Reporting of Original Issue Discount on Tax-Exempt Obligations; Basis and Transfer Reporting by Securities Brokers for Debt Instruments and Options, 8149-8154 [2016-03429]

Download as PDF Federal Register / Vol. 81, No. 32 / Thursday, February 18, 2016 / Rules and Regulations the collections of information in 21 CFR part 814, subpart B, have been approved under OMB control number 0910–0231; and the collections of information under 21 CFR part 801 have been approved under OMB control number 0910–0485. VI. Codification of Orders Prior to the amendments by FDASIA, section 515(b) of the FD&C Act provided for FDA to issue regulations to require approval of an application for premarket approval for preamendments devices or devices found substantially equivalent to preamendments devices. Section 515(b) of the FD&C Act, as amended by FDASIA, provides for FDA to require approval of an application for premarket approval for such devices by issuing a final order following the issuance of a proposed order in the Federal Register. FDA will continue to codify the requirement for an application for premarket approval in the Code of Federal Regulations (CFR). Therefore, under section 515(b)(1) of the FD&C Act, as amended by FDASIA, in this final order, FDA is requiring approval of an application for premarket approval for total MoM semi-constrained hip joint systems, which include the following two specific preamendments class III devices: Hip joint metal/metal semiconstrained, with a cemented acetabular component, prosthesis; and hip joint metal/metal semi-constrained, with an uncemented acetabular component, prosthesis; and the Agency is making the language in 21 CFR 888.3320 and 888.3330 consistent with this final order. wgreen on DSK2VPTVN1PROD with RULES VII. References The following references are on display in the Division of Dockets Management (HFA–305), Food and Drug Administration, 5630 Fishers Lane, Rm. 1061, Rockville, MD 20852, and are available for viewing by interested persons between 9 a.m. and 4 p.m., Monday through Friday; they are also available electronically at https:// www.regulations.gov. FDA has verified the Web site addresses, as of the date this document publishes in the Federal Register, but Web sites are subject to change over time. 1. FDA, Orthopaedic and Rehabilitation Devices Panel transcript, August 8, 2001. Available at https://www.fda.gov/ohrms/ dockets/ac/01/transcripts/3780t1.rtf. 2. Kwon et al. ‘‘Risk Stratification Algorithm for Management of Patients with Metalon-Metal Hip Arthroplasty.’’ Journal of Bone and Joint Surgery, American Volume, 96:e4, 2014. 3. FDA, Metal-on-Metal Hip Implants Web site, Information for Orthopaedic Surgeons. Available at https:// www.fda.gov/MedicalDevices/ VerDate Sep<11>2014 14:29 Feb 17, 2016 Jkt 238001 ProductsandMedicalProcedures/ ImplantsandProsthetics/MetalonMetal HipImplants/ucm241667.htm. 4. FDA, Orthopaedic and Rehabilitation Devices Panel, FDA Executive Summary, June 27–28, 2012. Available at https:// www.fda.gov/downloads/ AdvisoryCommittees/Committees MeetingMaterials/MedicalDevices/ MedicalDevicesAdvisoryCommittee/ OrthopaedicandRehabilitationDevices Panel/UCM309302.pdf. 5. FDA, Orthopaedic and Rehabilitation Devices Panel transcript, June 28, 2012. Available at https://www.fda.gov/ downloads/AdvisoryCommittees/ CommitteesMeetingMaterials/ MedicalDevices/ MedicalDevicesAdvisoryCommittee/ OrthopaedicandRehabilitationDevices Panel/UCM313605.pdf. List of Subjects in 21 CFR Part 888 Medical devices. Therefore, under the Federal Food, Drug, and Cosmetic Act and under authority delegated to the Commissioner of Food and Drugs, 21 CFR part 888 is amended as follows: PART 888—ORTHOPEDIC DEVICES 8149 § 888.3330 Hip joint metal/metal semiconstrained, with an uncemented acetabular component, prosthesis. * * * * * (c) Date PMA or notice of completion of PDP is required. A PMA or a notice of completion of a PDP is required to be filed with the Food and Drug Administration on or before May 18, 2016, for any hip joint metal/metal semi-constrained prosthesis with an uncemented acetabular component that was in commercial distribution before May 28, 1976, or that has, on or before May 18, 2016, been found to be substantially equivalent to a hip joint metal/metal semi-constrained prosthesis with an uncemented acetabular component that was in commercial distribution before May 28, 1976. Any other hip joint metal/metal semiconstrained prosthesis with an uncemented acetabular component shall have an approved PMA or a declared completed PDP in effect before being placed in commercial distribution. Dated: February 11, 2016. Leslie Kux, Associate Commissioner for Policy. [FR Doc. 2016–03331 Filed 2–17–16; 8:45 am] BILLING CODE 4164–01–P 1. The authority citation for 21 CFR part 888 continues to read as follows: ■ Authority: 21 U.S.C. 351, 360, 360c, 360e, 360j, 371. 2. Section 888.3320 is amended by revising paragraph (c) to read as follows: ■ § 888.3320 Hip joint metal/metal semiconstrained, with a cemented acetabular component, prosthesis. * * * * * (c) Date PMA or notice of completion of PDP is required. A PMA or a notice of completion of a PDP is required to be filed with the Food and Drug Administration on or before May 18, 2016, for any hip joint metal/metal semi-constrained prosthesis with a cemented acetabular component that was in commercial distribution before May 28, 1976, or that has, on or before May 18, 2016, been found to be substantially equivalent to a hip joint metal/metal semi-constrained prosthesis with a cemented acetabular component that was in commercial distribution before May 28, 1976. Any other hip joint metal/metal semi-constrained prosthesis with a cemented acetabular component shall have an approved PMA or a declared completed PDP in effect before being placed in commercial distribution. 3. Section 888.3330 is amended by revising paragraph (c) to read as follows: ■ PO 00000 Frm 00017 Fmt 4700 Sfmt 4700 DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 [TD 9750] RIN 1545–BM59 Reporting of Original Issue Discount on Tax-Exempt Obligations; Basis and Transfer Reporting by Securities Brokers for Debt Instruments and Options Internal Revenue Service (IRS), Treasury. ACTION: Final regulations. AGENCY: This document contains final 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. DATES: Effective date: These regulations are effective on February 18, 2016. SUMMARY: E:\FR\FM\18FER1.SGM 18FER1 8150 Federal Register / Vol. 81, No. 32 / Thursday, February 18, 2016 / Rules and Regulations Applicability dates: For the dates of applicability, see §§ 1.6045– 1(n)(11)(i)(A), 1.6045–1(n)(11)(i)(B), 1.6045–1(n)(12)(ii), 1.6045A–1(b)(3)(x), 1.6045A–1(b)(4)(iv), and 1.6049–10(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: wgreen on DSK2VPTVN1PROD with RULES Paperwork Reduction Act The collection of information contained in §§ 1.6045–1(n) and 1.6045A–1(b) of these final regulations 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 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 information required under § 1.6045–1(n) minimizes 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. The information required under § 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) of the Internal Revenue Code (Code). The burden for the collection of information contained in § 1.6049–10 of these final regulations will be reflected in the burden for Form 1099–OID, Original Issue Discount (OMB control number 1545–0117), when it is revised to request the additional information in the regulations. 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 determine a taxpayer’s adjusted basis in a debt instrument for purposes of 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. 