Reporting for Premium; Basis Reporting by Securities Brokers and Basis Determination for Debt Instruments and Options, 13233-13239 [2015-05648]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 80, Number 49 (Friday, March 13, 2015)]
[Rules and Regulations]
[Pages 13233-13239]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-05648]



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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9713]
RIN 1545-BL46; 1545-BM60


Reporting for Premium; Basis Reporting by Securities Brokers and 
Basis Determination for Debt Instruments and Options

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

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SUMMARY: This document contains final regulations relating to 
information reporting by brokers for bond premium and acquisition 
premium. This document also contains final and temporary regulations 
relating to information reporting by brokers for transactions involving 
debt instruments and options, including the reporting of original issue 
discount (OID) on tax-exempt obligations, the treatment of certain 
holder elections for reporting a taxpayer's adjusted basis in a debt 
instrument, and transfer reporting for section 1256 options and debt 
instruments. The regulations in this document provide guidance to 
brokers and payors and to their customers. The text of the temporary 
regulations in this document also serves as the text of the proposed 
regulations (REG-143040-14) set forth in the Proposed Rules section in 
this issue of the Federal Register.

DATES: Effective date: These regulations are effective on March 13, 
2015.
    Applicability dates: For the dates of applicability, see Sec. Sec.  
1.6045-1(m)(2)(ii)(B), 1.6045-1T(n)(11)(i)(A), 1.6045-1T(n)(11)(i)(B), 
1.6045A-1T(e)(1), 1.6045A-1T(f), 1.6049-9(a), and 1.6049-10T(c).

FOR FURTHER INFORMATION CONTACT: Pamela Lew of the Office of the 
Associate Chief Counsel (Financial Institutions and Products) at (202) 
317-7053 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    Section 1.6049-9 of the final regulations in this document requires 
a payor to report amortizable bond premium on taxable and tax-exempt 
debt instruments acquired on or after January 1, 2014, and acquisition 
premium on taxable debt instruments acquired on or after January 1, 
2014. This information is required to enable the IRS to verify that a 
taxpayer is reporting the correct amount of interest (including OID) 
each year. In addition, because this information is used to report a 
taxpayer's adjusted basis in a debt instrument under section 6045(g), 
this information is required to enable the IRS to verify that a 
taxpayer is reporting the correct amount of gain or loss upon the sale 
of a debt instrument. The burden for the collection of information 
contained in Sec.  1.6049-9 will be reflected in the burdens on Form 
1099-INT (OMB control number 1545-0112) and Form 1099-OID (OMB control 
number 1545-0117) when revised to request the additional information in 
the regulations.
    Section 1.6049-10T of the temporary regulations in this document 
requires a payor to report OID and acquisition premium on tax-exempt 
obligations acquired on or after January 1, 2017. This information is 
required to enable the IRS to verify that a taxpayer is reporting the 
correct amount of tax-exempt interest each year for alternative minimum 
tax and other purposes. In addition, because this information is used 
to report a taxpayer's adjusted basis in a debt instrument under 
section 6045(g), this information is required to enable the IRS to 
verify that a taxpayer is reporting the correct amount of gain or loss 
upon the sale of a tax-exempt obligation. The burden for the collection 
of information contained in Sec.  1.6049-10T will be reflected in the 
burden on Form 1099-OID (OMB control number 1545-0117) when revised to 
request the additional information in the regulations.
    Upon the transfer of a covered security, section 6045A and Sec.  
1.6045A-1 require the transferring broker to provide to the transferee 
broker a transfer statement containing certain information relating to 
the security. This transfer statement generally provides the transferee 
broker the information needed to determine a customer's adjusted basis 
and whether any gain or loss with respect to the security is long-term, 
short-term, or ordinary as required by section 6045(g). Prior to the 
issuance of Sec.  1.6045A-1T in this document, a broker did not have to 
provide a transfer statement for a section 1256 option. In addition, a 
broker did not have to provide the last date on or before the transfer 
date that the broker made an adjustment for a particular item relating 
to a debt instrument. Section 1.6045A-1T, however, now requires a 
broker to transfer this information for a section 1256 option 
transferred on or after January 1, 2016, and for a debt instrument 
transferred on or after June 30, 2015.
    The collection of information contained in Sec.  1.6045A-1 relating 
to the furnishing of information in connection with the transfer of 
securities has been reviewed and approved by the Office of Management 
and Budget in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)) under control number 1545-2186. The collection of 
information in Sec.  1.6045A-1T and the cross-reference notice of 
proposed rulemaking under Sec.  1.6045A-1 is necessary to allow brokers 
that effect sales of transferred section 1256 options and debt 
instruments that are covered securities to determine and report the 
adjusted basis of these securities in compliance with section 6045(g). 
This collection of information is required to comply with the 
provisions of section 403 of the Energy Improvement and Extension Act 
of 2008, Division B of Public Law 110-343 (122 Stat. 3765, 3854 (2008)) 
(the Act). The collection of information contained in Sec.  1.6045A-1T 
and the cross-reference notice of proposed rulemaking under Sec.  
1.6045A-1 is an increase in the total annual burden under control 
number 1545-2186. The likely respondents are brokers transferring 
section 1256 options and debt instruments that are covered securities.
    Estimated total annual reporting burden is 3,333 hours.
    Estimated average annual burden per respondent is 2 hours.
    Estimated average burden per response is 4 minutes.
    Estimated number of respondents is 7,500.
    Estimated total frequency of responses is 200,000.

