issue-1995-12-21•Federal Register final rules — 1995-12-21
Federal Register final rules — 1995-12-21
issue-1995-12-21Federal Register final rules — 1995-12-21Regulation
Published Federal Register documents, not public-inspection drafts. The GPO XML/text rendition is a research aid; the linked complete official PDF retains the printed layout and all graphics. Graphics are retained in that PDF and are not independently reproduced in this text rendition. Publication does not establish that every provision remains legally in force.
FR Doc. 95-31118 National Minimum Drinking Age
[Federal Register Volume 60, Number 245 (Thursday, December 21, 1995)]
[Rules and Regulations]
[Pages 66074-66076]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-31118]
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DEPARTMENT OF TRANSPORTATION
National Highway Traffic Safety Administration
Federal Highway Administration
23 CFR Part 1208
[NHTSA Docket No. 85-12; Notice 4]
RIN 2127-AF95
National Minimum Drinking Age
AGENCY: National Highway Traffic Safety Administration (NHTSA), Federal
Highway Administration (FHWA), Department of Transportation (DOT).
ACTION: Final Rule.
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SUMMARY: This final rule amends Part 1208 of title 23 of the Code of
Federal Regulations (CFR). Part 1208 prescribes the requirements
necessary to implement 23 U.S.C. 158, which established the National
Minimum Drinking Age Act. This final rule is amending Part 1208 by
removing outdated and obsolete provisions from that regulation.
EFFECTIVE DATE: January 22, 1996.
FOR FURTHER INFORMATION CONTACT: In NHTSA: Mr. James Wright, Office of
Traffic Safety Programs, National Highway Traffic Safety
Administration, 400 7th Street, S.W., Washington, D.C. 20590, telephone
(202) 366-2724; or Ms. Heidi L. Coleman, Office of Chief Counsel, Room
5219, National Highway Traffic Safety Administration, 400 Seventh
Street, S.W., Washington, D.C. 20590, telephone (202) 366-1834. In
FHWA: Ms. Mila Plosky, Office of Highway Safety, Federal Highway
[[Page 66075]]
Administration, 400 7th Street, S.W., Washington, D.C. 20590, telephone
(202) 366-6902; or Mr. Paul Brennan, Office of the Chief Counsel,
Federal Highway Administration, 400 7th Street, S.W., Washington, D.C.
20590, telephone (202) 366-0834.
SUPPLEMENTARY INFORMATION: On March 4, 1995, President Clinton directed
all Federal Departments and agencies to take a number of steps to
overhaul the nation's regulatory system. The first step was to conduct
a page-by-page review of all agency regulations now in force and
eliminate or revise those that are outdated or otherwise in need of
reform.
NHTSA and FHWA conducted a thorough, page-by-page review of all
agency regulations, including those that pertain to State and community
highway safety programs.
As a result of these efforts, NHTSA and FHWA have determined that
Part 1208 of title 23 of the Code of Federal Regulations (CFR) should
be amended, because portions of the regulation are outdated and
obsolete.
Part 1208 prescribes the requirements necessary to implement 23
U.S.C. Sec. 158, which established the National Minimum Drinking Age.
The regulation clarifies the provisions which a State must have
incorporated into its laws in order to avoid the withholding of
Federal-aid highway funds for noncompliance with the National Minimum
Drinking Age. It also describes, in detail, the consequences of
noncompliance.
The regulation was first published in the Federal Register on March
26, 1985 (51 F.R. 10376). It was amended, to reflect statutory changes
made to the National Minimum Drinking Age Act, on August 18, 1988 (53
F.R. 31318).
Some of the provisions of the regulation are no longer applicable.
For example, under the National Minimum Drinking Age (NMDA), funds
withheld from a State prior to FY 1989 remained available for
apportionment to the State for a period of time, and States were
permitted for a limited period of time to include in their laws
``grandfather rights'' for persons who were between the ages of 18 and
21. The regulation contained provisions implementing these statutory
requirements. These requirements no longer apply. Funds now withheld
under the NMDA are not available for apportionment to the State, and
grandfather rights may no longer be included in State laws. This final
rule deletes these outdated and obsolete provisions.
The NMDA provides that the Secretary must withhold from non-
complying States, ten percent of the funds required to be apportioned
under 23 U.S.C. Secs. 104(b)(1), 104(b)(2), 104(b)(5) and 104(b)(6). At
the time the NMDA was enacted, these sections corresponded with the
Federal-aid primary, secondary, Interstate and urban systems funding
categories.
The Intermodal Surface Transportation Efficiency Act of 1991
(ISTEA), which was enacted on December 18, 1991, revised or eliminated
these funding categories, and created new ones, including the National
Highway System (NHS) and the Surface Transportation Program (STP). The
Interstate System funding category was maintained, although the
Interstate system itself is now a component of NHS. The Interstate
funding category involves resurfacing, restoring, rehabilitating and
reconstruction.
Since the enactment of ISTEA, the agencies have administered the
penalty provisions of 23 U.S.C. Sec. 158 by withholding ten percent of
a State's apportionments for the NHS, STP and Interstate System
programs (23 U.S.C. Secs. 104(b)(1), 104(b)(3) and 104(b)(5)), the
successors to the funding categories referenced in the NMDA. However,
the NMDA has not been amended to reflect the changes made to the
funding categories by ISTEA. Accordingly, the implementing regulation
for NMDA continues to reflect the language contained in the NMDA. This
final rule does not amend this portion of the regulation.
Rulemaking Analyses and Notices
(a) Executive Order 12866 (Regulatory Planning and Review) and DOT
Regulatory Policies and Procedures.
The agencies have determined that this action is not a significant
regulatory action within the meaning of Executive Order 12866 or
significant within the meaning of Department of Transportation
Regulatory Policies and Procedures. This final rule does not impose any
additional burden on the public. It is technical in nature and does not
change the requirements of the program. It is anticipated that there
will be no economic impact as a result of this rulemaking. Accordingly,
a full regulatory evaluation is not required and was not prepared.
(b) Regulatory Flexibility Act.
In compliance with the Regulatory Flexibility Act (Pub. L. 96-354,
5 U.S.C. 601-612), the agencies have evaluated the effects of this rule
on small entities. Based on the evaluation, the agencies hereby certify
that this action will not have a significant impact on a substantial
number of small entities. Accordingly, a Regula-tory Flexibility
Analysis is not necessary and was not prepared.
(c) Executive Order 12612 (Federalism Assessment)
This action has been analyzed in accordance with the principles and
criteria contained in Executive order 12612, and it has been determined
that this action does not have sufficient federalism implications to
warrant the preparation of a federalism assessment.
(d) Paperwork Reduction Act.
This action does not contain a collection of information
requirement for purposes of the Paperwork Reduction Act of 1980, 44
U.S.C. 3501 et seq.
(e) National Environmental Policy Act.
The agencies have analyzed this action for the purpose of the
National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.) and
have determined that implementation of this action will not have any
significant impact on the quality of the human environment.
(f) Executive Order 12778 (Civil Justice Reform)
This amendment to the regulation does not have any preemptive or
retroactive effect. It imposes no requirements on the States, but
rather simply removes from the regulation outdated and obsolete
provisions that no longer apply. The enabling legislation does not
establish a procedure for judicial review of final rules promulgated
under its provisions. There is no requirement that individuals submit a
petition for reconsideration or other administrative proceedings before
they may file suit in court.
Notice and Comment
Because the amendments relate to a grant program and are therefore
not covered by the Administrative Procedure Act, and since they merely
contain technical changes that remove outdated and obsolete provisions
from the regulation and do not impose any additional requirements, the
amendments are being made without prior notice and opportunity to
comment.
List of Subjects in 23 CFR Part 1208
Alcohol, Highway Safety.
In accordance with the foregoing, Part 1208 of Title 23 of the Code
of Federal Regulations is amended as follows:
[[Page 66076]]
PART 1208--[AMENDED]
1. The authority citation for Part 1208 continues to read as
follows:
Authority: 23 U.S.C. 158; delegation of authority at 49 CFR 1.48
and 1.50.
2. Section 1208.4 is revised to read as follows:
Sec. 1208.4 Adoption of National Minimum Drinking Age.
The Secretary shall withhold ten percent of the amount required to
be apportioned to any State under each of Secs. 104(b)(1), 104(b)(2),
104(b)(5) and 104(b)(6) of title 23 U.S.C. on the first day of each
fiscal year in which the purchase or public possession in such State of
any alcoholic beverage by a person who is less than twenty-one years of
age is lawful.
3. Section 1208.5 is revised to read as follows:
Sec. 1208.5 Unavailability of withheld funds.
Funds withheld under Sec. 1208.4 from apportionment to any State
will not be available for apportionment to the State.
Secs. 1208.6--1208.8 [Removed]
4. Sections 1208.6 through 1208.8 are removed.
Sec. 1208.9 [Redesignated as Sec. 1208.6]
5. Section 1208.9 is redesignated as 1208.6.
Issued on: December 18, 1995.
Rodney E. Slater,
Administrator, Federal Highway Administration.
Ricardo Martinez,
Administrator, National Highway Traffic Safety Administration
[FR Doc. 95-31118 Filed 12-20-95; 8:45 am]
BILLING CODE 4910-59-P
Complete official Federal Register PDF
FR Doc. 95-31106 International Child Abduction
[Federal Register Volume 60, Number 245 (Thursday, December 21, 1995)]
[Rules and Regulations]
[Pages 66073-66074]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-31106]
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DEPARTMENT OF STATE
Bureau of Consular Affairs, Overseas Citizens Services
22 CFR Part 94
[Public Notice 2290]
International Child Abduction
AGENCY: Department of State.
ACTION: Interim rule with request for comments.