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. VerDate Sep<11>2014 14:29 Feb 17, 2016 Jkt 238001 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 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 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 proposed regulations 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 (REG–102988–11 at 76 FR 72652) (the 2011 proposed basis reporting regulations). On April 18, 2013, the Treasury Department and the IRS published in the Federal Register final regulations under sections 6045, 6045A, and 6045B (the 2013 final basis reporting regulations) and temporary regulations relating to information reporting for bond premium and acquisition premium under section 6049 (TD 9616 at 78 FR 23116) (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). On March 13, 2015, the Treasury Department and the IRS published in the Federal Register final regulations under sections 6045, 6045A, and 6049 (TD 9713 at 80 FR 13233) (the 2015 final basis reporting regulations, and, together with the 2013 final basis reporting regulations, the final basis reporting regulations). A number of commenters on the 2013 final basis reporting regulations requested changes PO 00000 Frm 00018 Fmt 4700 Sfmt 4700 to the basis reporting rules relating to certain debt elections. In addition, for purposes of section 6045A, several commenters requested that a transferring broker provide additional information on the transfer statement for a debt instrument and that a transferring broker provide a transfer statement for a section 1256 option contract. Several commenters also suggested that the rules for reporting OID associated with a tax-exempt obligation be conformed to the rules regarding basis reporting for those debt instruments. Accordingly, TD 9713 also included temporary regulations relating to information reporting for debt instruments under sections 6045, 6045A, and 6049 (the 2015 temporary reporting regulations). A notice of proposed rulemaking crossreferencing the 2015 temporary reporting regulations was published in the Federal Register on March 13, 2015 (REG–143040–14 at 80 FR 13292) (the 2015 proposed reporting regulations). A correction to § 1.6045A–1T(f) was published on June 5, 2015 (TD 9713 at 80 FR 31995), delaying the effective date of § 1.6045A–1T(f) from June 30, 2015, to January 1, 2016. Written comments were received on the 2015 proposed reporting regulations and are summarized below. No public hearing was requested or held. In general, these final regulations adopt the provisions of the 2015 proposed reporting regulations. These final regulations also remove the corresponding 2015 temporary reporting regulations. After the publication of the 2015 final basis reporting regulations, the Treasury Department and the IRS received written comments on certain provisions of the final basis reporting regulations. In response to these comments, this document contains final regulations under section 6045 relating to the treatment of certain debt instruments as non-covered securities. The written comments on the 2015 proposed reporting regulations and the 2015 final basis reporting regulations are available for public inspection at https://www.regulations.gov or upon request. Explanation of Provisions A. Constant Yield Election for Accruals of 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 E:\FR\FM\18FER1.SGM 18FER1 wgreen on DSK2VPTVN1PROD with RULES Federal Register / Vol. 81, No. 32 / Thursday, February 18, 2016 / Rules and Regulations accrued market discount. The election may not be revoked once it has been made. In most cases, the use of a constant yield method backloads market discount and is therefore more taxpayer favorable than the use of a ratable method. In response to comments on the 2013 final basis reporting regulations (which required the broker to assume that the customer had not made a constant yield election), § 1.6045–1T(n)(11)(i)(B) of the 2015 temporary reporting regulations provided 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 broker in writing that the customer wants the broker to use the ratable method to determine accrued market discount. No comments were received on the substantive rules in § 1.6045– 1T(n)(11)(i)(B). Accordingly, the rules in the final regulations in this document are the same as the rules in § 1.6045– 1T(n)(11)(i)(B). Several commenters requested permission to apply the default constant yield method to debt instruments acquired on or after January 1, 2014, which was the first date for which a broker was required to report accrued market discount under section 6045, provided that the broker had not reported accrued market discount to a customer for the 2014 calendar year using the ratable method. According to the commenters, the use of a single method to compute market discount accruals for all covered securities with market discount would simplify the calculation of accrued market discount and the reporting of this information to their customers. The final regulations in this document permit, but do not require, a broker to apply the default constant yield method to a debt instrument acquired on or after January 1, 2014, and before January 1, 2015, provided the broker was not informed that the customer had made a section 1278(b) election (the election to include market discount in income as it accrues rather than upon a disposition or receipt of a partial principal payment), there were no principal payments on the debt instrument during the 2014 calendar year, and the broker therefore had not reported accrued market discount to the customer for the VerDate Sep<11>2014 14:29 Feb 17, 2016 Jkt 238001 2014 calendar year using the ratable method. B. Transfer Statements Under § 1.6045A–1T(e) of the 2015 temporary reporting regulations, a transferring broker is required to provide a transfer statement upon the transfer of a section 1256 option to ensure that the receiving broker has all of the information required for purposes of section 6045. The temporary regulations 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. One commenter asserted that including the fair market value information on a transfer statement for a section 1256 option is unnecessary because the receiving broker can look up the information if it is needed and suggested saving space on the transfer statement by eliminating this data item. After considering the suggestion, the Treasury Department and IRS decline to adopt this suggestion. Providing fair market value information on a transfer statement will help ensure that the receiving broker is reporting an amount of realized but unrecognized gain or loss from the prior year that is consistent with the amount reported in the prior year by the transferring broker, which will minimize the possibility of double counting or omission of gain or loss. No other comments were received on § 1.6045A–1T of the 2015 temporary reporting regulations. The rules in the final regulations in this document are substantively the same as the rules in the 2015 temporary regulations. However, the rules in § 1.6045A–1T(e) are in § 1.6045A–1(b)(4)(iv) of the final regulations in this document and the rules in § 1.6045A–1T(f) are in § 1.6045A–1(b)(3)(x) of the final regulations in this document. C. Reporting of OID on a Tax-Exempt Obligation To coordinate the reporting of OID under section 6049 with the reporting of basis for tax-exempt obligations under section 6045, § 1.6049–10T of the 2015 temporary reporting regulations 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 § 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 PO 00000 Frm 00019 Fmt 4700 Sfmt 4700 8151 obligation is determined without regard to the de minimis rule in section 1273(a)(3) and § 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. Section 1.6049–10T of the 2015 temporary reporting regulations applies to a tax-exempt obligation acquired on or after January 1, 2017. No comments were received on the substantive rules in § 1.6049–10T. Accordingly, the rules in the final regulations in this document are the same as the rules in § 1.6049–10T. However, several commenters requested that, for