The collection of information is required to comply with the provisions 
of section 403 of the Act.
    The holder of a debt instrument is permitted to make a number of 
elections that affect how basis is computed. To minimize the need for 
reconciliation between information reported by a broker to both a 
customer and the IRS and the amounts reported on the customer's tax 
return, a broker is required to take into account certain specified 
elections, including the election under Sec.  1.1272-3 to treat all 
interest as OID and the election under section 1276(b)(2) to accrue 
market discount on a constant yield method, in reporting information to 
the customer. A customer, therefore, must provide certain information 
concerning an election to the broker in a written notification. A 
written notification includes a writing in electronic format. See Sec.  
1.6045-1(n)(5).
    The collection of information contained in Sec.  1.6045-1(n)(5) 
relating to the furnishing of information by a

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customer to a broker in connection with the sale or transfer of a debt 
instrument that is a covered security has been reviewed and approved by 
the Office of Management and Budget in accordance with the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3507(d)) under control number 1545-
2186. Under Sec.  1.6045-1T(n)(11)(i)(A) of the temporary regulations 
in this document, unlike the rule in current Sec.  1.6045-1(n)(5) 
adopted in 2013, a broker must not take into account the election under 
Sec.  1.1272-3 in reporting a customer's adjusted basis in a debt 
instrument. Therefore, a customer is no longer required to notify the 
broker that the customer has made or revoked an election under Sec.  
1.1272-3. This change represents a decrease in the total annual burden 
under OMB control number 1545-2186. In addition, under Sec.  1.6045-
1T(n)(11)(i)(B), a broker must take into account the election under 
section 1276(b)(2) unless the customer timely notifies the broker that 
the customer has not make the election. The temporary regulations 
reverse the assumption in current Sec.  1.6045-1(n)(5) adopted in 2013. 
Because the section 1276(b)(2) election results in a more taxpayer-
favorable result than the default ratable method for accruing market 
discount in most cases, it is anticipated that more customers will want 
to use this method and these customers will no longer need to notify 
their brokers that they have made the election. As a result, this 
change represents a decrease in the total annual burden under OMB 
control number 1545-2186.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by section 6103.

Background

    Section 6045 of the Internal Revenue Code (Code) generally requires 
a broker to report gross proceeds upon the sale of a security. Section 
6045 was amended by section 403 of the Act to require the reporting of 
adjusted basis for a covered security and whether any gain or loss upon 
the sale of the security is long-term or short-term. In addition, the 
Act added section 6045A of the Code, which requires certain information 
to be reported in connection with a transfer of a covered security to 
another broker, and section 6045B of the Code, which requires an issuer 
of a specified security to file a return relating to certain actions 
that affect the basis of the security. Section 6049 of the Code 
requires the reporting of interest payments (including accruals of OID 
treated as payments).
    On November 25, 2011, the Treasury Department and the IRS published 
in the Federal Register (76 FR 72652) proposed regulations (REG-102988-
11) relating to information reporting by brokers, transferors, and 
issuers of securities under sections 6045, 6045A, and 6045B for debt 
instruments, options, and securities futures contracts (the 2011 
proposed basis reporting regulations). On April 18, 2013, the Treasury 
Department and the IRS published in the Federal Register (TD 9616 at 78 
FR 23116) final regulations under sections 6045, 6045A, and 6045B (the 
2013 final basis reporting regulations). A number of commenters on the 
2011 proposed basis reporting regulations requested that the rules for 
reporting interest income associated with a debt instrument acquired at 
a premium be conformed to the rules regarding basis reporting for these 
debt instruments. Accordingly, TD 9616 also contained temporary 
regulations relating to information reporting for bond premium and 
acquisition premium under section 6049 (the 2013 temporary interest 
reporting regulations). A notice of proposed rulemaking cross-
referencing the 2013 temporary interest reporting regulations also was 
published in the Federal Register on April 18, 2013 (REG-154563-12 at 
78 FR 23183) (the 2013 proposed interest reporting regulations).
    No written comments were received on the 2013 proposed interest 
reporting regulations. No public hearing was requested or held. These 
final regulations adopt the provisions of the 2013 proposed interest 
reporting regulations with certain clarifications and one conforming 
change for acquisition premium. These final regulations also remove the 
corresponding 2013 temporary interest reporting regulations.
    After the publication of the 2013 final basis reporting regulations 
in the Federal Register, the Treasury Department and the IRS received 
written comments on certain provisions of the 2013 final basis 
reporting regulations. In response to these written comments, this 
document contains final and temporary regulations under sections 6045 
and 6045A relating to certain aspects of the 2013 final basis reporting 
regulations, as discussed in this preamble.