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SUMMARY: This interim rule amends regulations regarding incoming
parental abduction cases pursuant to the Hague Convention on the Civil
Aspects of International Child Abduction. Incoming cases will be
processed by a non-governmental organization with oversight by the
Department of State.
DATES: Effective Date: December 21, 1995. Comments are due on or before
January 22, 1995.
ADDRESSES: Interested persons are invited to submit comments in
duplicate to the Director of the Office of Children's Issues, Bureau of
Consular Affairs, Room 4811, U.S. Department of State, Washington, DC
20520; fax: 202-647-2835.
FOR FURTHER INFORMATION CONTACT: Leslie Rowe, Director of the Office of
Children's Issues, Room 4811, U.S. Department of State, Washington,
D.C. 20520. tele: 202-647-2688.
SUPPLEMENTARY INFORMATION: Since 1988, the Bureau of Consular Affairs
has served as the U.S. Central Authority under the Hague Convention on
the Civil Aspects of International Child Abduction. As U.S. Central
Authority, the Office of Children's Issues is responsible for
processing all Hague Convention applications seeking the return of
children wrongfully removed or retained in the United States or any
other Hague Convention contracting state. In addition, the U.S. Central
Authority is responsible for facilitating access rights under the
Convention. The Office of Children's Issues processes approximately 700
Hague Convention applications annually; roughly 300 of these cases are
incoming cases, i.e., applications for the return of a child wrongfully
removed to or retained in the United States.
The processing of incoming Hague applications requires case
officers to
[[Page 66074]]
communicate with foreign Central Authorities about incoming cases, to
determine the whereabouts of children wrongfully taken to the United
States, to attempt to promote voluntary return of abducted children,
and to facilitate the initiation of judicial proceedings with a view
toward securing the return of abducted children. Many of the case
officer functions involve extensive contact with local law enforcement
officials, social service agencies, legal aid organizations and local
bar associations.
The Office of Children's Issues has recently entered into an
agreement with the Department of Justice's Office of Juvenile Justice
and Delinquency Prevention, and the National Center for Missing and
Exploited Children (National Center). Under this agreement, the
National Center will assist the U.S. Central Authority in fulfilling
its responsibilities under the Hague Convention.
The National Center, a non-governmental organization, is a national
resource center and clearinghouse that provides technical assistance to
parents seeking to locate and recover children missing in the United
States. For more than ten years, the National Center has been
performing case management and analysis functions for domestic
abductions; it handles more than 1,200 parental child abduction cases
annually. By agreement with the Department of Justice, the National
Center provides legal technical assistance, maintains a toll-free
hotline as well as an online information network, and operates a photo
distribution service.
Transferring specified case officer functions to the National
Center with respect to incoming Hague Convention cases will result in
the provision of better service to parents seeking the return of
children under the Convention. Parents will benefit from the National
Center's expertise in finding missing children and liaising with
contacts in the local law enforcement and social services communities.
This transfer of case officer functions to the National Center will
not in any way alter the role of the State Department as U.S. Central
Authority under the Hague Convention. The Office of Children Issues
will continue as the U.S. Central Authority under the Convention and
will retain ultimate responsibility for all incoming cases. Under the
agreement, all inherently governmental functions, including matters of
Hague Convention interpretation and policy direction are to be carried
out by the Department of State. Congressional and White House
correspondence as well as media relations will continue to be handled
by the Office of Children's Issues.
The Department of State is publishing this as an interim final
rule, rather than as a notice of proposed rulemaking as allowed by 5
U.S.C. 553(b)(3)(B) when an agency determines, for good cause, that it
is unnecessary to publish a proposed rule. The Department of State has
determined that publication of a proposed rule is unnecessary, as the
transfer of responsibility over incoming Hague Convention cases to the
National Center primarily affects workload distribution and management
of U.S. Central Authority functions. The Department of State's Office
of Children's Issues will continue to perform all inherently
governmental functions of the U.S. Central Authority.
This rule is exempt from E.O. 12866, but nonetheless has been
reviewed and found to be consistent with the objectives and policies
thereof. This rule is not expected to have a significant impact on a
substantial, number of small entities under the criteria of the
Regulatory Flexibility Act, 5 U.S.C. 605(b). In addition, this rule
would not impose information collection requirements under the
provisions of the Paperwork Reduction. Act, 44 U.S.C. Chapter 35. Nor
does this rule have federalism implications warranting the preparation
of a Federalism Assessment in accordance with E.O. 12612. This rule has
been reviewed as required by E.O. 12778 and certified to be in
compliance therewith.
List of Subjects in 22 CFR Part 94
Infants and children, reporting and recordkeeping requirements,
Treaties.
For the reasons set forth in the preamble, 22 CFR 94 is amended as
follows:
PART 94--INTERNATIONAL CHILD ABDUCTION
1. The authority citation for part 94 continues to read as follows:
Authority: Hague Convention on the Civil Aspects of
International Child Abduction; International Child Abduction
Remedies Act, Pub. L. 100-300.
2. Section 94.6 is amended by revising the introductory text and
paragraph (1), removing paragraph (k), redesignating paragraphs (a)
through (j) as paragraphs (b) through (k), and adding a new paragraph
(a) to read as follows:
Sec. 94.6 Procedures for children abducted to the United States.
The National Center for Missing and Exploited Children shall act
under the direction of the U.S. Central Authority and shall perform the
following operational functions with respect to all Hague Convention
applications seeking the return of children wrongfully removed to or
retained in the United States or seeking access to children in the
United States:
(a) Receive all applications on behalf of the U.S. Central
Authority;
* * * * *
(l) Perform such additional functions as set out in the
``Cooperative Agreement Adjustment Notice'' between the Department of
State, Department of Justice, and National Center for Missing and
Exploited Children.
Dated: November 3, 1995.
Mary A. Ryan,
Assistant Secretary of State for Consular Affairs.
[FR Doc. 95-31106 Filed 12-20-95; 8:45 am]
BILLING CODE 4710-06-M
Complete official Federal Register PDF
FR Doc. 95-31103 Establishment of Class D Airspace and Amendment of Class E Airspace; Elko, NV
[Federal Register Volume 60, Number 245 (Thursday, December 21, 1995)]
[Rules and Regulations]
[Pages 66069-66070]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-31103]
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DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 71
[Airspace Docket No. 95-AWP-30]
Establishment of Class D Airspace and Amendment of Class E
Airspace; Elko, NV
AGENCY: Federal Aviation Administration (FAA), DOT.
ACTION: Final rule.
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SUMMARY: This action establishes Class D and amends Class E airspace
areas at Elko Municipal-J.C. Harris Field, Elko, NV. The development of
a Global Positioning System (GPS) Standard Instrument Approach
Procedure (SIAP) to Runway (RWY) 5 and the establishment of a Airport
Traffic Control Tower has made this action necessary. An intended
effect of this action is to provide adequate controlled airspace for
Instrument Flight Rules (IFR) operations at Elko Municipal-J.C. Harris
Field, Elko, NV.
EFFECTIVE DATE: 0901 UTC February 29, 1996.
FOR FURTHER INFORMATION CONTACT:
Scott Speer, Airspace Specialist, System Management Branch, AWP-530,
Air Traffic Division, Western-Pacific Region, Federal Aviation
Administration, 15000 Aviation Boulevard, Lawndale, California 90261,
telephone (310) 725-6533.
SUPPLEMENTARY INFORMATION:
History
On October 30, 1995, the FAA proposed to amend part 71 of the
Federal Aviation Regulations (14 CFR part 71) by establishing Class D
and amending Class E airspace at Elko, NV (60 FR 55222).
Interested parties were invited to participate in this rulemaking
proceeding by submitting written comments on the proposal to the FAA.
No comments to the proposal were received. Class D and Class E airspace
designations are published in paragraphs 5000, 6002, and 6005 of FAA
Order 7900.9C dated August 17, 1995, and effective September 16, 1995,
which is incorporated by reference in 14 CFR 71.1. The Class D and E
airspace designations listed in this document will be published
subsequently in this Order.
The Rule
This amendment to part 71 of the Federal Aviation Regulations (14
CFR part 71) establishes the Class D and amends the Class E airspace
areas at Elko, NV. An intended effect of this action is to provide
adequate controlled airspace for aircraft executing the GPS RWY 5 SIAP
at Elko Municipal-J.C. Harris Field, Elko, NV.
The FAA has determined that this regulation only involves an
established body of technical regulations for which frequent and
routine amendments are necessary to keep them operationally current.
Therefore, this regulation--(1) is not a ``significant regulatory
action'' under Executive Order 12866; (2) is not a ``significant rule''
under DOT Regulatory Policies and Procedures (44 FR 10034; February 26,
1979); and (3) does not warrant preparation of a Regulatory Evaluation
as the anticipated impact is so minimal. Since this is a routine matter
that will only affect air traffic procedures and air navigation, it is
certified that this rule will not have a significant economic impact on
a substantial number of small entities under the criteria of the
Regulatory Flexibility Act.
List of Subjects in 14 CFR Part 71
Airspace, Incorporation by reference, Navigation (air).
Adoption of the Amendment
In consideration of the foregoing, the Federal Aviation
Administration amends 14 CFR part 71 as follows:
PART 71--[AMENDED]
1. The authority citation for 14 CFR part 71 continues to read as
follows:
Authority: 49 U.S.C. 106(g), 40103, 40113, 40120; E.O. 10854, 24
FR 9565, 3 CFR, 1959-1963 Comp., p. 389; 14 CFR 11.69.
Sec. 71.1 [Amended]
2. The incorporation by reference in 14 CFR 71.1 of the Federal
Aviation Administration Order 7400.9C, Airspace Designations and
Reporting Points, dated August 17, 1995, and effective September 16,
1995, is amended as follows:
Paragraph 5000 Class D Airspace.