taxable years beginning after December 31, 2016, a broker be permitted to report on Form 1099–OID the OID and acquisition premium on a tax-exempt obligation that is a covered security acquired before January 1, 2017. According to the commenters, customers might be confused because of the difference between the date that a tax-exempt obligation generally became a covered security (that is, an obligation acquired on or after January 1, 2014), and the date after which a tax-exempt obligation that is a covered security becomes subject to mandatory reporting of OID and acquisition premium (that is, an obligation acquired on or after January 1, 2017). Because a broker is required to track basis for a tax-exempt obligation that is a covered security for purposes of section 6045, the broker is responsible for calculating OID on a taxexempt obligation acquired on or after January 1, 2014, even if the broker has no obligation to report the obligation’s OID to the customer for purposes of section 6049. To simplify the reporting of OID and acquisition premium and to minimize any customer confusion, the commenters requested that the final regulations permit a broker to report OID and acquisition discount on all taxexempt bonds that are covered securities. After considering the requests, for taxable years beginning after December 31, 2016, the final regulations in this document permit, but do not require, a broker to report OID and acquisition discount for a tax-exempt obligation that is a covered security acquired before January 1, 2017. E:\FR\FM\18FER1.SGM 18FER1 8152 Federal Register / Vol. 81, No. 32 / Thursday, February 18, 2016 / Rules and Regulations wgreen on DSK2VPTVN1PROD with RULES D. Treatment of Certain Debt Instruments Subject to January 1, 2016, Reporting Under § 1.6045–1(n)(3) of the 2013 final basis reporting regulations, certain debt instruments are subject to basis reporting only if the debt instrument is acquired by a customer on or after January 1, 2016. For example, § 1.6045– 1(n)(3) applies to a contingent payment debt instrument, a debt instrument that is not issued by a U.S. issuer, and a debt instrument the terms of which are not reasonably available to a broker within 90 days of acquisition of the debt instrument by the customer. Several commenters on the 2013 final basis reporting regulations requested guidance for a debt instrument the terms of which are not reasonably available to the broker. The commenters stated that they would not have the information necessary to comply with the information reporting rules for these instruments. Several commenters stated that information for a debt instrument issued by a non-U.S. issuer and for a tax-exempt obligation is particularly difficult to obtain. One commenter noted that under SEC Release 34–67908, issued on September 21, 2012 (77 FR 59427), issuers of municipal securities are required to provide certain data to the Electronic Municipal Market Access system set up by the Municipal Securities Rulemaking Board for new issuances, but there is no requirement to file similar information for issuances already outstanding as of the November 1, 2012, effective date of the release. The Treasury Department and the IRS agree that a broker may not always be able to obtain information for a debt instrument issued by a non-U.S. issuer or for a tax-exempt obligation issued before January 1, 2014. The final regulations in this document therefore provide that a debt instrument issued by a non-U.S. issuer or a tax-exempt obligation issued before January 1, 2014, is treated as a noncovered security (and, therefore, is not subject to basis reporting under section 6045) if the terms of the debt instrument are not reasonably available to the broker within 90 days of the date the debt instrument was acquired by the customer. The Treasury Department and the IRS believe that the information necessary for section 6045 compliance should be available for other debt instruments. Applicability Dates The final regulations under section 6045 in this document (other than § 1.6045–1(n)(12)) apply to a debt instrument acquired on or after January VerDate Sep<11>2014 14:29 Feb 17, 2016 Jkt 238001 1, 2015. Section 1.6045–1(n)(12) applies to a debt instrument acquired on or after February 18, 2016. The final regulations under section 6049 in this document apply to a tax-exempt obligation that is a covered security acquired on or after January 1, 2017. The final regulations under section 6045A in this document 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 January 1, 2016. Special Analyses Certain IRS regulations, including this one, are exempt from the requirements of Executive Order 12866, as supplemented and reaffirmed 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, except in the case of the notification by a customer discussed in the next paragraph, will fall only on financial services firms with annual receipts greater than the $38.5 million threshold and, therefore, on no small entities. Section 403(a) of the Act requires a broker to report the adjusted basis of a debt instrument that is a covered security. Although a holder of a debt instrument (customer) is permitted to make a number of elections that affect how basis is computed, a broker only is required to take into account specified elections in reporting the adjusted basis of a debt instrument, including the election under section 1276(b)(2) to determine accruals of market discount on a constant yield method. Under the 2013 final basis reporting regulations, a customer was required to notify the broker that the customer had made the section 1276(b)(2) election. However, § 1.6045–1(n)(11)(i)(B) requires a broker to take into account the election under section 1276(b)(2) in reporting a debt instrument’s adjusted basis unless the customer timely notifies the broker that the customer has not made the election. The notification must be in writing, which includes a writing in electronic format. In most cases, this election results in a more taxpayer-favorable result than the default ratable method. PO 00000 Frm 00020 Fmt 4700 Sfmt 4700 It is anticipated that this collection of information in the regulations will not fall on a substantial number of small entities, especially because fewer customers will need to notify brokers about the election. Further, the regulations implement the statutory requirements for reporting adjusted basis under section 403 of the Act. Moreover, any economic impact is expected to be minimal because it should take a customer no more than seven minutes to satisfy the information-sharing requirement in these regulations. Section 403(c) of the Act added section 6045A, which requires applicable persons to provide a transfer statement in connection with the transfer of custody of a covered security. Section 1.6045A–1 effectuates the Act by giving the broker who receives the transfer statement the information necessary to determine and report adjusted basis and whether any gain or loss with respect to a debt instrument or section 1256 option is long-term or short-term as required by section 6045 when the security is subsequently sold. Consequently, § 1.6045A–1 does not add to the impact on small entities imposed by the statutory provisions. Instead, the regulations limit the information to be reported to only those items necessary to effectuate the statutory scheme. The information required under § 1.6049–10 will 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 determine a taxpayer’s adjusted basis in a debt instrument for purposes of 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. Any economic impact on small entities is expected to be minimal because a broker already is required to determine the accruals of OID and acquisition premium for purposes of determining and reporting a customer’s adjusted basis on Form 1099–B under section 6045. Moreover, any effect on small entities of the rules in the final regulations flows from section 6049 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. Pursuant to section 7805(f) of the Internal Revenue Code, the proposed regulations preceding the final regulations in this document were E:\FR\FM\18FER1.SGM 18FER1 Federal Register / Vol. 81, No. 32 / Thursday, February 18, 2016 / Rules and Regulations submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small businesses. No comments were received. 