Explanation of Provisions

A. Final Regulations for Reporting Bond Premium and Acquisition Premium

    Under section 171, a taxpayer may elect to amortize bond premium on 
a taxable debt instrument and must amortize bond premium on a tax-
exempt debt instrument. In general, a taxpayer amortizes bond premium 
by offsetting the qualified stated interest allocable to an accrual 
period by the amount of the bond premium allocable to the accrual 
period. This offset occurs when the taxpayer takes the qualified stated 
interest into account under the taxpayer's regular method of 
accounting. For example, the offset occurs when a cash method taxpayer 
receives a payment of qualified stated interest. See section 171(e) and 
Sec.  1.171-2. As a result, only the portion of qualified stated 
interest that is not offset by the amortized bond premium is treated as 
interest for federal income tax purposes. A taxpayer's basis in a debt 
instrument acquired with bond premium is reduced by amortized bond 
premium. For purposes of section 6045, a broker is required to report 
the adjusted basis of a taxable debt instrument that is a covered 
security and that is acquired with bond premium by presuming that the 
taxpayer has elected to amortize bond premium unless the taxpayer 
notifies the broker in writing that the taxpayer does not want to 
amortize bond premium. See Sec.  1.6045-1(n)(5) of the 2013 final basis 
reporting regulations.
    Under section 1272(a)(7) and Sec.  1.1272-2, a taxpayer who 
purchases a debt instrument with acquisition premium is required to 
reduce the amount of OID includible in income each year by the amount 
of acquisition premium allocable to the taxable year. In general, the 
amount of acquisition premium allocable to a taxable year is determined 
using a ratable method, although a taxpayer may elect under Sec.  
1.1272-3 to determine the amount of acquisition premium allocable to a 
taxable year based on a constant yield method. See Sec.  1.1272-
2(b)(5). A taxpayer's basis in a taxable debt instrument purchased with 
acquisition premium is increased by the amount of OID included in 
income by the taxpayer. A taxpayer's basis in a tax-exempt debt 
instrument purchased with acquisition premium is increased by the 
amount of OID that accrues in accordance with section 1272(a), 
including section 1272(a)(7). For purposes of section 6045, a broker

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currently is required to report the adjusted basis of a debt instrument 
that is a covered security using the ratable method for acquisition 
premium, unless the taxpayer notifies the broker in writing that the 
taxpayer has elected to determine the amount of acquisition premium 
allocable to a taxable year based on a constant yield method. See Sec.  
1.6045-1(n)(5) of the 2013 final basis reporting regulations. However, 
as explained in Part B.2.a in this preamble, under these final 
regulations, for a debt instrument acquired on or after January 1, 
2015, a broker must use the ratable method to determine the amount of 
acquisition premium allocable to a taxable year for purposes of basis 
reporting under section 6045, regardless of any election under Sec.  
1.1272-3.
    Under section 6049(a), the Secretary may prescribe regulations to 
implement the reporting of interest payments, which includes the 
determination of the amount of a payment that is reportable interest. 
Similarly, under section 6049(a) the Secretary may prescribe by 
regulations how to determine the amount reportable as OID.
    Section 1.6049-9T of the 2013 temporary interest reporting 
regulations was issued by the Treasury Department and the IRS in 
response to comments suggesting that the rules under section 6049 for 
reporting interest income associated with a debt instrument acquired at 
a premium be conformed to the rules under section 6045 for basis 
reporting for these debt instruments. Section 6045 generally requires a 
broker to report on an information return, such as a Form 1099-B, the 
adjusted basis of a debt instrument that is a covered security, 
including basis adjustments attributable to amortized bond premium or 
acquisition premium. See Sec.  1.6045-1(n) of the 2013 final basis 
reporting regulations. However, prior to the issuance of Sec.  1.6049-
9T, interest income (including OID) on a debt instrument acquired at a 
premium was reported under section 6049 without adjustment for 
amortized bond premium or acquisition premium. Consequently, a customer 
generally could not reconcile the interest income reported to the 
customer on Form 1099-INT or Form 1099-OID, whichever was applicable, 
with the adjusted basis reported to the customer on Form 1099-B upon 
the sale of the debt instrument. The Treasury Department and the IRS 
issued the 2013 temporary interest reporting regulations to coordinate 
the information reporting for income and basis. Under section 1.6049-9T 
of the 2013 temporary interest reporting regulations, a broker 
generally is required to report to a customer any amortized bond 
premium and acquisition premium on a debt instrument that is a covered 
security. The amount reported may either be a gross number for both 
stated interest and amortized bond premium (or OID and amortized 
acquisition premium) or a net number that reflects the offset of the 
stated interest (or OID) by the amortized bond premium (or amortized 
acquisition premium).
    No comments were received on the 2013 proposed interest reporting 
regulations and the final regulations in this document generally adopt 
the provisions of the 2013 temporary interest reporting regulations. 
However, as explained in the final paragraph of this Part A in this 
preamble, the final regulations contain a change for the reporting of 
acquisition premium for a debt instrument acquired on or after January 
1, 2015, to conform to the change in this document for reporting basis 
adjustments for acquisition premium under section 6045.
    Under these final regulations, for purposes of section 6049, a 
broker is required to presume that a customer has elected to amortize 
bond premium on taxable debt instruments unless the broker has been 
notified that the customer does not want the broker to take into 
account the election or has revoked the election. This presumption 
applies only to the information reported by the broker to its customer. 
Thus, a customer that chooses not to make the section 171 election may 
report interest on the customer's income tax return unadjusted for bond 
premium because the information reporting rules do not change the 
substantive rules affecting amortizable bond premium (or any of the 
other rules pertaining to OID or acquisition premium). If a broker is 
required to report amounts reflecting amortization of bond premium, the 
final regulations allow a broker to report either a gross amount for 
both stated interest and amortized bond premium or a net amount of 
stated interest that reflects the offset of the stated interest payment 
by the amount of amortized bond premium allocable to the payment.
    In addition, under these final regulations, unlike the 2013 
temporary interest reporting regulations, a broker must report OID 
adjusted for acquisition premium based on the ratable method. Under 
these final regulations, for a debt instrument acquired on or after 
January 1, 2015, even if a customer has made an election to amortize 
acquisition premium based on a constant yield under Sec.  1.1272-3, a 
broker must not take the election into account for reporting 
acquisition premium. This change conforms the rules for reporting OID 
with the rules for reporting adjustments to basis attributable to 
acquisition premium described in section B.2.a of this preamble. See 
Sec.  1.6045-1T(n)(11)(i)(A). As in the 2013 temporary interest 
reporting regulations, the final regulations allow a broker to report 
either a gross amount for both OID and acquisition premium, or a net 
amount of OID that reflects the offset of the OID by the amount of 
amortized acquisition premium allocable to the OID.

