qualified fails charge is generally determined by
reference to the residence of the taxpayer that is the recipient of the
qualified fails charge income, with two exceptions. Qualified fails
charge income earned by a qualified business unit (QBU) of a taxpayer
is sourced to the country in which the QBU is engaged in a trade or
business, and qualified fails charge income that arises from a
transaction the income from which is effectively connected to a United
States trade or business is sourced in the United States and treated as
effectively connected to the conduct of a United States trade or
business.
No comments were received on the proposed regulations, and no
hearing was requested or held. This Treasury decision adopts the
proposed regulations with the changes discussed in this preamble.
Explanation of Provisions
These final regulations adopt, with one substantive change, the
proposed regulations on the source of a qualified fails charge. The
final regulations also make a number of clarifying changes to the
language of the regulations.
The preamble to the temporary regulations noted that no trading
practice existed at that time for fails charges on securities other
than Treasuries, but that if a fails charge trading practice pertaining
to other securities was endorsed by the TMPG or an agency of the United
States government, the Treasury Department and the IRS would consider
whether the source rule in the regulations should be extended to those
fails charges. The TMPG has subsequently endorsed a trading practice
for debentures issued by the Federal National Mortgage Association
(Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac),
and the Federal Home Loan Banks and agency pass-through mortgage-backed
securities issued or guaranteed by the Government National Mortgage
Association (Ginnie Mae), Fannie Mae, and Freddie Mac (Agency Debt and
Agency MBS, respectively) beginning in February, 2012.
The Treasury Department and the IRS have determined that the same
source rule should apply to fails charges incurred with respect to
Agency Debt and Agency MBS as to fails charges on Treasuries.
Accordingly, these final regulations expand the scope of a qualified
fails charge to fails charges paid with respect to Agency Debt. The
sourcing rule in the final regulations also applies to a fails charge
on Agency MBS guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae
(for tax purposes, Fannie Mae, Freddie Mac, and Ginnie Mae do not issue
Agency MBS). The final regulations do not address the source of any
other payment, including a fails charge that is not a qualified fails
charge.
The Treasury Department and the IRS are considering whether
separate guidance is needed on the source of income attributable to
certain payments, other than qualified fails charges, that arise in
securities lending transactions or repurchase transactions and request
comments regarding this issue.
Effective Date
These regulations are effective on February 21, 2012.
Applicability Date
These regulations apply to a qualified fails charge paid or accrued
on or after December 8, 2010.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in Executive Order 12866, as
supplemented by Executive Order 13563. Therefore, a regulatory
assessment is not required. It has also been determined that section
553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does
not apply to
[[Page 9847]]
these regulations, and because these regulations do not impose a
collection of information on small entities, the provisions of the
Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply. Pursuant
to section 7805(f) of the Code, the proposed regulations preceding
these regulations were submitted to the Chief Counsel for Advocacy of
the Small Business Administration for comment on its impact on small
business.
Drafting Information
The principal author of these regulations is Karen Walny, Office of
the Associate Chief Counsel (International). However, other persons
from the Office of Associate Chief Counsel (International) and the
Treasury Department participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Adoption of 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. 863(a) and 7805 * * *
0
Par. 2. Section 1.863-10 is added to read as follows:
Sec. 1.863-10 Source of income from a qualified fails charge.
(a) In general. Except as provided in paragraphs (b) and (c) of
this section, the source of income from a qualified fails charge shall
be determined by reference to the residence of the taxpayer as
determined under section 988(a)(3)(B)(i).
(b) Qualified business unit exception. The source of income from a
qualified fails charge shall be determined by reference to the
residence of a qualified business unit (as defined in section 989) of a
taxpayer if--
(1) The taxpayer's residence, determined under section
988(a)(3)(B)(i), is the United States;
(2) The qualified business unit's residence, determined under
section 988(a)(3)(B)(ii), is outside the United States;
(3) The qualified business unit is engaged in the conduct of a
trade or business in the country where it is a resident; and
(4) The transaction to which the qualified fails charge relates is
attributable to the qualified business unit. A transaction will be
treated as attributable to a qualified business unit if it satisfies
the principles of Sec. 1.864-4(c)(5)(iii) (substituting ``qualified
business unit'' for ``U.S. office'').
(c) Effectively connected income exception. Qualified fails charge
income that arises from a transaction any income from which is (or
would be if the transaction produced income) effectively connected with
a United States trade or business pursuant to Sec. 1.864-4(c) is
treated as from sources within the United States, and the income from
the qualified fails charge is treated as effectively connected to the
conduct of a United States trade or business.
(d) Qualified fails charge. For purposes of this section, a
qualified fails charge is a payment that--
(1) Compensates a party to a transaction that provides for delivery
of a designated security (as defined in paragraph (e) of this section)
in exchange for the payment of cash (delivery-versus-payment
settlement) for another party's failure to deliver the specified
designated security on the settlement date specified in the relevant
agreement; and
(2) Is made pursuant to--
(i) A trading practice or similar guidance approved or adopted by
either an agency of the United States government or the Treasury Market
Practices Group, or
(ii) Any trading practice, program, policy or procedure approved by
the Commissioner in guidance published in the Internal Revenue
Bulletin.
(e) Designated security. For purposes of this section, a designated
security means any--
(i) Debt instrument (as defined in Sec. 1.1275-1(d)) issued by the
United States Treasury Department, the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, or any Federal
Home Loan Bank; or
(ii) Pass-through mortgage-backed security guaranteed by the
Federal National Mortgage Association, the Federal Home Loan Mortgage
Corporation, or the Government National Mortgage Association.
(g) Effective/applicability date. This section is effective on
February 21, 2012. This section applies to a qualified fails charge
paid or accrued on or after December 8, 2010.
Sec. 1.863-10T [Removed]
0
Par. 3. Section 1.863-10T is removed.
Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
Approved: February 14, 2012.
Emily S. McMahon,
Acting Assistant Secretary of the Treasury, Tax Policy.
[FR Doc. 2012-3909 Filed 2-17-12; 8:45 am]
BILLING CODE 4830-01-P