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 Treasury Department and the IRS 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 is amended by removing the entries for §§ 1.6045A–1T and 1.6049– 10T and adding an entry for § 1.6049– 10 to read in part as follows: ■ Authority: 26 U.S.C. 7805 * * * Section 1.6049–10 also issued under 26 U.S.C. 6049(a). * * * Par. 2. Section 1.6045–1 is amended by: ■ 1. Adding a sentence at the end of paragraph (n)(4) introductory text. ■ 2. Revising the last sentence in paragraph (n)(4)(iv). ■ 3. Revising the last sentence in paragraph (n)(5)(i). ■ 4. Revising the second sentence in paragraph (n)(6)(i). ■ 5. Adding a sentence at the end of paragraph (n)(6)(ii). ■ 6. Revising the last sentence in paragraph (n)(7)(iii). ■ 7. Revising ‘‘§ 1.6049–9T’’ to read ‘‘§ 1.6049–9’’ in two places in paragraph (n)(9). ■ 8. Revising paragraph (n)(11). ■ 9. Adding paragraph (n)(12). The revisions and additions read as follows: ■ § 1.6045–1 Returns of information of brokers and barter exchanges. wgreen on DSK2VPTVN1PROD with RULES * * * * * (n) * * * (4) * * * However, see paragraph (n)(11) of this section 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). VerDate Sep<11>2014 14:29 Feb 17, 2016 Jkt 238001 (iv) * * * However, see paragraph (n)(11)(i)(A) of this section for a debt instrument acquired on or after January 1, 2014. * * * * * (5) * * * (i) * * * However, see paragraph (n)(11) of this section 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). * * * * * (6) * * * (i) * * * See paragraphs (n)(5) and (n)(11)(i)(B) of this section to determine whether the amount reported should take into account a customer election under section 1276(b)(2). * * * (ii) * * * See paragraphs (n)(5) and (n)(11)(i)(B) of this section to determine whether the amount reported should take into account a customer election under section 1276(b)(2). (7) * * * (iii) * * * However, if a broker took into account a customer election under § 1.1272–3 in 2014, the broker must decrease the customer’s basis in the debt instrument by the amount of acquisition premium that is taken into account each year to reduce the amount of the original issue discount that is otherwise includible in the customer’s income for that year in accordance with §§ 1.1272– 2(b)(5) and 1.1272–3. * * * * * (11) Additional rules for certain holder elections—(i) In general. For purposes of this section, the rules in this paragraph (n)(11) apply notwithstanding any other rule in paragraph (n) of this section. (A) Election to treat all interest as OID. A broker must report the information required under paragraph (d) of this section without taking into account any election described in paragraph (n)(4)(iv) of this section (the election to treat all interest as OID in § 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 this section in accordance with § 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, however, may 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 PO 00000 Frm 00021 Fmt 4700 Sfmt 4700 8153 under paragraph (d) of this section by assuming that a customer has made the election described in paragraph (n)(4)(iii) of this section (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 paragraph (d) of this section 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. A broker, however, may rely on this paragraph (n)(11)(i)(B) to report accrued market discount for a debt instrument that is a covered security acquired on or after January 1, 2014, and before January 1, 2015, if the customer had not informed the broker that the customer had made a section 1278(b) election and there were no principal payments on the debt instrument during this period. (ii) [Reserved]. (12) Certain debt instruments treated as noncovered securities—(i) In general. Notwithstanding paragraph (a)(15) of this section, a debt instrument is treated as a noncovered security for purposes of this section if the terms of the debt instrument are not reasonably available to the broker within 90 days of the date the debt instrument was acquired by the customer and the debt instrument is either— (A) A debt instrument issued by a non-U.S. issuer; or (B) A tax-exempt obligation issued before January 1, 2014. (ii) Effective/applicability date. Paragraph (n)(12)(i) of this section applies to a debt instrument described in paragraph (n)(12)(i)(A) or (B) of this section that is acquired on or after February 18, 2016. However, a broker may rely on paragraph (n)(12)(i) of this section for a debt instrument described in paragraph (n)(12)(i)(A) or (B) of this section acquired before February 18, 2016. * * * * * ■ Par. 3. Section 1.6045–1T is amended by revising paragraphs (h) through (p) to read as follows: § 1.6045–1T Returns of information of brokers and barter exchanges (temporary). * * * * * (h) through (p) [Reserved]. For further guidance, see § 1.6045–1(h) through (p). * * * * * E:\FR\FM\18FER1.SGM 18FER1 8154 Federal Register / Vol. 81, No. 32 / Thursday, February 18, 2016 / Rules and Regulations Par. 4. Section 1.6045A–1 is amended by: ■ 1. Removing ‘‘and’’ at the end of paragraph (b)(3)(viii), removing the period at the end of paragraph (b)(3)(ix) and adding ‘‘and;’’ in its place, and adding paragraph (b)(3)(x). ■ 2. Removing ‘‘and’’ at the end of paragraph (b)(4)(ii), removing the period at the end of paragraph (b)(4)(iii) and adding ‘‘and;’’ in its place, and adding paragraph (b)(4)(iv). ■ 3. Removing paragraphs (e) and (f). The additions read as follows: ■ § 1.6045A–1 Statements of information required in connection with transfers of securities. * * * * (b) * * * (3) * * * (x) For a transfer that occurs on or after January 1, 2016, 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). A broker, however, may rely on this paragraph (b)(3)(x) for a transfer of a covered security that occurs on or after June 30, 2015, and before January 1, 2016. (4) * * * (iv) For a transfer of an option described in § 1.6045–1(m)(3) (section 1256 option) that occurs on or after January 1, 2016, the original basis of the wgreen on DSK2VPTVN1PROD with RULES * VerDate Sep<11>2014 14:29 Feb 17, 2016 Jkt 238001 option and the fair market value of the option as of the end of the prior calendar year. * * * * * § 1.6045A–1T [Removed] Par. 5. Section 1.6045A–1T is removed. ■ Par. 6. Section 1.6049–10 is added to read as follows: ■ § 1.6049–10 Reporting of original issue discount on a tax-exempt obligation. (a) In general. For purposes of section 6049, a payor (as defined in § 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 § 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 § 1.1273–1(d). PO 00000 Frm 00022 Fmt 4700 Sfmt 9990 (b) Acquisition premium. A payor is required to report acquisition premium amortization on a tax-exempt obligation in accordance with the rules in § 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 that is a covered security (within the meaning of § 1.6045–1(a)(15) and (n)(12)) acquired on or after January 1, 2017. For a taxable year beginning after December 31, 2016, a broker, however, may rely on this section to report OID and acquisition premium for a tax-exempt obligation that is a covered security acquired before January 1, 2017. § 1.6049–10T [Removed] Par. 7. Section 1.6049–10T is removed. ■ John Dalrymple, Deputy Commissioner for Services and Enforcement. Approved: January 13, 2016. Mark J. Mazur, Assistant Secretary of the Treasury (Tax Policy). [FR Doc. 2016–03429 Filed 2-17–16; 8:45 am] BILLING CODE 4830–01–P E:\FR\FM\18FER1.SGM 18FER1