B. Final and Temporary Regulations Relating to Basis and Transfer 
Reporting

    After the publication of the 2013 final basis reporting 
regulations, commenters recommended a number of changes to the 2013 
final basis reporting regulations. Upon consideration of these 
comments, the Treasury Department and the IRS have decided to make the 
following changes to the 2013 final basis reporting regulations and to 
add broker reporting for OID on tax-exempt obligations under section 
6049.
1. Request for Delayed Effective Date for Options on Certain Foreign 
Debt Instruments
    Under the 2013 final basis reporting regulations, if a debt 
instrument requires a payment of either interest or principal in a 
currency other than the U.S. dollar or if the debt instrument is issued 
by a non-U.S. issuer, a broker is required to report the debt 
instrument's basis only if the instrument is acquired on or after 
January 1, 2016. See Sec.  1.6045-1(n)(2)(ii)(D) and (G). The 2013 
final basis reporting regulations delayed the applicability date for 
these types of debt instruments to address commenters' concerns that it 
would take extra time to build the systems to account for the 
complexity of these debt instruments (for example, brokers would be 
required to track and retain on a daily basis foreign exchange rates 
for translation purposes) and, in some cases, a lack of publicly 
available information.
    Under the 2013 final basis reporting regulations, a broker is 
required to report gross proceeds and basis for certain options on a 
debt instrument granted or acquired on or after January 1, 2014. See 
Sec.  1.6045-1(m). The 2013 final basis reporting regulations apply to 
an option on a debt instrument that requires a payment of either 
interest or principal in a currency other than the U.S. dollar or an 
option on a debt instrument issued by a non-U.S. issuer. Because a 
broker is not required to report basis for these types of debt 
instruments until January 1, 2016, one commenter requested a delay in 
the applicability date for reporting gross