* * * * *
AWP NV D Elko, NV [New]
Elko Municipal-J.C. Harris Field, NV
(lat. 40 deg.49'31''N, long 115 deg.47'28''W)
That airspace extending upward from the surface to including
7,700 feet MSL within a 4.3-mile radius of Elko Municipal-J.C.
Harris Field and within 1.8 miles each side of the 248 deg. bearing
from the Elko Municipal-J.C. Harris Field, extending from the 4.3-
mile radius to 6 miles southwest of the airport. This Class D
airspace area is effective during the specific dates and times
established in advance by a Notice to Airmen. The effective
[[Page 66070]]
date and time will thereafter be continuously published in the Airport/
Facility Directory.
* * * * *
Paragraph 6002 Class E airspace areas designated as a surface area
for an airport.
* * * * *
AWP NV E2 Elko, NV [Revised]
Elko Municipal-J.C. Harris Field, NV
(lat. 40 deg.49'31''N, long. 115 deg.47'28''W)
Within a 4.3-mile radius of the Elko Municipal-J.C. Harris Field
and within 1.8 miles each side of the 248 deg. bearing from the Elko
Municipal-J.C. Harris Field, extending from the 4.3-mile radius to 6
miles southwest of the Elko Municipal-J.C. Harris Field and within
1.8 miles each side of the 075 deg. bearing from the Elko Municipal-
J.C. Harris Field, extending from the 4.3-mile radius to 8.3 miles
northeast of the airport. This Class E airspace area is effective
during the specific dates and times established in advance by a
Notice to Airmen. The effective date and time will thereafter be
continuously published in the Airport/Facility Directory.
* * * * *
Paragraph 6005 Class E airspace areas extending upward from 700
feet or more above the surface of the earth.
* * * * *
AWP NV E5 Elko NV [Revised]
Elko Municipal-J.C. Harris Field, NV
(lat. 40 deg.49'31''N, long. 115 deg.47'28''W)
That airspace extending upward from 700 feet above the surface
within an 8.3-mile radius of Elko Municipal-J.C. Harris Field and
within 1.8 miles either side of 248 deg. bearing from the Elko
Municipal-J.C. Field, extending from the 8.3-mile radius to the 11.7
miles southwest of the Elko Municipal-J.C. Harris Field and within
3.9 miles east and 8.3 miles west of the 161 deg. bearing from the
Elko Municipal-J.C. Harris Field, extending from the 8.3-mile radius
to 21.7 miles south of Elko Municipal-J.C. Harris Field and within
4.3 miles each side of the 075 deg. bearing from the Elko Municipal-
J.C. Harris Field, extending from the 8.3-mile radius to 17.8 miles
northeast of the airport. That airspace extending upward from 1,200
feet above the surface within an 18.7-mile radius of Elko Municipal-
J.C. Harris Field, and that airspace bounded on the north by the
south edge of V-6, on the south by the north edge of V-32, on the
east by the 18.7-mile radius west of the Elko Municipal-J.C. Harris
Field and that airspace bounded by a line beginning at lat.
40 deg.34'00''N, long. 116 deg.00'00''W; to lat. 40 deg.27'00''N,
long. 116 deg.36'00''W; to lat. 40 deg.31'00''N, long
116 deg.38'00''W; to lat. 40 deg.32'00''N, long. 116 deg.33'00''W;
to lat. 40 deg.33'30''N, long. 116 deg.33'30''W; to lat.
40 deg.38'00''N, long. 116 deg.07'00''W, thence via the 18.7-mile
radius of Elko Municipal-J.C. Harris Field to the point of
beginning.
* * * * *
Issued in Los Angeles, California, on December 6, 1995.
James H. Snow,
Acting Manager, Air Traffic Division, Western-Pacific Region.
[FR Doc. 95-31103 Filed 12-20-95; 8:45 am]
BILLING CODE 4910-13-M
Complete official Federal Register PDF
FR Doc. 95-31101 Amendment of Class E Airspace; Salt Lake City, Utah
[Federal Register Volume 60, Number 245 (Thursday, December 21, 1995)]
[Rules and Regulations]
[Pages 66070-66071]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-31101]
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DEPARTMENT OF TRANSPORTATION
14 CFR Part 71
[Airspace Docket No. 95-ANM-15]
Amendment of Class E Airspace; Salt Lake City, Utah
AGENCY: Federal Aviation Administration (FAA), DOT.
ACTION: Final rule.
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SUMMARY: This action amends the salt Lake City, Utah, Class E airspace
to accommodate a new instrument approach procedure at Salt Lake City
International Airport. This amendment brings publications up-to-date
giving continuous information to the aviation public.
EFFECTIVE DATE: 0901 UTC, February 29, 1996.
FOR FURTHER INFORMATION CONTACT: James Riley, ANM-537, Federal Aviation
Administration, Docket No. 95-ANM-15, 1601 Lind Avenue S.W., Renton,
Washington, 98055-4056; telephone number: 206 227-2537.
SUPPLEMENTARY INFORMATION:
History
On October 10, 1995, the FAA proposed to amend part 71 of Federal
Aviation Regulations (14 CFR part 71) by amending the Salt Lake City,
Utah, Class airspace designation (60 FR 52639). Interested parties were
invited to participate in the rulemaking proceeding by submitting
written comments on the proposal. No comments were received.
This action is the same as the proposal except for a typographical
error discovered (and corrected herein) in the coordinates for the
1200-foot airspace area. The coordinates for this airspace docket are
based on North American Datum 83. Class E airspace is published in
Paragraph 6005 of FAA Order 7400.9C dated August 17, 1995, and
effective September 16, 1995, which is incorporated by reference in 14
CFR 71.1. The Class E airspace designation listed in this document will
be published subsequently in the Order.
The Rule
The amendment to part 71 of Federal Aviation Regulations amends
Class E airspace at Salt Lake City, Utah. The FAA has determined that
this proposed regulation only involves an established body of technical
regulations for which frequent and routine amendments are necessary to
keep them operationally current. It, therefore, (1) is not a
``significant regulatory action'' under Executive Order 12866; (2) is
not a ``significant rule'' under DOT Regulatory Policies and Procedures
(44 FR 11034; February 26, 1979); and (3) does not warrant preparation
of a regulatory evaluation as the anticipated impact is so minimal.
Since this is a routine matter that will only affect air traffic
procedures and air navigation, it is certified that this rule will not
have a significant economic impact on a substantial number of small
entities under the criteria of the Regulatory Flexibility Act.
List of Subjects in 14 CFR part 71
Airspace, Incorporation by reference, Navigation (air).
Adoption of the Amendment
In consideration of the foregoing, 14 CFR part 71 is amended as
follows:
PART 71--[AMENDED]
1. The authority citation for 14 CFR part 71 continues to read as
follows:
Authority: 49 U.S.C. 106(g), 40103, 40113, 40120; E.O. 10854, 24
FR 9565, 3 CFR, 1959-1963 Comp., p. 389; 14 CFR 11.69.
Sec. 71.1 [Amended]
2. The incorporation by reference in 14 CFR 71.1 of the Federal
Aviation Administration Order 7400.9C, Airspace Designations and
Reporting Points, dated August 17, 1995, and effective September 16,
1995, is amended as follows:
Paragraph 6005 Class E airspace areas extending upward from 700
feet or more above the surface of the earth.
* * * * *
ANM UT E5 Salt Lake City, UT [Revised]
Salt Lake City International Airport, UT
(lat. 40 deg.47'18''N, long. 111 deg.58'40''W)
That airspace extending upward from 700 feet above the surface
bounded by a line beginning at lat. 41 deg.00'00''N, long.
111 deg.45'03''W, thence south along long. 111 deg.45'03''W, to lat.
40 deg.22'30''N, thence southeast to lat. 40 deg.10'20''N, long.
111 deg.35'03''W, thence southwest to lat. 40 deg.03'30''N, long.
111 deg.48'33''W, thence northwest to lat. 40 deg.43'00''N, long.
112 deg.22'03''W, thence north along long. 112 deg.22'03''W, to lat.
41 deg.00'00''N, thence east along lat. 41 deg.00'00''N, to the
point of beginning; that airspace extending upward from 1,200 feet
above the surface bounded on the north by lat. 41 deg.00'00''N, on
the east by long. 111 deg.25'33''W, thence south to lat.
40 deg.11'00''N, thence east to lat. 40 deg.06'00''N, long.
110 deg.15'00''W, thence southwest to lat.
[[Page 66071]]
39 deg.33'00''N, long. 110 deg.55'00''W, thence southwest to lat.
39 deg.04'00''N, long. 112 deg.27'30''W, thence northwest to lat.
39 deg.48'00''N, long. 112 deg.50'00''W, thence west via lat.
39 deg.48'00''N, to the east edge of Restricted Area R-6402A, and on
the west by the east edge of Restricted Area R-6402A, Restricted
Area R-6402B and Restricted Area R-6406B and long. 113 deg.00'03''W;
excluding the portion within the Price, UT and the Delta, UT,
airspace areas; that airspace east of Salt Lake City extending
upward from 11,000 feet MSL bounded on the northwest by the
southeast edge of V-32, on the southeast by the northwest edge of V-
235, on the southwest by the northeast edge of V-101 and on the west
by long. 111 deg.25'33''W; excluding that airspace within the
Evanston, WY, 1,200-foot Class E airspace area; that airspace
southeast of Salt Lake City extending upward from 13,500 feet MSL
bounded on the northeast by the southwest edge of V-484, on the
south by the north edge of V-200 and on the west by long.
111 deg.25'33''W; excluding the portion within Restricted Area R-
6403 and the Bonneville, UT Class E airspace area.
* * * * *
Issued in Seattle, Washington, on December 8, 1995.
Richard E. Prang,
Acting Assistant Manager, Air Traffic Division, Northwest Mountain
Region.