Agencies

[Federal Register Volume 81, Number 32 (Thursday, February 18, 2016)]
[Rules and Regulations]
[Pages 8149-8154]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-03429]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9750]
RIN 1545-BM59


Reporting of Original Issue Discount on Tax-Exempt Obligations; 
Basis and Transfer Reporting by Securities Brokers for Debt Instruments 
and Options

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

-----------------------------------------------------------------------

SUMMARY: This document contains final 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.

DATES: 
    Effective date: These regulations are effective on February 18, 
2016.

[[Page 8150]]

    Applicability dates: For the dates of applicability, see Sec. Sec.  
1.6045-1(n)(11)(i)(A), 1.6045-1(n)(11)(i)(B), 1.6045-1(n)(12)(ii), 
1.6045A-1(b)(3)(x), 1.6045A-1(b)(4)(iv), and 1.6049-10(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

    The collection of information contained in Sec. Sec.  1.6045-1(n) 
and 1.6045A-1(b) of these final regulations 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 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 information required under Sec.  
1.6045-1(n) minimizes 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. The information required 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) of the Internal Revenue 
Code (Code). The burden for the collection of information contained in 
Sec.  1.6049-10 of these final regulations will be reflected in the 
burden for Form 1099-OID, Original Issue Discount (OMB control number 
1545-0117), when it is revised to request the additional information in 
the regulations. 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 determine a taxpayer's 
adjusted basis in a debt instrument for purposes of 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.
    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 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 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 proposed regulations 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 (REG-102988-11 at 76 FR 72652) (the 2011 
proposed basis reporting regulations). On April 18, 2013, the Treasury 
Department and the IRS published in the Federal Register final 
regulations under sections 6045, 6045A, and 6045B (the 2013 final basis 
reporting regulations) and temporary regulations relating to 
information reporting for bond premium and acquisition premium under 
section 6049 (TD 9616 at 78 FR 23116) (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).
    On March 13, 2015, the Treasury Department and the IRS published in 
the Federal Register final regulations under sections 6045, 6045A, and 
6049 (TD 9713 at 80 FR 13233) (the 2015 final basis reporting 
regulations, and, together with the 2013 final basis reporting 
regulations, the final basis reporting regulations). A number of 
commenters on the 2013 final basis reporting regulations requested 
changes to the basis reporting rules relating to certain debt 
elections. In addition, for purposes of section 6045A, several 
commenters requested that a transferring broker provide additional 
information on the transfer statement for a debt instrument and that a 
transferring broker provide a transfer statement for a section 1256 
option contract. Several commenters also suggested that the rules for 
reporting OID associated with a tax-exempt obligation be conformed to 
the rules regarding basis reporting for those debt instruments. 
Accordingly, TD 9713 also included temporary regulations relating to 
information reporting for debt instruments under sections 6045, 6045A, 
and 6049 (the 2015 temporary reporting regulations). A notice of 
proposed rulemaking cross-referencing the 2015 temporary reporting 
regulations was published in the Federal Register on March 13, 2015 
(REG-143040-14 at 80 FR 13292) (the 2015 proposed reporting 
regulations). A correction to Sec.  1.6045A-1T(f) was published on June 
5, 2015 (TD 9713 at 80 FR 31995), delaying the effective date of Sec.  
1.6045A-1T(f) from June 30, 2015, to January 1, 2016.
    Written comments were received on the 2015 proposed reporting 
regulations and are summarized below. No public hearing was requested 
or held. In general, these final regulations adopt the provisions of 
the 2015 proposed reporting regulations. These final regulations also 
remove the corresponding 2015 temporary reporting regulations.
    After the publication of the 2015 final basis reporting 
regulations, the Treasury Department and the IRS received written 
comments on certain provisions of the final basis reporting 
regulations. In response to these comments, this document contains 
final regulations under section 6045 relating to the treatment of 
certain debt instruments as non-covered securities.
    The written comments on the 2015 proposed reporting regulations and 
the 2015 final basis reporting regulations are available for public 
inspection at https://www.regulations.gov or upon request.