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proceeds and basis for these types of options. The commenter stated 
that the data collection and computation difficulties related to the 
underlying debt instruments also exist for options on these types of 
debt instruments. Responding to this comment, the final regulations in 
this document delay until January 1, 2016, the applicability date for 
reporting gross proceeds and basis for options on debt instruments that 
provide for one or more payments denominated in a foreign currency and 
options on debt instruments issued by non-U.S. issuers.
2. Certain Debt Elections Relating to Broker Basis Reporting
    Under the 2013 final basis reporting regulations, for purposes of 
reporting adjusted basis to a customer, a broker must take into account 
only the debt-related elections specified in Sec.  1.6045-1(n)(4). If 
an election is not specified in Sec.  1.6045-1(n)(4), a broker may not 
take the election into account for reporting adjusted basis to a 
customer. In general, a broker must take into account a specified 
election if a customer timely notifies the broker that the customer has 
made the election. Two of the specified elections are the election to 
treat all interest as OID under Sec.  1.1272-3 and the election to 
accrue market discount based on a constant yield under section 
1276(b)(2).
a. Election To Treat All Interest as OID
    Under Sec.  1.1272-3, a customer may elect to treat all interest on 
a debt instrument, adjusted by any amortizable bond premium or 
acquisition premium, as OID. If this election is made, the amount of 
interest (including any adjustment) that accrues during a period is 
based on a constant yield. This election is made on a debt instrument 
by debt instrument basis; however, if made, the election may affect 
other debt instruments with amortizable bond premium or market discount 
held by the customer even if the debt instrument is held in a separate 
account with the broker or any other broker.
    One commenter on the 2013 final basis reporting regulations 
indicated that it was extremely difficult to program the election given 
its effects on other debt instruments. Another commenter argued that 
the results of the election could mostly be achieved by a combination 
of other debt elections that the brokers also must support. Also, 
according to the commenters, the types of customers who receive Forms 
1099-B, such as individuals, partnerships, or S corporations, rarely 
make the election to treat all interest as OID.
    In consideration of the comments received and the burden that the 
rule in the 2013 final basis reporting regulations would impose, these 
temporary and proposed regulations provide that a broker may not take 
into account the election under Sec.  1.1272-3 when computing basis. 
The temporary and proposed regulations supersede the 2013 final basis 
reporting regulations relating to the broker's treatment of the 
election under Sec.  1.1272-3.
    In general, the amount of acquisition premium allocable to a 
taxable year is determined using a ratable method, unless the taxpayer 
elects under Sec.  1.1272-3 to determine the amount of acquisition 
premium allocable to a taxable year based on a constant yield method. 
See Sec.  1.1272-2(b)(4) and (5). As noted in the final paragraph in 
Part A in this preamble, to conform the rules for reporting OID with 
the rules for reporting adjustments to basis attributable to 
acquisition premium, a broker must report acquisition premium for 
purposes of section 6049 on the ratable method even if a customer has 
made the election under Sec.  1.1272-3 to use a constant yield method.
    The temporary regulations apply to a debt instrument acquired on or 
after January 1, 2015. A broker may, however, rely on the temporary 
regulations for a debt instrument acquired on or after January 1, 2014, 
and before January 1, 2015.
b. Constant Yield Election for Market Discount
    Under section 1276(b)(2), a customer may elect to accrue market 
discount on a constant yield method rather than a ratable method. The 
election may be made on a debt instrument by debt instrument basis and 
must be made for the earliest taxable year for which the customer is 
required to determine accrued market discount. The election may not be 
revoked once it has been made.
    The 2011 proposed basis reporting regulations attempted to simplify 
broker reporting by requiring brokers to compute accrued market 
discount by assuming that a customer had made an election under section 
1276(b)(2) to use a constant yield method. The use of a constant yield 
method to determine accruals of market discount backloads market 
discount and is therefore more taxpayer favorable than the use of a 
ratable method in most cases. A number of commenters to the 2011 
proposed basis reporting regulations indicated a desire by brokers to 
support debt instrument election choices made by their customers rather 
than rely on assumptions provided in the regulations. In response to 
these comments, the 2013 final basis reporting regulations instructed 
brokers to assume that a customer did not make an election to determine 
accrued market discount using a constant yield method unless the broker 
received timely notification from the customer that the election had 
been or would be made.
    After the 2013 final basis reporting regulations were published, 
the majority of commenters reconsidered their initial objections to the 
2011 proposed basis reporting regulations requirement to use a constant 
yield method to determine accrued market discount. These commenters 
indicated that the use of the constant yield method would generally 
result in a more favorable tax result for most Form 1099-B recipients. 
The commenters therefore requested that the broker assumption for 
calculating accrued market discount be changed so that brokers will 
assume that a customer has made the election unless the customer timely 
notifies the broker otherwise. The Treasury Department and the IRS 
agree with the recommendation that brokers should assume the constant 
yield method for accruing market discount. Accordingly, the temporary 
regulations supersede the assumption in the 2013 final debt reporting 
regulations and provide that for a debt instrument acquired on or after 
January 1, 2015, brokers are required to assume that a customer has 
elected to determine accrued market discount using a constant yield 
method unless the customer notifies the broker otherwise. A customer 
that does not want to use a constant yield method to determine accrued 
market discount must, by the end of the calendar year in which the 
customer acquired the debt instrument in an account with the broker, 
notify the customer's broker in writing that the customer wants the 
broker to use the ratable method to determine accrued market discount.
3. Transfer Reporting
a. Section 1256 Options
    Under Sec.  1.6045A-1(a)(1)(vi) of the 2013 final basis reporting 
regulations, a transferring broker is not required to provide a 
transfer statement for the transfer of a section 1256 option. In 
response to the 2013 final basis reporting regulations, a number of 
commenters stated that brokers often treat the transfer of a section 
1256 option in the same manner as transfers of equities or debt 
instruments and do not treat the transferred section 1256 option 
contract as being novated. Thus, commenters stated that a transfer 
statement, as provided for by section

[[Page 13237]]

6045A, is necessary to ensure that a receiving broker has all relevant 
data required to properly report information for section 1256 options.
    In response to these comments, these temporary and proposed 
regulations supersede the exception for section 1256 options in the 
2013 final basis reporting regulations and extend transfer reporting to 
section 1256 options. Because the 2013 final basis reporting 
regulations explicitly instruct brokers not to send transfer statements 
for section 1256 options, it is understood that brokers may need some 
additional time to modify their systems to generate the required 
transfer statements. The temporary regulations therefore provide that a 
transfer statement is required for the transfer of a section 1256 
option that occurs on or after January 1, 2016. The temporary 
regulations also list the data specific to section 1256 options that 
must be provided in addition to the data required for the transfer of a 
non-section 1256 option.
b. Debt Instruments
    Under Sec.  1.6045A-1 of the 2013 final basis reporting 
regulations, brokers are required to provide to a receiving broker 
certain information relating to a transfer of a debt instrument that is 
a covered security. The preamble to the 2013 final basis reporting 
regulations indicated that the information required to be provided 
included the date through which the transferor broker made adjustments. 
However, several commenters on the 2013 final basis reporting 
regulations noted that this item of information was not included in the 
list of information required to be provided in the 2013 final basis 
reporting regulations. The temporary and proposed regulations correct 
this omission by adding the date through which the transferring broker 
made adjustments to the list of information required to be provided 
upon the transfer of a debt instrument that is a covered security. This 
change applies to a transfer that occurs on or after June 30, 2015.
4. Reporting of OID on a Tax-Exempt Obligation
    The 2013 final basis reporting regulations require a broker to 
report the adjusted basis for a debt instrument that is a covered 
security, including a tax-exempt obligation. However, under Notice 
2006-93 (2006-2 CB 798), for purposes of section 6049, a broker is not 
required to report OID on tax-exempt obligations until further guidance 
is issued.
    Several commenters on the 2013 final basis reporting regulations 
pointed out that the section 6045 rules now require a broker to compute 
the OID on a tax-exempt obligation to properly report adjusted basis at 
the time of a transfer, sale, or other disposition of a tax-exempt 
obligation. These commenters requested that, similar to what was done 
in Sec.  1.6049-9T for amortizable bond premium and acquisition premium 
on a debt instrument that is a covered security, reporting of OID under 
section 6049 be coordinated with reporting of basis for tax-exempt 
obligations.
    To align the rules and improve consistency between OID reporting 
and basis reporting, Sec.  1.6049-10T of the temporary regulations in 
this document provides that a payor must report under section 6049 the 
daily portions of OID on a tax-exempt obligation. The daily portions of 
OID are determined as if section 1272 and Sec.  1.1272-1 applied to a 
tax-exempt obligation. A payor must determine whether a tax-exempt 
obligation was issued with OID and the amount that accrues for each 
relevant period. In addition, OID on a tax-exempt obligation is 
determined without regard to the de minimis rule in section 1273(a)(3) 
and Sec.  1.1273-1(d). Because the temporary regulations require the 
reporting of OID, payors also must report amortized acquisition premium 
(which offsets OID) on a tax-exempt obligation. A broker may report 
either a gross amount for both OID and amortized acquisition premium, 
or a net amount of OID that reflects the offset of the OID by the 
amount of amortized acquisition premium allocable to the OID. To 
provide payors with time to adapt their systems to report this 
information, the temporary regulations apply to a tax-exempt obligation 
acquired on or after January 1, 2017.