[FR Doc. 95-31101 Filed 12-20-95; 8:45 am]
BILLING CODE 4910-13-M
Complete official Federal Register PDF
FR Doc. 95-31098 Availability of Information
[Federal Register Volume 60, Number 245 (Thursday, December 21, 1995)]
[Rules and Regulations]
[Pages 66061-66062]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-31098]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF AGRICULTURE
Agricultural Research Service
7 CFR Part 510
Availability of Information
AGENCY: Agricultural Research Service, USDA.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This document amends regulations of the Agricultural Research
Service (ARS) regarding the availability of information to the public
in accordance with the Freedom of Information Act (FOIA) to inform the
public of the change in location and title of the FOIA Coordinator for
ARS and to make technical corrections in the regulations.
EFFECTIVE DATE: December 21, 1995.
FOR FURTHER INFORMATION CONTACT:
Stasia A.M. Hutchison, FOIA Coordinator, Agricultural Research Service,
USDA, 6303 Ivy Lane, Room 456, Greenbelt, MD 20770, (301) 344-2207.
SUPPLEMENTARY INFORMATION: The FOIA requires agencies to publish in the
Federal Register regulations describing how the public may obtain
information from the agency (5 U.S.C. 552(a)(1)). Part 510 of Title 7,
Code of Federal Regulations, is issued in accordance with the
regulations of the Secretary of Agriculture at 7 CFR Part 1, Subpart A,
implementing FOIA.
Pursuant to an internal reorganization of the Department of
Agriculture (USDA), the National Agricultural Library (NAL) has been
integrated as a subordinate unit within the Agricultural Research
Service (ARS), USDA, and the Human Nutrition Information Service (HNIS)
has been abolished and the research functions formerly administered by
HNIS have been delegated to the Administrator, ARS. Requests for
information relating to NAL or HNIS may be directed to the ARS FOIA
Coordinator pursuant to the Part.
Former Sections 510.2, Public inspection and copying, and 510.3,
Index, have been merged into one new Section 510.2, Public inspection,
copying, and indexing. A new Section 510.4, Denials, has been added to
clarify the procedures when requested documents are denied by the FOIA
Coordinator. This document also amends Part 510 to inform the public of
the change in the location and title of the FOIA Coordinator for ARS.
This rule relates to internal agency management. Therefore,
pursuant to 5 U.S.C. 553, notice of proposed rulemaking and opportunity
for comment are not required, and this may be made effective less than
30 days after publication in the Federal Register. Further, since this
rule relates to
[[Page 66062]]
internal agency management, it is exempt from the provisions of
Executive Orders 12778 and 12866. Also, this rule will not cause a
significant economic impact or other substantial effect on small
entities. Therefore, the requirements of the Regulatory Flexibility
Act, 5 U.S.C. 601, et seq., do not apply. This rule supersedes the
notice published in the Federal Register on May 18, 1988 (53 FR 17685).
List of Subjects in 7 CFR Part 510
Freedom of Information.
Accordingly, 7 CFR Part 510 is revised to read as follows:
PART 510--PUBLIC INFORMATION
Sec.
510.1 General statement.
510.2 Public inspection, copying, and indexing.
510.3 Requests for records.
510.4 Denials.
510.5 Appeals.
Authority: 5 U.S.C. 301, 552; 7 CFR Part 1, Subpart A and
Appendix A thereto.
Sec. 510.1 General statement.
This part is issued in accordance with the regulations of the
Secretary of Agriculture in Part 1, Subpart A of this title and
Appendix A thereto, implementing the Freedom of Information Act (FOIA)
(5 U.S.C. 552). The Secretary's regulations, as implemented by the
regulations in this part, govern the availability of records of the
Agricultural Research Service (ARS) to the public.
Sec. 510.2 Public inspection, copying, and indexing.
5 U.S.C. 552(a)(2) requires that certain materials be made
available for public inspection and copying and that a current index of
these materials be published quarterly or otherwise be made available.
Members of the public may request access to such materials maintained
by ARS at the following office: Information Staff, ARS, USDA, 6303 Ivy
Lane, Room 456, Greenbelt, MD 20770; Telephone (301) 344-2207. Office
hours are 8:00 a.m. to 4:30 p.m.
Sec. 510.3 Requests for records.
Requests for records of ARS under 5 U.S.C. 552(a)(3) shall be made
in accordance with Sec. 1.6 of this title and submitted to the FOIA
Coordinator, Agricultural Research Service, USDA, 6303 Ivy Lane, Room
456, Greenbelt, MD 20770; Telephone (301) 344-2207; Facsimile (301)
344-2325; TDD (301) 344-2435. The FOIA Coordinator is delegated
authority to make determinations regarding such requests in accordance
with Sec. 1.3(a)(3) of this title.
Sec. 510.4 Denials.
If the FOIA Coordinator determines that a requested record is
exempt from mandatory disclosure and that discretionary release would
be improper, the FOIA Coordinator shall give written notice of denial
in accordance with Sec. 1.8(a) of this title.
Sec. 510.5 Appeals.
Any person whose request is denied shall have the right to appeal
such denial. Appeals shall be made in accordance with Sec. 1.6(e) of
this title and should be addressed as follows: Administrator,
Agricultural Research Service, U.S. Department of Agriculture,
Washington, DC 20250.
Done at Washington, DC, this 18th day of December 1995.
K.D. Murrell,
Acting Associate Administrator, Agricultural Research Service.
[FR Doc. 95-31098 Filed 12-20-95; 8:45 am]
BILLING CODE 3410-03-M
Complete official Federal Register PDF
FR Doc. 95-31097 Availability of Information
[Federal Register Volume 60, Number 245 (Thursday, December 21, 1995)]
[Rules and Regulations]
[Page 66062]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-31097]
-----------------------------------------------------------------------
DEPARTMENT OF AGRICULTURE
National Agricultural Library
7 CFR Part 4100
Availability of Information
AGENCY: National Agricultural Library, USDA.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This document removes the regulations of the National
Agricultural Library (NAL) regarding the availability of information to
the public in accordance with the Freedom of Information Act (FOIA) to
reflect an internal reorganization of the Department of Agriculture
(USDA).
EFFECTIVE DATE: December 21, 1995.
FOR FURTHER INFORMATION CONTACT: Stasia A.M. Hutchison, FOIA
Coordinator, Information Staff, Agricultural Research Service, USDA,
6303 Ivy Lane, Room 456, Greenbelt, MD 20770, Telephone (301) 344-2207.
SUPPLEMENTARY INFORMATION: The FOIA (5 U.S.C. 552(a)(1)) requires
Federal agencies to publish in the Federal Register regulations
describing how the public may obtain information from the agency. Part
4100 of Title 7, Code of Federal Regulations, was issued in accordance
with the regulations of the Secretary of Agriculture at 7 CFR Part 1,
Subpart A, implementing FOIA.
Pursuant to an internal reorganization of USDA, NAL has been
integrated into the Agricultural Research Service (ARS), USDA. This
document removes 7 CFR Part 4100. Requests for information relating to
NAL may be obtained through the FOIA Coordinator for ARS pursuant to 7
CFR Part 1, Subpart A, and 7 CFR Part 510.
This rule relates to internal agency management. Therefore,
pursuant to 5 U.S.C. 553, notice of proposed rulemaking and opportunity
for comment are not required, and this rule may be made effective less
than 30 days after publication in the Federal Register. Further, since
this rule relates to internal agency management, it is exempt from the
provisions of Executive Orders 12778 and 12866. Also, this rule will
not cause a significant economic impact or other substantial effect on
small entities. Therefore, the requirements of the Regulatory
Flexibility Act, 5 U.S.C. 601, et seq., do not apply. This rule
supersedes the notice published in the Federal Register on May 19, 1988
(53 FR 17914).
List of Subjects in 7 CFR Part 4100
Freedom of Information Act.
Accordingly, under the authority of 5 U.S.C. 301, Part 4100 is
removed and chapter XLI is vacated.
Done at Washington, DC, this 18th day of December 1995.
K.D. Murrell,
Acting Associate Administrator, Agricultural Research Service.
[FR Doc. 95-31097 Filed 12-20-95; 8:45 am]
BILLING CODE 3410-12-M
Complete official Federal Register PDF
FR Doc. 95-31086 Staff Accounting Bulletin No. 95
[Federal Register Volume 60, Number 245 (Thursday, December 21, 1995)]
[Rules and Regulations]
[Page 66072]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-31086]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 211
[Release No. SAB 95]
Staff Accounting Bulletin No. 95
AGENCY: Securities and Exchange Commission.
ACTION: Publication of Staff Accounting Bulletin.
-----------------------------------------------------------------------
SUMMARY: This staff accounting bulletin rescinds the views of the staff
contained in Staff Accounting Bulletin No. 57 (Topic 5K--Contingent
Stock Purchase Warrants).
DATES: December 15, 1995.
FOR FURTHER INFORMATION CONTACT: Michael Morrissey, Office of the Chief
Accountant (202) 942-4400, or Douglas Tanner, Division of Corporation
Finance (202) 942-2960, Securities and Exchange Commission, 450 Fifth
Street N.W., Washington, D.C. 20549.
SUPPLEMENTARY INFORMATION: The statements in staff accounting bulletins
are not rules or interpretations of the Commission nor are they
published as bearing the Commission's official approval. They represent
interpretations and practices followed by the Division of Corporation
Finance and the Office of the Chief Accountant in administering the
disclosure requirements of the Federal securities laws.
Margaret H. McFarland,
Deputy Secretary.
Accordingly, Part 211 of Title 17 of the Code of Federal
Regulations is amended by adding Staff Accounting Bulletin No. 95 to
the table found in Subpart B.
PART 211--[AMENDED]
Staff Accounting Bulletin No. 95
The staff hereby deletes Staff Accounting Bulletin No. 57 (Section
K to Topic 5 of the Staff Accounting Bulletin Series). Staff Accounting
Bulletin No. 57 provided interpretative guidance on the accounting for
contingent stock purchase warrants.