Explanation of Provisions

A. Constant Yield Election for Accruals of 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

[[Page 8151]]

accrued market discount. The election may not be revoked once it has 
been made. In most cases, the use of a constant yield method backloads 
market discount and is therefore more taxpayer favorable than the use 
of a ratable method.
    In response to comments on the 2013 final basis reporting 
regulations (which required the broker to assume that the customer had 
not made a constant yield election), Sec.  1.6045-1T(n)(11)(i)(B) of 
the 2015 temporary reporting regulations provided 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 broker in writing that the customer 
wants the broker to use the ratable method to determine accrued market 
discount.
    No comments were received on the substantive rules in Sec.  1.6045-
1T(n)(11)(i)(B). Accordingly, the rules in the final regulations in 
this document are the same as the rules in Sec.  1.6045-
1T(n)(11)(i)(B). Several commenters requested permission to apply the 
default constant yield method to debt instruments acquired on or after 
January 1, 2014, which was the first date for which a broker was 
required to report accrued market discount under section 6045, provided 
that the broker had not reported accrued market discount to a customer 
for the 2014 calendar year using the ratable method. According to the 
commenters, the use of a single method to compute market discount 
accruals for all covered securities with market discount would simplify 
the calculation of accrued market discount and the reporting of this 
information to their customers.
    The final regulations in this document permit, but do not require, 
a broker to apply the default constant yield method to a debt 
instrument acquired on or after January 1, 2014, and before January 1, 
2015, provided the broker was not informed that the customer had made a 
section 1278(b) election (the election to include market discount in 
income as it accrues rather than upon a disposition or receipt of a 
partial principal payment), there were no principal payments on the 
debt instrument during the 2014 calendar year, and the broker therefore 
had not reported accrued market discount to the customer for the 2014 
calendar year using the ratable method.

B. Transfer Statements

    Under Sec.  1.6045A-1T(e) of the 2015 temporary reporting 
regulations, a transferring broker is required to provide a transfer 
statement upon the transfer of a section 1256 option to ensure that the 
receiving broker has all of the information required for purposes of 
section 6045. The temporary regulations 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.
    One commenter asserted that including the fair market value 
information on a transfer statement for a section 1256 option is 
unnecessary because the receiving broker can look up the information if 
it is needed and suggested saving space on the transfer statement by 
eliminating this data item. After considering the suggestion, the 
Treasury Department and IRS decline to adopt this suggestion. Providing 
fair market value information on a transfer statement will help ensure 
that the receiving broker is reporting an amount of realized but 
unrecognized gain or loss from the prior year that is consistent with 
the amount reported in the prior year by the transferring broker, which 
will minimize the possibility of double counting or omission of gain or 
loss.
    No other comments were received on Sec.  1.6045A-1T of the 2015 
temporary reporting regulations. The rules in the final regulations in 
this document are substantively the same as the rules in the 2015 
temporary regulations. However, the rules in Sec.  1.6045A-1T(e) are in 
Sec.  1.6045A-1(b)(4)(iv) of the final regulations in this document and 
the rules in Sec.  1.6045A-1T(f) are in Sec.  1.6045A-1(b)(3)(x) of the 
final regulations in this document.

C. Reporting of OID on a Tax-Exempt Obligation

    To coordinate the reporting of OID under section 6049 with the 
reporting of basis for tax-exempt obligations under section 6045, Sec.  
1.6049-10T of the 2015 temporary reporting regulations 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. Section 1.6049-10T of the 2015 temporary 
reporting regulations applies to a tax-exempt obligation acquired on or 
after January 1, 2017.
    No comments were received on the substantive rules in Sec.  1.6049-
10T. Accordingly, the rules in the final regulations in this document 
are the same as the rules in Sec.  1.6049-10T. However, several 
commenters requested that, for taxable years beginning after December 
31, 2016, a broker be permitted to report on Form 1099-OID the OID and 
acquisition premium on a tax-exempt obligation that is a covered 
security acquired before January 1, 2017. According to the commenters, 
customers might be confused because of the difference between the date 
that a tax-exempt obligation generally became a covered security (that 
is, an obligation acquired on or after January 1, 2014), and the date 
after which a tax-exempt obligation that is a covered security becomes 
subject to mandatory reporting of OID and acquisition premium (that is, 
an obligation acquired on or after January 1, 2017). Because a broker 
is required to track basis for a tax-exempt obligation that is a 
covered security for purposes of section 6045, the broker is 
responsible for calculating OID on a tax-exempt obligation acquired on 
or after January 1, 2014, even if the broker has no obligation to 
report the obligation's OID to the customer for purposes of section 
6049. To simplify the reporting of OID and acquisition premium and to 
minimize any customer confusion, the commenters requested that the 
final regulations permit a broker to report OID and acquisition 
discount on all tax-exempt bonds that are covered securities.
    After considering the requests, for taxable years beginning after 
December 31, 2016, the final regulations in this document permit, but 
do not require, a broker to report OID and acquisition discount for a 
tax-exempt obligation that is a covered security acquired before 
January 1, 2017.