Applicability Dates

    The final regulations under section 6049 apply to a debt instrument 
that is a covered security (that is, a debt instrument described in 
Sec.  1.6045-1(a)(15)(i)(C) acquired on or after January 1, 2014, or a 
debt instrument described in Sec.  1.6045-1(a)(15)(i)(D) acquired on or 
after January 1, 2016). The temporary regulations under section 6049 
apply to a tax-exempt obligation acquired on or after January 1, 2017. 
The temporary regulations under section 6045A apply to a transfer of a 
section 1256 option that occurs on or after January 1, 2016, and to a 
transfer of a debt instrument that occurs on or after June 30, 2015. 
The temporary regulations under section 6045 apply to a debt instrument 
acquired on or after January 1, 2015. The final regulations under 
section 6045 apply to an option on a debt instrument that provides for 
one or more payments denominated in a foreign currency or a debt 
instrument issued by a non-U.S. issuer if the option is granted or 
acquired on or after January 1, 2016.

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 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.
    It is hereby certified that the final regulations in this document 
will not have a significant economic impact on a substantial number of 
small entities. Therefore, a Regulatory Flexibility Analysis under the 
Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. It is 
anticipated that the requirements in the final regulations in this 
document will fall only on financial services firms with annual 
receipts greater than the $38.5 million threshold and, therefore, on no 
small entities.
    In addition, any economic impact is expected to be minimal because 
a broker already is required to determine the amortization of bond 
premium and acquisition premium for purposes of determining and 
reporting a customer's adjusted basis on Form 1099-B under section 
6045. The information provided to a customer on Form 1099-INT or Form 
1099-OID, whichever is applicable, generally will allow a customer to 
reconcile the interest information reported to the customer with the 
adjusted basis information reported to the customer on Form 1099-B. 
Moreover, any effect on small entities by the rules in the final 
regulations flows from section 6049 of the Code and section 403 of the 
Act.
    Therefore, because the final regulations in this document will not 
have a significant economic impact on a substantial number of small 
entities, a regulatory flexibility analysis is not required.
    For the applicability of the Regulatory Flexibility Act to the 
other regulations in this document, please refer to the cross-reference 
notice of proposed rulemaking published elsewhere in this issue of the 
Federal Register.
    Pursuant to section 7805(f) of the Internal Revenue Code, the 
proposed regulations preceding the final regulations in this document 
were submitted to the Chief Counsel for

[[Page 13238]]

Advocacy of the Small Business Administration for comment on their 
impact on small businesses. No comments were received. In addition, the 
proposed regulations accompanying the temporary regulations in this 
document 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 Pamela Lew, Office of 
Associate Chief Counsel (Financial Institutions and Products). However, 
other personnel from the IRS 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 is amended by removing 
the entry for Sec.  1.6049-9T and adding entries for Sec. Sec.  1.6045-
1T, 1.6045A-1T, 1.6049-9, and 1.6049-10T in numerical order to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 1.6045-1T also issued under 26 U.S.C. 6045(g). * * *
    Section 1.6045A-1T also issued under 26 U.S.C. 6045A(a). * * *
    Section 1.6049-9 also issued under 26 U.S.C. 6049(a). * * *
    Section 1.6049-10T also issued under 26 U.S.C. 6049(a). * * *


0
Par. 2. Section 1.6045-1 is amended by:
0
1. Revising paragraph (m)(2)(ii).
0
2. Adding a sentence at the end of paragraph (n)(4)(iv).
0
3. Adding a sentence at the end of paragraph (n)(5)(i).
0
4. Adding paragraph (n)(11).
    The revision and additions read as follows:


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

* * * * *
    (m) * * *
    (2) * * *
    (ii) Delayed effective date for certain options--(A) 
Notwithstanding paragraph (m)(2)(i) of this section, if an option, 
stock right, or warrant is issued as part of an investment unit 
described in Sec.  1.1273-2(h), paragraph (m) of this section applies 
to the option, stock right, or warrant if it is acquired on or after 
January 1, 2016.
    (B) Notwithstanding paragraph (m)(2)(i) of this section, if the 
property referenced by an option (that is, the property underlying the 
option) is a debt instrument that is issued by a non-U.S. person or 
that provides for one or more payments denominated in, or determined by 
reference to, a currency other than the U.S. dollar, paragraph (m) of 
this section applies to the option if it is granted or acquired on or 
after January 1, 2016.
* * * * *
    (n) * * *
    (4) * * *
    (iv) * * * However, see Sec.  1.6045-1T(n)(11)(i)(A) for a debt 
instrument acquired on or after January 1, 2014.
* * * * *
    (5) * * *
    (i) * * * However, see Sec.  1.6045-1T(n)(11) for the treatment of 
an election described in paragraph (n)(4)(iii) of this section 
(election to accrue market discount based on a constant yield) and an 
election described in paragraph (n)(4)(iv) of this section (election to 
treat all interest as OID).
* * * * *
    (11) [Reserved]. For further guidance, see Sec.  1.6045-1T(n)(11).
* * * * *

0
Par. 3. Section 1.6045-1T is amended by revising paragraphs (h) through 
(p) to read as follows:


Sec.  1.6045-1T  Returns of information of brokers and barter exchanges 
(temporary).

* * * * *
    (h) through (n)(10) [Reserved]. For further guidance, see Sec.  
1.6045-1(h) through (n)(10).
    (11) Additional rules for certain holder elections--(i) In general. 
For purposes of Sec.  1.6045-1, the rules in this paragraph (n)(11) 
apply notwithstanding any other rule in Sec.  1.6045-1(n).
    (A) Election to treat all interest as OID. A broker must report the 
information required under Sec.  1.6045-1(d) without taking into 
account any election described in Sec.  1.6045-1(n)(4)(iv) (the 
election to treat all interest as OID in Sec.  1.1272-3). As a result, 
for example, a broker must determine the amount of any acquisition 
premium taken into account each year for purposes of Sec.  1.6045-1 in 
accordance with Sec.  1.1272-2(b)(4). This paragraph (n)(11)(i)(A) 
applies to a debt instrument acquired on or after January 1, 2015. A 
broker may, however, rely on this paragraph (n)(11)(i)(A) for a debt 
instrument acquired on or after January 1, 2014, and before January 1, 
2015.
    (B) Election to accrue market discount based on a constant yield. A 
broker must report the information required under Sec.  1.6045-1(d) by 
assuming that a customer has made the election described in Sec.  
1.6045-1(n)(4)(iii) (the election to accrue market discount based on a 
constant yield). However, if a customer notifies a broker in writing 
that the customer does not want the broker to take into account this 
election, the broker must report the information required under Sec.  
1.6045-1(d) without taking into account this election. The customer 
must provide this notification to the broker by the end of the calendar 
year in which the customer acquired the debt instrument in an account 
with the broker. This paragraph (n)(11)(i)(B) applies to a debt 
instrument acquired on or after January 1, 2015.
    (ii) Expiration date. The applicability of this paragraph (n)(11) 
expires on or before March 12, 2018.
    (o) through (p) [Reserved]. For further guidance, see Sec.  1.6045-
1(o) through (p).
* * * * *

0
Par. 4. Section 1.6045A-1 is amended by removing paragraph (a)(1)(vi) 
and adding paragraphs (e) and (f) to read as follows:


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

* * * * *
    (e) Section 1256 options. [Reserved.] For further guidance, see 
Sec.  1.6045A-1T(e).
    (f) Additional information required for a debt instrument. 
[Reserved.] For further guidance, see Sec.  1.6045A-1T(f).
0
Par. 5. Section 1.6045A-1T is added to read as follows:


Sec.  1.6045A-1T  Statements of information required in connection with 
transfers of securities (temporary).

    (a) through (d) [Reserved.] For further guidance, see Sec.  
1.6045A-1(a) through (d).
    (e) Section 1256 options--(1) In general. A transferor of an option 
described in Sec.  1.6045-1(m)(3) (section 1256 option) is required to 
furnish to the receiving broker a transfer statement for a transfer 
that occurs on or after January 1, 2016. The transfer statement must 
include the information described in Sec.  1.6045A-1(b) and paragraph 
(e)(2) of this section for a section 1256 option that is a covered 
security or in Sec.  1.6045A-1(b) for a section 1256 option that is a 
noncovered security.
    (2) Additional information required for a section 1256 option. In 
addition to the information required in Sec.  1.6045A-1(b), the 
following information is

[[Page 13239]]

required for a transfer of a section 1256 option that is a covered 
security:
    (i) The original basis of the option; and
    (ii) The fair market value of the option as of the end of the prior 
calendar year.
    (f) Additional information required for a debt instrument. In 
addition to the information required in Sec.  1.6045A-1(b)(3) for a 
transfer of a debt instrument that is a covered security, the 
transferor must provide the last date on or before the transfer date 
that the transferor made an adjustment for a particular item (for 
example, the last date on or before the transfer date that bond premium 
was amortized). This paragraph (f) applies to a transfer that occurs on 
or after June 30, 2015.
    (g) Expiration date. The applicability of this section expires on 
or before March 12, 2018.