Footnote 2 to Staff Accounting Bulletin No. 57 notes that in March
1984, the Financial Accounting Standards Board (FASB) added a project
to its agenda to reconsider Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25). Footnote 2 indicates
that when this project is completed, the staff will consider whether
the accounting articulated in this staff accounting bulletin is still
appropriate.
The FASB's reconsideration of APB 25 is now complete with the
issuance of Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (FAS 123). Consistent with our
stated intention, the staff has reconsidered the guidance in Staff
Accounting Bulletin No. 57 and concludes that the interpretative
guidance providing for an intrinsic value measurement is no longer
necessary due to the general guidance in FAS 123 that provides for fair
value measurement for transactions with other than employees.
FAS 123 does not provide specific guidance on the methodology for
determining fair value for such an arrangement or the measurement date
on which the fair value of the equity instrument is determined. The
staff intends to request that the Emerging Issues Task Force consider
the need to issue additional guidance that would address those issues.
[FR Doc. 95-31086 Filed 12-20-95; 8:45 am]
BILLING CODE 8010-01-P
Complete official Federal Register PDF
FR Doc. 95-31076 Home Equity Conversion Mortgage Insurance Demonstration: Streamlining the Demonstration and Allowing Use of the Direct Endorsement Program
[Federal Register Volume 60, Number 245 (Thursday, December 21, 1995)]
[Rules and Regulations]
[Pages 66476-66477]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-31076]
[[Page 66475]]
_______________________________________________________________________
Part IV
Department of Housing and Urban Development
_______________________________________________________________________
Office of the Assistant Secretary for Housing--Federal Housing
Commissioner
_______________________________________________________________________
24 CFR Parts 203 and 206
Home Equity Conversion Mortgage Insurance Demonstration: Streamlining
the Demonstration and Allowing Use of the Direct Endorsement Program;
Final Rule
Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 /
Rules and Regulations
[[Page 66476]]
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Office of the Assistant Secretary for Housing-Federal Housing
Commissioner
24 CFR Parts 203 and 206
[Docket No. FR-2958-F-03]
RIN 2502-AF32
Home Equity Conversion Mortgage Insurance Demonstration:
Streamlining the Demonstration and Allowing Use of the Direct
Endorsement Program
AGENCY: Office of the Assistant Secretary for Housing-Federal Housing
Commissioner, HUD.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This rule makes final, without substantive changes, the
interim rule that was promulgated by the Department on August 16, 1995,
to amend HUD's regulations in 24 CFR parts 203 and 206. The interim
rule simplified the Home Equity Conversion Mortgage (HECM) Insurance
Demonstration and expedited the processing of HECMs by permitting use
of the Direct Endorsement program. The interim rule also implemented
the statutory disclosure amendments in section 334 of the Cranston-
Gonzalez National Affordable Housing Act and made other changes,
including technical and clarifying changes, to improve and streamline
the program based on the first five years of the demonstration. This
final rule does contain a correction to a technical error in the
interim rule.
EFFECTIVE DATE: January 22, 1996.
FOR FURTHER INFORMATION CONTACT: Richard K. Manuel, Acting Director,
Single Family Development Division, Office of Insured Single Family
Housing, Room number 9272, Department of Housing and Urban Development,
451 Seventh Street, SW, Washington, DC 20410, telephone (202) 708-2700;
TDD (202) 708-9300. (These are not toll-free telephone numbers.)
SUPPLEMENTARY INFORMATION: The Home Equity Conversion Mortgage (HECM)
Insurance Demonstration was authorized by Section 417 of the Housing
and Community Development Act of 1987 (42 U.S.C. 5301), which amended
Section 255 of the National Housing Act (12 U.S.C. 1715z-20) to permit
elderly homeowners to borrow against the equity in their homes. HUD
published final regulations on June 9, 1989, at 54 FR 24823, issued HUD
Handbook 4235.1 for the program in August 1989, and immediately began
processing applications for commitments to insure. The regulations were
codified at 24 CFR part 206. Revision 1 to HUD Handbook 4235.1 was
issued in November 1994.
On August 16, 1995, the Department promulgated an interim rule, at
60 FR 42754, which reflected ideas for improving the program
regulations based on experience from the first five years of the
demonstration. It also reflected HUD's implementation of section 334 of
the Cranston-Gonzalez National Affordable Housing Act (NAHA) (42 U.S.C.
12701), regarding additional disclosures to the mortgagor before loan
closing, including projections of future loan balances and information
that the mortgagor's liability is limited. The public was given 60 days
in which to submit comments on the interim rule, and no public comments
were received. Therefore, this rule makes final the interim rule
without any substantive changes. This final rule does contain a
correction to a technical error in the interim rule. The second and
third sentences of 24 CFR 206.45(b) were inadvertently dropped from the
Code of Federal Register when an amendment was made to the first
sentence of that section. This final rule restates those two sentences.
Other Matters
Environmental Impact
A Finding of No Significant Impact with respect to the environment
has been made in accordance with HUD regulations at 24 CFR part 50,
which implements section 102(2)(C) of the National Environmental Policy
Act of 1969 (NEPA). This Finding of No Significant Impact is available
for public inspection between 7:30 a.m. and 5:30 p.m. weekdays in the
Office of the Rules Docket Clerk, Office of the General Counsel,
Department of Housing and Urban Development, Room 10276, 451 Seventh
Street, SW, Washington, DC 20410.
Impact on Small Entities
The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)), has reviewed this final rule before publication and by
approving it certifies that this final rule will not have a significant
economic impact on a substantial number of small entities. This final
rule makes final, without changes, an interim rule that was limited to
revision of the Home Equity Conversion Mortgage Demonstration.
Specifically, the requirements of the interim rule were directed to
making the program more efficient for participating mortgagees,
mortgagors and the Department.
Executive Order 12612, Federalism
The General Counsel, as the Designated Official under section 6(a)
of Executive Order 12612, Federalism, has determined that the policies
contained in this rule will not have substantial direct effects on
States or their political subdivisions, or the relationship between the
Federal government and the States, or on the distribution of power and
responsibilities among the various levels of government. As a result,
the rule is not subject to review under the Order.
Executive Order 12606, The Family
The General Counsel, as the Designated Official under Executive
Order 12606, The Family, has determined that this final rule will not
have potential for significant impact on family formation, maintenance,
and general well-being, and, thus, is not subject to review under the
order. No significant change in existing HUD policies or programs will
result from promulgation of this rule, as those policies and programs
relate to family concerns.
List of Subjects
24 CFR Part 203
Hawaiian natives, Home improvement, Indians--lands, Loan programs--
housing and community development, Mortgage insurance, Reporting and
recordkeeping requirements, Solar energy.
24 CFR Part 206
Aged, Condominiums, Loan programs--housing and community
development, Mortgage insurance, Reporting and recordkeeping
requirements.
Accordingly, the interim rule published on August 16, 1995, at 60
FR 42754, is adopted as final, with the following amendment:
PART 206--HOME EQUITY CONVERSION MORTGAGE INSURANCE
1. The authority citation for part 206 continues to read as
follows:
Authority: 12 U.S.C. 1715b, 1715z-200; 42 U.S.C. 3535(d).
2. In Sec. 206.45, paragraph (b) is revised to read as follows:
Sec. 206.45 Eligible properties.
* * * * *
(b) Type of property. The property shall include a dwelling
designed principally as a residence for one family
[[Page 66477]]
or such additional families as the Secretary shall determine. The
dwelling may be connected with other dwellings by a party wall or
otherwise. A condominium unit designed for one-family occupancy shall
also be an eligible property.
* * * * *
Dated: November 29, 1995.
Nicolas P. Retsinas,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 95-31076 Filed 12-20-95; 8:45 am]
BILLING CODE 4210-27-P
Complete official Federal Register PDF
FR Doc. 95-31038 Approval and Promulgation of Implementation Plans Georgia: Approval of Revisions to Georgia Regulations
[Federal Register Volume 60, Number 245 (Thursday, December 21, 1995)]
[Rules and Regulations]
[Pages 66149-66150]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-31038]
=======================================================================
-----------------------------------------------------------------------
Environmental Protection Agency
40 CFR Part 52
[GA-27-1-7186a; FRL-5320-3]
Approval and Promulgation of Implementation Plans Georgia:
Approval of Revisions to Georgia Regulations
AGENCY: Environmental Protection Agency (EPA).
ACTION: Direct final rule.
-----------------------------------------------------------------------
SUMMARY: EPA is approving the revision to the Georgia State
Implementation Plan (SIP). On May 5, 1994, the Georgia Environmental
Protection Division submitted regulations 391-3-21-.01 through .11
establishing a Clean Fuel Fleet program. These rules became effective
on May 22, 1994.
DATES: This final rule will be effective February 20, 1996, unless
adverse or critical comments are received by January 22, 1996. If the
effective date is delayed, timely notice will be published in the
Federal Register.
ADDRESSES: Written comments on this action should be addressed to
Benjamin Franco, at the EPA Regional Office listed below. Copies of the
documents relative to this action are available for public inspection
during normal business hours at the following locations. The interested
persons wanting to examine these documents should make an appointment
with the appropriate office at least 24 hours before the visiting day.
Air and Radiation Docket and Information Center (Air Docket 6102),
U.S. Environmental Protection Agency, 401 M Street, SW, Washington,
DC 20460.
Environmental Protection Agency, Region 4 Air Programs Branch, 345
Courtland Street NE, Atlanta, Georgia 30365.
Georgia Environmental Protection Division, 4244 International
Parkway, Suite 120, Atlanta, GA 30354.