[[Page 8152]]

D. Treatment of Certain Debt Instruments Subject to January 1, 2016, 
Reporting

    Under Sec.  1.6045-1(n)(3) of the 2013 final basis reporting 
regulations, certain debt instruments are subject to basis reporting 
only if the debt instrument is acquired by a customer on or after 
January 1, 2016. For example, Sec.  1.6045-1(n)(3) applies to a 
contingent payment debt instrument, a debt instrument that is not 
issued by a U.S. issuer, and a debt instrument the terms of which are 
not reasonably available to a broker within 90 days of acquisition of 
the debt instrument by the customer.
    Several commenters on the 2013 final basis reporting regulations 
requested guidance for a debt instrument the terms of which are not 
reasonably available to the broker. The commenters stated that they 
would not have the information necessary to comply with the information 
reporting rules for these instruments. Several commenters stated that 
information for a debt instrument issued by a non-U.S. issuer and for a 
tax-exempt obligation is particularly difficult to obtain. One 
commenter noted that under SEC Release 34-67908, issued on September 
21, 2012 (77 FR 59427), issuers of municipal securities are required to 
provide certain data to the Electronic Municipal Market Access system 
set up by the Municipal Securities Rulemaking Board for new issuances, 
but there is no requirement to file similar information for issuances 
already outstanding as of the November 1, 2012, effective date of the 
release.
    The Treasury Department and the IRS agree that a broker may not 
always be able to obtain information for a debt instrument issued by a 
non-U.S. issuer or for a tax-exempt obligation issued before January 1, 
2014. The final regulations in this document therefore provide that a 
debt instrument issued by a non-U.S. issuer or a tax-exempt obligation 
issued before January 1, 2014, is treated as a noncovered security 
(and, therefore, is not subject to basis reporting under section 6045) 
if the terms of the debt instrument are not reasonably available to the 
broker within 90 days of the date the debt instrument was acquired by 
the customer. The Treasury Department and the IRS believe that the 
information necessary for section 6045 compliance should be available 
for other debt instruments.

Applicability Dates

    The final regulations under section 6045 in this document (other 
than Sec.  1.6045-1(n)(12)) apply to a debt instrument acquired on or 
after January 1, 2015. Section 1.6045-1(n)(12) applies to a debt 
instrument acquired on or after February 18, 2016. The final 
regulations under section 6049 in this document apply to a tax-exempt 
obligation that is a covered security acquired on or after January 1, 
2017. The final regulations under section 6045A in this document 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 
January 1, 2016.

Special Analyses

    Certain IRS regulations, including this one, are exempt from the 
requirements of Executive Order 12866, as supplemented and reaffirmed 
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, except in the case of the notification by a customer 
discussed in the next paragraph, will fall only on financial services 
firms with annual receipts greater than the $38.5 million threshold 
and, therefore, on no small entities.
    Section 403(a) of the Act requires a broker to report the adjusted 
basis of a debt instrument that is a covered security. Although a 
holder of a debt instrument (customer) is permitted to make a number of 
elections that affect how basis is computed, a broker only is required 
to take into account specified elections in reporting the adjusted 
basis of a debt instrument, including the election under section 
1276(b)(2) to determine accruals of market discount on a constant yield 
method. Under the 2013 final basis reporting regulations, a customer 
was required to notify the broker that the customer had made the 
section 1276(b)(2) election. However, Sec.  1.6045-1(n)(11)(i)(B) 
requires a broker to take into account the election under section 
1276(b)(2) in reporting a debt instrument's adjusted basis unless the 
customer timely notifies the broker that the customer has not made the 
election. The notification must be in writing, which includes a writing 
in electronic format. In most cases, this election results in a more 
taxpayer-favorable result than the default ratable method. It is 
anticipated that this collection of information in the regulations will 
not fall on a substantial number of small entities, especially because 
fewer customers will need to notify brokers about the election. 
Further, the regulations implement the statutory requirements for 
reporting adjusted basis under section 403 of the Act. Moreover, any 
economic impact is expected to be minimal because it should take a 
customer no more than seven minutes to satisfy the information-sharing 
requirement in these regulations.
    Section 403(c) of the Act added section 6045A, which requires 
applicable persons to provide a transfer statement in connection with 
the transfer of custody of a covered security. Section 1.6045A-1 
effectuates the Act by giving the broker who receives the transfer 
statement the information necessary to determine and report adjusted 
basis and whether any gain or loss with respect to a debt instrument or 
section 1256 option is long-term or short-term as required by section 
6045 when the security is subsequently sold. Consequently, Sec.  
1.6045A-1 does not add to the impact on small entities imposed by the 
statutory provisions. Instead, the regulations limit the information to 
be reported to only those items necessary to effectuate the statutory 
scheme.
    The information required under Sec.  1.6049-10 will 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 determine a taxpayer's 
adjusted basis in a debt instrument for purposes of 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. Any economic impact on small entities is 
expected to be minimal because a broker already is required to 
determine the accruals of OID and acquisition premium for purposes of 
determining and reporting a customer's adjusted basis on Form 1099-B 
under section 6045. Moreover, any effect on small entities of the rules 
in the final regulations flows from section 6049 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.
    Pursuant to section 7805(f) of the Internal Revenue Code, the 
proposed regulations preceding the final regulations in this document 
were

[[Page 8153]]

submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on their impact on small businesses. No 
comments were received.