0
Par. 6. Section 1.6049-5 is amended by adding a sentence after the 
third sentence in paragraph (f) to read as follows:


Sec.  1.6049-5  Interest and original issue discount subject to 
reporting after December 31, 1982.

* * * * *
    (f) * * * However, see Sec.  1.6049-9 for the reporting of premium 
for a debt instrument acquired on or after January 1, 2014. * * *
* * * * *

0
Par. 7. Section 1.6049-9 is added to read as follows:


Sec.  1.6049-9  Premium subject to reporting for a debt instrument 
acquired on or after January 1, 2014.

    (a) General rule. Notwithstanding Sec.  1.6049-5(f), for a debt 
instrument acquired on or after January 1, 2014, if a broker (as 
defined in Sec.  1.6045-1(a)(1)) is required to file a statement for 
the debt instrument under Sec.  1.6049-6, the broker generally must 
report any bond premium (as defined in Sec.  1.171-1(d)) or acquisition 
premium (as defined in Sec.  1.1272-2(b)(3)) for the calendar year. 
This section, however, only applies to a debt instrument that is a 
covered security as defined in Sec.  1.6045-1(a)(15).
    (b) Reporting of bond premium amortization. Unless a broker has 
been notified in writing in accordance with Sec.  1.6045-1(n)(5) that a 
customer does not want to amortize bond premium under section 171, the 
broker must report the amount of any amortizable bond premium allocable 
to a stated interest payment made to the customer during the calendar 
year. See Sec. Sec.  1.171-2 and 1.171-3 to determine the amount of 
amortizable bond premium allocable to a stated interest payment. 
Instead of reporting a gross amount for both stated interest and 
amortizable bond premium, a broker may report a net amount of stated 
interest that reflects the offset of the stated interest payment by the 
amount of amortizable bond premium allocable to the payment. In this 
case, the broker must not report the amortizable bond premium as a 
separate item. This paragraph (b) also applies to amortizable bond 
premium on a tax-exempt obligation, which is required to be amortized 
under section 171.
    (c) Reporting of acquisition premium amortization. A broker must 
report the amount of any acquisition premium amortization that reduces 
the amount of original issue discount includible in income by the 
customer during a calendar year. For a debt instrument acquired on or 
after January 1, 2015, a broker must use the rules in Sec.  1.1272-
2(b)(4) to determine the amount of acquisition premium amortization. 
However, for a debt instrument acquired on or after January 1, 2014, 
and before January 1, 2015, if a customer timely notifies the broker in 
accordance with Sec.  1.6045-1(n)(5), a broker may use the rules in 
Sec.  1.1272-3 to determine the amount of acquisition premium 
amortization. Instead of reporting a gross amount for both original 
issue discount and acquisition premium amortization, a broker may 
report a net amount of original issue discount that reflects the offset 
of the original issue discount includible in income by the customer for 
the calendar year by the amount of acquisition premium allocable to the 
original issue discount. In this case, the broker must not report the 
acquisition premium amortization as a separate item. See Sec.  1.6049-
10T for the reporting of acquisition premium on a tax-exempt 
obligation.


Sec.  1.6049-9T  [Removed]

0
Par. 8. Section 1.6049-9T is removed.

0
Par. 9. Section 1.6049-10T is added to read as follows:


Sec.  1.6049-10T  Reporting of original issue discount on a tax-exempt 
obligation (temporary).

    (a) In general. For purposes of section 6049, a payor (as defined 
in Sec.  1.6049-4(a)(2)) of original issue discount (OID) on a tax-
exempt obligation (as defined in section 1288(b)(2)) is required to 
report the daily portions of OID on the obligation as if the daily 
portions of OID that accrued during a calendar year were paid to the 
holder (or holders) of the obligation in the calendar year. The amount 
of the daily portions of OID that accrues during a calendar year is 
determined as if section 1272 and Sec.  1.1272-1 applied to a tax-
exempt obligation. Notwithstanding any other rule in section 6049 and 
the regulations thereunder, a payor must determine whether a tax-exempt 
obligation was issued with OID and the amount of OID that accrues for 
each relevant period. As prescribed by section 1288(b)(1), OID on a 
tax-exempt obligation is determined without regard to the de minimis 
rules in section 1273(a)(3) and Sec.  1.1273-1(d).
    (b) Acquisition premium. A payor is required to report acquisition 
premium amortization on a tax-exempt obligation in accordance with the 
rules in Sec.  1.6049-9(c) as if section 1272 applied to a tax-exempt 
obligation. See paragraph (a) of this section to determine the amount 
of OID allocable to an accrual period.
    (c) Effective/applicability date. This section applies to a tax-
exempt obligation acquired on or after January 1, 2017.
    (d) Expiration date. The applicability of this section expires on 
or before March 12, 2018.

John Dalrymple,
Deputy Commissioner for Services and Enforcement.
    Approved: February 19, 2015.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2015-05648 Filed 3-12-15; 8:45 am]
 BILLING CODE 4830-01-P