FOR FURTHER INFORMATION CONTACT: Benjamin Franco, Regulatory Planning
and Development Section, Air Programs Branch, Air, Pesticides & Toxics
Management Division, Region 4 Environmental Protection Agency, 345
Courtland Street, NE, Atlanta, Georgia 30365. The telephone number is
404/347-3555 x-4211. Reference file GA27-1-7186a.
SUPPLEMENTARY INFORMATION: Section 246(a) of the 1990 Clean Air Act
(CAA) requires ozone nonattainment areas classified serious and above
to implement a Clean Fuel Fleet (CFF) program. The program is designed
to introduce lower-emitting vehicles into centrally fueled fleets in
ozone nonattainment areas classified as serious. By choosing to
introduce clean fuel vehicles in centrally fueled fleets, Congress
focused on vehicle operators that often have more control over their
source of fuel than does the general public. Additionally, the central
control which operators maintain over their vehicles simplifies the
issues related to vehicle maintenance and refueling. Finally, because
fleet vehicles typically travel more miles and are replaced more
frequently than non-fleet vehicles, they offer a greater opportunity to
improve air quality, on a per-vehicle basis and in a more timely
manner, than potentially could be achieved by concentrating on a
similar number of non-fleet vehicles.
The Georgia Department of Natural Resources adopted on April 29,
1994, Regulations 391-3-21-.01 through .11 establishing a CFF program.
The program will be required in the counties of Cherokee, Clayton,
Cobb, Coweta, Dekalb, Douglas, Fayette, Fulton, Forsyth, Gwinnett,
Henry, Paulding and Rockdale. Fleets of 10 or more vehicles that are
centrally fueled or capable of being centrally fueled and operated in
the above counties are required to include in their new vehicle
purchases a certain percentage of clean fueled vehicles (CFV). A CFV is
one which meets any one of the three sets of exhaust emission
standards. The emission standards and the vehicles which meet them are
referred to as low emission vehicles (LEV), ultra low emission vehicles
(ULEV), and zero emission vehicles (ZEV).
Vehicles weighing 26,000 lbs. or less will count towards the
requirement. The purchase must start with 1998 model year vehicles. The
phase-in schedule for vehicles weighing up to 8,500 lbs. Gross Vehicle
Weight Rating (GVWR) is: 30 percent Model Year 1998, 50 percent Model
Year 1999, 70 percent Model Year 2000 and after. The phase-in schedule
for vehicles weighing above 8,500 lbs GVWR is: 50 percent Model Year
1998, 50 percent Model Year 1999, 50 percent Model Year 2000 and after.
The following vehicles are exempted from these requirements: motor
vehicles for lease or rental to the general public, dealer
demonstration vehicles that are used solely for the purpose of
promoting motor vehicle sales, emergency vehicles, law enforcement
vehicles, nonroad vehicles (farm and construction vehicles), vehicles
garaged at a personal residence and not being centrally fueled, and
vehicles used for motor vehicle manufacturer product evaluations and
tests.
Regulation 391-3-21.08 establishes a credit program in order to
help fleets meet the CFF program requirements. Credits can be generated
by three ways: (1) By purchasing CFVs prior to 1998, (2) by purchasing
extra or exempted CFVs, and (3) by purchasing CFVs with stricter
emissions standards such as ULEV and ZEV. These credits can only be
used in the designated nonattainment area. Credits can be used towards
future purchases or can be sold or traded to other operators. The
Georgia Environmental Protection Division (GAEPD) will keep, approve
and track all credits.
Final action
The EPA is approving this action without prior proposal because the
Agency views this as a noncontroversial amendment and anticipates no
adverse comments. However, in a separate document in this Federal
Register publication, the EPA is proposing to approve the SIP revision
should adverse or critical comments be filed. This action will be
effective February 20, 1996, unless, within 30 days of its publication,
adverse or critical comments are received.
If the EPA receives such comments, this action will be withdrawn
before the effective date by publishing a subsequent document that will
withdraw the final action. All public comments received will then be
addressed in a subsequent final rule based on the separate proposed
rule. The EPA will not institute a second comment period on this
action. Any parties interested in commenting on this action should do
so at this time. If no such comments are received, the public is
advised that this action will be effective February 20, 1996.
The Agency has reviewed this request for revision of the Federally-
approved State Implementation Plan for conformance with the provisions
of the 1990 Amendments enacted on November 15, 1990. The Agency has
determined that this action conforms with those requirements.
[[Page 66150]]
Under Section 307(b)(1) of the Act, 42 U.S.C. 7607 (b)(1),
petitions for judicial review of this action must be filed in the
United States Court of Appeals for the appropriate circuit by February
20, 1996. Filing a petition for reconsideration by the Administrator of
this final rule does not affect the finality of this rule for purposes
of judicial review nor does it extend the time within which a petition
for judicial review may be filed, and shall not postpone the
effectiveness of such rule or action. This action may not be challenged
later in proceedings to enforce its requirements. (See section
307(b)(2) of the Act, 42 U.S.C. 7607 (b)(2)).
This action has been classified as a Table 3 action for signature
by the Regional Administrator under the procedures published in the
Federal Register on January 19, 1989 (54 FR 2214-2225), as revised by a
July 10, 1995 memorandum from Mary Nichols, Assistant Administrator for
Air and Radiation. The Office of Management and Budget (OMB) has
exempted this regulatory action from Executive Order 12866 review.
Nothing in this action shall be construed as permitting or allowing
or establishing a precedent for any future request for a revision to
any State Implementation Plan. Each request for revision to the State
Implementation Plan shall be considered separately in light of specific
technical, economic, and environmental factors and in relation to
relevant statutory and regulatory requirements.
Under the Regulatory Flexibility Act, 5 U.S.C. 601 et seq., EPA
must prepare a regulatory flexibility analysis assessing the impact of
any proposed or final rule on small entities. 5 U.S.C. 603 and 604.
Alternatively, EPA may certify that the rule will not have a
significant impact on a substantial number of small entities. Small
entities include small businesses, small not-for-profit enterprises,
and government entities with jurisdiction over populations of less than
50,000.
SIP Actions
SIP approvals under section 110 and subchapter I, part D of the CAA
do not create any new requirements, but simply approve requirements
that the State is already imposing. Therefore, because the Federal SIP-
approval does not impose any new requirements, I certify that it does
not have a significant impact on any small entities affected. Moreover,
due to the nature of the Federal-state relationship under the CAA,
preparation of a regulatory flexibility analysis would constitute
Federal inquiry into the economic reasonableness of state action. The
CAA forbids EPA to base its actions concerning SIPs on such grounds.
Union Electric Co. v. U.S. E.P.A., 427 U.S. 246, 256-66 (S.Ct. 1976);
42 U.S.C. section 7410(a)(2) and 7410(k)(3).
Unfunded Mandates
Under Sections 202, 203, and 205 of the Unfunded Mandates Reform
Act of 1995 (``Unfunded Mandates Act''), signed into law on March 22,
1995, EPA must undertake various actions in association with proposed
or final rules that include a Federal mandate that may result in
estimated costs of $100 million or more to the private sector, or to
State, local, or tribal governments in the aggregate.
Through submission of this State Implementation Plan or plan
revision, the State and any affected local or tribal governments have
elected to adopt the program provided for under section 246 of the
Clean Air Act. These rules may bind State, local and tribal governments
to perform certain actions and also require the private sector to
perform certain duties. To the extent that the rules being approved by
this action will impose no new requirements; such sources are already
subject to these regulations under State law. Accordingly, no
additional costs to State, local, or tribal governments, or to the
private sector, result from this action. EPA has also determined that
this final action does not include a mandate that may result in
estimated costs of $100 million or more to State, local, or tribal
governments in the aggregate or to the private sector.
List of Subjects in 40 CFR Part 52
Environmental protection, Air pollution control, Carbon monoxide,
Incorporation by reference, Intergovernmental relations, Reporting and
recordkeeping requirements.
Dated: September 29, 1995.
Patrick M. Tobin,
Acting Regional Administrator.
Part 52 of chapter I, title 40, Code of Federal Regulations, is
amended as follows:
PART 52--[AMENDED]
1. The authority citation for part 52 continues to read as follows:
Authority: 42 U.S.C. 7401-7671q.
Subpart L--Georgia
2. Section 52.570 is amended by adding paragraph (c)(48) to read as
follows:
Sec. 52.570 Identification of plan.
* * * * *
(c) * * *
(48) Clean Fuel Fleet program submitted to EPA by the Georgia
Department of Natural Resources on May 5, 1994.
(i) Incorporation by reference.
(A) Addition of Regulations 391-3-21-.01, ``Definitions,'' 391-3-
21-.02, ``Covered Area,'' 391-3-21-.03, ``Covered Fleet Operators,''
391-3-21-.04, ``Covered Fleet Vehicles,'' 391-3-21-.05, ``Determination
of Capable of Being Centrally Fueled,'' 391-3-21.06, ``Purchase
Requirements,'' 391-3-21.07, ``Emission Standards,'' 391-3-21.08,
``Credit Program,'' 391-3-21.09, ``Transportation Control Exemptions,''
391-3-21.10, ``Requirements for Fuel Providers,'' 391-3-21-.11, ``
Enforcement'' which became effective on May 22, 1994.
(ii) Other material. None.
[FR Doc. 95-31038 Filed 12-20-95; 8:45 am]
BILLING CODE 6560-50-P
Complete official Federal Register PDF
FR Doc. 95-31016 Legal Process for the Enforcement of a Participant's Legal Obligations To Provide Child Support or Make Alimony Payments
[Federal Register Volume 60, Number 245 (Thursday, December 21, 1995)]
[Rules and Regulations]
[Page 66061]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-31016]
========================================================================
Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
Prices of new books are listed in the first FEDERAL REGISTER issue of each
week.