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 Treasury Department and the IRS 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 entries for Sec. Sec.  1.6045A-1T and 1.6049-10T and adding an 
entry for Sec.  1.6049-10 to read in part as follows:

    Authority:  26 U.S.C. 7805 * * *
    Section 1.6049-10 also issued under 26 U.S.C. 6049(a). * * *


0
Par. 2. Section 1.6045-1 is amended by:
0
1. Adding a sentence at the end of paragraph (n)(4) introductory text.
0
2. Revising the last sentence in paragraph (n)(4)(iv).
0
3. Revising the last sentence in paragraph (n)(5)(i).
0
4. Revising the second sentence in paragraph (n)(6)(i).
0
5. Adding a sentence at the end of paragraph (n)(6)(ii).
0
6. Revising the last sentence in paragraph (n)(7)(iii).
0
7. Revising ``Sec.  1.6049-9T'' to read ``Sec.  1.6049-9'' in two 
places in paragraph (n)(9).
0
8. Revising paragraph (n)(11).
0
9. Adding paragraph (n)(12).
    The revisions and additions read as follows:


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

* * * * *
    (n) * * *
    (4) * * * However, see paragraph (n)(11) of this section 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).
    (iv) * * * However, see paragraph (n)(11)(i)(A) of this section for 
a debt instrument acquired on or after January 1, 2014.
* * * * *
    (5) * * *
    (i) * * * However, see paragraph (n)(11) of this section 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).
* * * * *
    (6) * * *
    (i) * * * See paragraphs (n)(5) and (n)(11)(i)(B) of this section 
to determine whether the amount reported should take into account a 
customer election under section 1276(b)(2). * * *
    (ii) * * * See paragraphs (n)(5) and (n)(11)(i)(B) of this section 
to determine whether the amount reported should take into account a 
customer election under section 1276(b)(2).
    (7) * * *
    (iii) * * * However, if a broker took into account a customer 
election under Sec.  1.1272-3 in 2014, the broker must decrease the 
customer's basis in the debt instrument by the amount of acquisition 
premium that is taken into account each year to reduce the amount of 
the original issue discount that is otherwise includible in the 
customer's income for that year in accordance with Sec. Sec.  1.1272-
2(b)(5) and 1.1272-3.
* * * * *
    (11) Additional rules for certain holder elections--(i) In general. 
For purposes of this section, the rules in this paragraph (n)(11) apply 
notwithstanding any other rule in paragraph (n) of this section.
    (A) Election to treat all interest as OID. A broker must report the 
information required under paragraph (d) of this section without taking 
into account any election described in paragraph (n)(4)(iv) of this 
section (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 this 
section 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, however, may 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 paragraph (d) of this 
section by assuming that a customer has made the election described in 
paragraph (n)(4)(iii) of this section (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 paragraph (d) of this section 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. A broker, however, may rely on this paragraph 
(n)(11)(i)(B) to report accrued market discount for a debt instrument 
that is a covered security acquired on or after January 1, 2014, and 
before January 1, 2015, if the customer had not informed the broker 
that the customer had made a section 1278(b) election and there were no 
principal payments on the debt instrument during this period.
    (ii) [Reserved].
    (12) Certain debt instruments treated as noncovered securities--(i) 
In general. Notwithstanding paragraph (a)(15) of this section, a debt 
instrument is treated as a noncovered security for purposes of this 
section if the terms of the debt instrument are not reasonably 
available to the broker within 90 days of the date the debt instrument 
was acquired by the customer and the debt instrument is either--
    (A) A debt instrument issued by a non-U.S. issuer; or
    (B) A tax-exempt obligation issued before January 1, 2014.
    (ii) Effective/applicability date. Paragraph (n)(12)(i) of this 
section applies to a debt instrument described in paragraph 
(n)(12)(i)(A) or (B) of this section that is acquired on or after 
February 18, 2016. However, a broker may rely on paragraph (n)(12)(i) 
of this section for a debt instrument described in paragraph 
(n)(12)(i)(A) or (B) of this section acquired before February 18, 2016.
* * * * *

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 (p) [Reserved]. For further guidance, see Sec.  1.6045-
1(h) through (p).
* * * * *

[[Page 8154]]


0
Par. 4. Section 1.6045A-1 is amended by:
0
1. Removing ``and'' at the end of paragraph (b)(3)(viii), removing the 
period at the end of paragraph (b)(3)(ix) and adding ``and;'' in its 
place, and adding paragraph (b)(3)(x).
0
2. Removing ``and'' at the end of paragraph (b)(4)(ii), removing the 
period at the end of paragraph (b)(4)(iii) and adding ``and;'' in its 
place, and adding paragraph (b)(4)(iv).
0
3. Removing paragraphs (e) and (f).
    The additions read as follows:


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

* * * * *
    (b) * * *
    (3) * * *
    (x) For a transfer that occurs on or after January 1, 2016, 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). A broker, 
however, may rely on this paragraph (b)(3)(x) for a transfer of a 
covered security that occurs on or after June 30, 2015, and before 
January 1, 2016.
    (4) * * *
    (iv) For a transfer of an option described in Sec.  1.6045-1(m)(3) 
(section 1256 option) that occurs on or after January 1, 2016, the 
original basis of the option and the fair market value of the option as 
of the end of the prior calendar year.
* * * * *


Sec.  1.6045A-1T  [Removed]

0
Par. 5. Section 1.6045A-1T is removed.

0
Par. 6. Section 1.6049-10 is added to read as follows:


Sec.  1.6049-10  Reporting of original issue discount on a tax-exempt 
obligation.

    (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 that is a covered security (within the meaning of 
Sec.  1.6045-1(a)(15) and (n)(12)) acquired on or after January 1, 
2017. For a taxable year beginning after December 31, 2016, a broker, 
however, may rely on this section to report OID and acquisition premium 
for a tax-exempt obligation that is a covered security acquired before 
January 1, 2017.


Sec.  1.6049-10T  [Removed]

0
Par. 7. Section 1.6049-10T is removed.

John Dalrymple,
Deputy Commissioner for Services and Enforcement.
    Approved: January 13, 2016.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2016-03429 Filed 2[dash]17-16; 8:45 am]
BILLING CODE 4830-01-P

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