========================================================================
Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 /
Rules and Regulations
[[Page 66061]]
FEDERAL RETIREMENT THRIFT INVESTMENT BOARD
5 CFR Part 1653
Legal Process for the Enforcement of a Participant's Legal
Obligations To Provide Child Support or Make Alimony Payments
AGENCY: Federal Retirement Thrift Investment Board.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Executive Director of the Federal Retirement Thrift
Investment Board (Board) is adopting as a final rule without change an
interim regulation which explains the Board's procedures for responding
to legal process for the enforcement of a participant's legal
obligations to provide child support or make alimony payments.
EFFECTIVE DATE: These final rules are effective December 21, 1995.
FOR FURTHER INFORMATION CONTACT:
Patrick J. Forrest (202) 942-1662, Federal Retirement Thrift Investment
Board, 1250 H Street, NW., Suite 400, Washington, DC 20005.
SUPPLEMENTARY INFORMATION: The Board administers the Thrift Savings
Plan (TSP), which was established by the Federal Employees' Retirement
System Act of 1986 (FERSA), Public Law 99-335, 101 Stat. 514 (1986),
which has been codified, as amended, largely at 5 U.S.C. 8401-8479
(1994). The TSP is a tax-deferred retirement savings plan for Federal
employees that is similar to cash or deferred arrangements established
under section 401(k) of the Internal Revenue Code. Sums in a TSP
participant's account are held in trust for that participant. 5 U.S.C.
8437(g).
FERSA provides that payments from the TSP that would otherwise be
made to any participant ``shall be subject to legal process for the
enforcement of the individual's legal obligations to provide child
support or make alimony payments as provided in section 459 of the
Social Security Act (42 U.S.C. 659).'' 5 U.S.C. 8437(e)(3).
These regulations address only legal process for the enforcement of
a participant's legal obligations to provide child support or make
alimony payments. The Board also must honor a court decree of divorce,
annulment, or legal separation or a court order or court-approved
property settlement agreement incident to such decree that expressly
awards a portion of a participant's TSP account to a spouse, former
spouse, child or other dependent of the participant, or to the attorney
for the spouse, former spouse, child or other dependent of the
participant for attorney fees. 5 U.S.C. 8467 and 8435(c). The Board
refers to these documents as ``retirement benefits court orders,'' and
regulations governing them can be found at 60 FR 13604 (1995) (to be
codified at 5 CFR part 1653, subpart A).
On August 31, 1995, the Board published an interim rule with
request for comment in the Federal Register (60 FR 45624) relating to
the Board's procedures for responding to legal process for the
enforcement of participant's legal obligations to provide child support
or make alimony payments. The Board received no comments on the interim
rule. Therefore, we are adopting the provisions of the interim rule as
a final rule without change.
Federal Retirement Thrift Investment Board.
Roger W. Mehle,
Executive Director.
Accordingly, the interim rule amending 5 CFR part 1653, which was
published at 60 FR 45624 on August 31, 1995, is adopted as a final rule
without change.
[FR Doc. 95-31016 Filed 12-20-95; 8:45 am]
BILLING CODE 6760-01-M
Complete official Federal Register PDF
FR Doc. 95-30999 Collection of Debts
[Federal Register Volume 60, Number 245 (Thursday, December 21, 1995)]
[Rules and Regulations]
[Pages 66072-66073]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30999]
=======================================================================
-----------------------------------------------------------------------
RAILROAD RETIREMENT BOARD
20 CFR Parts 366 and 367
RIN 3220-AB09
Collection of Debts
AGENCY: Railroad Retirement Board.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Railroad Retirement Board (Board) amends its regulations
pertaining to the collection of debts by offset against other Federal
payments and against tax refunds to authorize use of these collection
methods for collection of debts from businesses.
EFFECTIVE DATE: December 21, 1995.
ADDRESSES: Secretary to the Board, Railroad Retirement Board, 844 Rush
Street, Chicago, Illinois 60611.
FOR FURTHER INFORMATION CONTACT: Michael C. Litt, General Attorney,
Bureau of Law, Railroad Retirement Board, 844 Rush Street, Chicago,
Illinois 60611, (312) 751-4929, TDD (312) 751-4701.
SUPPLEMENTARY INFORMATION: Part 366 of the Board's regulations deals
with collection of debts by means of offset from Federal tax refunds
through referrals to the Internal Revenue Service. This procedure is
authorized by 31 U.S.C. 3720A. Part 367 deals with the collection of
debts by administrative offset under the authority of the Debt
Collection Act of 1982, 31 U.S.C. 3716. As currently in effect, the
Board's regulations as to tax refund offset and administrative offset
apply to individual debtors only. The Board believes that amendment of
these regulations to authorize these collection procedures against
business debtors will facilitate collection of debts which may be owed
to the Board.
On August 17, 1995, the Board published this rule as a proposed
rule (60 FR 42818), inviting comments on or before September 18, 1995.
No comments were received.
The Board, with the concurrence of the Office of Management and
Budget, has determined that this is not a significant regulatory action
under Executive Order 12866. Therefore, no regulatory impact analysis
is required. Information collections associated with this rule have
been approved by the Office of Management and Budget.
[[Page 66073]]
List of Subjects in 20 CFR Parts 366 and 367
Railroad employees, Railroad retirement, Railroad unemployment
insurance.
For the reasons set out in the preamble, parts 366 and 367 of title
20, chapter II of the Code of Federal Regulations are amended as
follows:
PART 366--COLLECTION OF DEBTS BY FEDERAL TAX REFUND OFFSET
1. The authority citation for part 366 continues to read as
follows:
Authority: 45 U.S.C. 231f(b)(5); 31 U.S.C. 3720A.
Sec. 366.1 [Amended]
2. Section 366.1 is amended by removing the word ``individuals''
and adding in its place the word ``debtors''.
3. Section 366.2 is amended by revising the introductory text, and
paragraphs (a), (b), (e), and (f) to read as follows:
Sec. 366.2 Past-due legally enforceable debt.
A past-due legally enforceable debt which may be referred to the
Internal Revenue Service is a debt:
(a) Which arose under any statute administered by the Board or
under any contract;
(b) Which is an obligation of a debtor who is a natural person or a
business;
* * * * *
(e) With respect to which the rights regarding reconsideration,
waiver, and appeal, described in part 260 or 320 of this chapter or in
other law, if applicable, have been exhausted;
(f) With respect to which either:
(1) The Board's records do not contain evidence that the debtor
(or, if an individual, his or her spouse) has filed for bankruptcy
under Title 11 of the United States Code; or
(2) The Board can clearly establish at the time of the referral
that the automatic stay under section 362 of the Bankruptcy Code has
been lifted or is no longer in effect with respect to the debtor (or,
if an individual, his or her spouse) and the debt was not discharged in
the bankruptcy proceeding;
* * * * *
Sec. 366.2 [Amended]
3. Section 366.2(j) is amended by removing the word ``individual''
and adding in its place the word ``debtor''.
4. Section 366.2(k) is amended by removing the word ``individual''
and adding in its place the word ``debtor''.
Sec. 366.6 [Amended]
5. Section 366.6(c) is amended by removing the words ``individual
owing the debt'' and adding in their place the word ``debtor''.
PART 367--RECOVERY OF DEBTS OWED TO THE UNITED STATES GOVERNMENT BY
ADMINISTRATIVE OFFSET
6. The authority citation for part 367 continues to read as
follows:
Authority: 45 U.S.C. 231f(b)(5); 31 U.S.C. 3716.
7. Section 367.2 is amended by revising the introductory text and
paragraphs (a), (b), (e), and (f) to read as follows:
Sec. 367.2 Past-due legally enforceable debt.
A past-due legally enforceable debt which may be referred to
another governmental agency for administrative offset is a debt:
(a) Which arose under any statute administered by the Board or
under any contract;
(b) Which is an obligation of a debtor who is a natural person or a
business;
* * * * *
(e) With respect to which the rights described in part 260 or 320
of this chapter or the applicable law regarding reconsideration,
waiver, and appeal, if applicable, have been exhausted;
(f) With respect to which either:
(1) The Board's records do not contain evidence that the debtor
(or, if an individual, his or her spouse) has filed for bankruptcy
under Title 11 of the United States Code; or
(2) The Board can clearly establish at the time of the referral
that the automatic stay under section 362 of the Bankruptcy Code has
been lifted or is no longer in effect with respect to the debtor (or,
if an individual, his or her spouse) and the debt was not discharged in
the bankruptcy proceeding;
* * * * *
Sec. 367.2 [Amended]
8. Section 367.2(i) is amended by removing the word ``individual''
and adding in its place the word ``debtor'', and by removing the words
``that person'' and adding in their place the words ``the debtor'';
9. Section 367.2(j) is amended by removing the words ``such
individual'' and adding in their place the words ``the debtor'';
Sec. 367.7 [Amended]
10. Section 367.7(c) is amended by removing the words ``individual
owing the debt'' and adding in their place the word ``debtor''.
Dated: December 13, 1995.
By Authority of the Board.
Beatrice Ezerski,
Secretary to the Board.
[FR Doc. 95-30999 Filed 12-20-95; 8:45 am]
BILLING CODE 7905-01-P
Complete official Federal Register PDF
FR Doc. 95-30998 Withdrawal of National Forest System Land for Aspen Highlands Ski Area; Colorado
[Federal Register Volume 60, Number 245 (Thursday, December 21, 1995)]
[Rules and Regulations]
[Page 66151]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30998]
-----------------------------------------------------------------------
DEPARTMENT OF THE INTERIOR
43 CFR Public Land Order 7178
[CO-935-1430-01; COC-56149]
Withdrawal of National Forest System Land for Aspen Highlands Ski
Area; Colorado
AGENCY: Bureau of Land Management, Interior.
ACTION: Public Land Order.
-----------------------------------------------------------------------
SUMMARY: This order withdraws 3,333.34 acres of National Forest System
land from mining for 50 years to protect recreational resources and
facilities at the Aspen Highlands Ski Area. This land has been and
remains open to such forms of disposition as may by law be made of
National Forest System land and to mineral leasing.
EFFECTIVE DATE: December 21, 1996.
FOR FURTHER INFORMATION CONTACT: Doris E. Chelius, BLM Colorado State
Office, 2850 Youngfield Street, Lakewood, Colorado 80215-7076, 303-239-
3706.
By virtue of the authority vested in the Secretary of the Interior
by Section 204 of the Federal Land Policy and Management Act of 1976,
43 U.S.C. 1714 (1988), it is ordered as follows:
1. Subject to valid existing rights, the following described
National Forest System land is hereby withdrawn from location and entry
under the United States mining laws (30 U.S.C. Ch. 2 (1988)), for the
Forest Service to protect facilities and resources at the Aspen
Highlands Ski Area:
White River National Forest
Sixth Principal Meridian
T. 10 S., R. 85 W.,
Sec. 15, SE\1/4\SE\1/4\;
Sec. 22, lots 1, 2, 3, 4, and 5, E\1/2\SW\1/4\, and SE\1/4\;
Sec. 23, lots 1, 2, 3, 6, 7, 8, and 9;
Sec. 26, lots 3, 4, 5, 10, and 11, SW\1/4\NW\1/4\, and N\1/
2\SW\1/4\;
Sec. 27;
Sec. 28, E\1/2\E\1/2\;
Sec. 33, E\1/2\ and E\1/2\W\1/2\;
Sec. 34;
Sec. 35, lot 10, W\1/2\NW\1/4\, SE\1/4\NW\1/4\, and SW\1/4\.
T. 11 S., R. 85 W.,
Sec. 2, N\1/2\N\1/2\NW\1/4\;
Sec. 3, N\1/2\N\1/2\N\1/2\;
Sec. 4, N\1/2\N\1/2\NE\1/4\ and N\1/2\NE\1/4\NW\1/4\.
The area described contains 3,333.34 acres of National Forest
System land in Pitkin County.
2. The withdrawal make by this order does not alter the
applicability of those public land laws governing the use of National
Forest System lands under lease, license, or permit, or governing the
disposal of their mineral or vegetative resources other than under the
mining laws.
3. This withdrawal will expire 50 years from the effective date of
this order unless, as a result of a review conducted before the
expiration date pursuant to Section 204(f) of the Federal Land Policy
and Management Act of 1976, 43 U.S.C. 1714(f) (1988), the Secretary
determines that the withdrawal shall be extended.
Dated: December 8, 1995.
Bob Armstrong,
Assistant Secretary of the Interior.
[FR Doc. 95-30998 Filed 12-20-95; 8:45 am]
BILLING CODE 4310-JB-P
Complete official Federal Register PDF
FR Doc. 95-30997 Withdrawal of Public Land for the Glacier Loop Administrative Site; Revocation of Secretarial Order dated December 31, 1941; Alaska
[Federal Register Volume 60, Number 245 (Thursday, December 21, 1995)]
[Rules and Regulations]
[Pages 66150-66151]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30997]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE INTERIOR
Bureau of Land Management
43 CFR Public Land Order 7177
[AK-932-1430-01; A-061697, AA-45553]
Withdrawal of Public Land for the Glacier Loop Administrative
Site; Revocation of Secretarial Order dated December 31, 1941; Alaska
AGENCY: Bureau of Land Management, Interior.
ACTION: Public Land Order.
-----------------------------------------------------------------------
SUMMARY: This order withdraws 22.51 acres of public land from all forms
of appropriation under the public land laws, including location and
entry under the mining laws, for a period of 20 years for the
Department of Agriculture, Forest Service, to protect the Glacier Loop
Administrative Site. The land has been and will remain closed to
mineral leasing as it is located within an incorporated city (30 U.S.C.
181 (1988)). This order also revokes in its entirety a Secretarial
order as it affects 27.06 acres of public land withdrawn for use by the
Federal Aviation Administration as Air Navigation Site No. 173. The
land is no longer needed for the purpose for which it was withdrawn.
The public land that will not be withdrawn for use by the Forest
Service will be subject to the terms and conditions of Public Land
Order No. 5180, as amended, and any other withdrawal of record.
[[Page 66151]]
EFFECTIVE DATE: December 21, 1995.
FOR FURTHER INFORMATION CONTACT: Robbie J. Havens, BLM Alaska State
Office, 222 W. 7th Avenue, No. 13, Anchorage, Alaska 99513-7599, 907-
271-5477.
By virtue of the authority vested in the Secretary of the Interior
by Section 204 of the Federal Land Policy and Management Act of 1976,
43 U.S.C. 1714 (1988), and by Section 17(d)(1) of the Alaska Native
Claims Settlement Act, 43 U.S.C. 1616(d)(1) (1988), it is ordered as
follows:
1. Subject to valid existing rights, the following described public
land is hereby withdrawn from settlement, sale, location, or entry
under the general land laws, including the United States mining laws
(30 U.S.C. Ch. 2 (1988)), for protection of the Glacier Loop
Administrative Site:
Copper River Meridian
Located within T. 40 S., R. 66 E., described as U. S. Survey No.
3758, Lot 1-3.
The area described contains 22.51 acres.
2. The Secretarial Order dated December 31, 1941, which withdrew
public land for Air Navigation Site No. 173, is hereby revoked as it
affects the following described land:
Copper River Meridian
Located within T. 40 S., R. 66 E., described as U. S. Survey No.
3758, Lot 1-2 and Lot 1-3.
The area described contains 27.06 acres.
3. The withdrawal made by this order does not alter the
applicability of those public land laws governing the use of the land
under lease, license, or permit, or governing the disposal of their
mineral or vegetative resources other than under the mining laws.
4. This withdrawal will expire 20 years from the effective date of
this order unless, as a result of a review conducted before the
expiration date pursuant to Section 204(f) of the Federal Land Policy
and Management Act of 1976, 43 U.S.C. 1714(f) (1988), the Secretary
determines that the withdrawal shall be extended.
5. The portion of the area that is not withdrawn for the Forest
Service, as described in paragraph 2, will be subject to Public Land
Order No. 5180, as amended, and any other withdrawal of record.
Dated: December 8, 1995.
Bob Armstrong,
Assistant Secretary of the Interior.
[FR Doc. 95-30997 Filed 12-20-95; 8:45 am]
BILLING CODE 4310-JA-P
Complete official Federal Register PDF
FR Doc. 95-30989 Revisions to Standards for Palletization
[Federal Register Volume 60, Number 245 (Thursday, December 21, 1995)]
[Rules and Regulations]
[Pages 66142-66149]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30989]
=======================================================================
-----------------------------------------------------------------------
POSTAL SERVICE
39 CFR Part 111
Revisions to Standards for Palletization
AGENCY: Postal Service.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: On July 31, 1995, the Postal Service published a proposed rule
for public comment in the Federal Register (60 FR 39080-39088) to
revise current makeup standards in the Domestic Mail Manual (DMM) for
second-, third-, and fourth-class mail prepared on pallets. The final
rule adopts proposed changes that pertain only to the physical
characteristics of pallet loads (such as minimum/maximum height and
weight limits and provisions for triple-stacking). These changes will
not be affected by the Postal Service's classification reform proposal
currently under consideration before the Postal Rate Commission (Docket
No. MC95-1). The Postal Service has decided not to adopt, at this time,
those elements of the proposed rule that would be affected by
implementation of classification reform to avoid burdening software
developers and mailers with the need to make changes that will be
supplanted shortly after their implementation. Instead, the standards
for levels of pallet sortation and preparation, along with other
related issues, will be addressed with the standards that the Postal
Service proposes to implement with the pending classification reform
filing. The Postal Service expects to publish a proposed rule on
classification reform for public comment in December 1995.
EFFECTIVE DATE: January 1, 1996.
FOR FURTHER INFORMATION CONTACT:
Cheryl Beller, (202) 268-5166.
SUPPLEMENTARY INFORMATION: The July 31 proposed rule discussed in
detail the efforts by the Postal Service to establish certain basic
preparation standards that mailers must meet to ensure that pallets,
and the mail placed on them, maintain their integrity throughout
transportation and postal processing and allow safe handling by postal
employees. At the same time, these standards allow mailers flexibility
to prepare pallets by using recognized industry practices based on
their specific production and service needs.
The 30-day comment period ended on August 30, 1995, and 16 written
comments were received from publishers, mailer associations, printers
and mailers, transportation companies, and presort software developers.
After thorough consideration of these comments, the Postal Service is
publishing its final rule. This final rule removes sections in DMM MO42
through MO48 relating to pallet size and revises and consolidates them
into MO41 under one section on general pallet standards. The final rule
also revises standards related to stacking and top-capping pallets and
to identifying and notifying nonconforming mailers whose preparation
methods result in pallets that fail to meet basic pallet integrity and
safety standards. The final rule also establishes standards for
palletizing trays of letter-size mail. DMM E333 and E416 are also
revised to clarify the availability of third-class carrier route rates
and special fourth-class level A and B rates for mail on pallets; these
revisions also stipulate that the Postal Service will not unload
containerized drop shipment loads that have not maintained their
integrity in transit or that arrive in an unsafe manner. DMM MO33 is
revised to require all trays on BMC, ASF, SDC, and mixed BMC pallets to
be both sleeved and strapped to facilitate processing on sack and
parcel sorters.
The revised DMM standards are set forth after the discussion of
comments to the proposed rule. Many commenters commended the Postal
Service for listening to its customers in developing standards that
were fair and in accord with industry practices. Such comments are not
summarized below.
[[Page 66143]]
Discussion of Comments
I. Maximum Height
A. Single and Stacked Pallets
Eight commenters opposed various parts of the proposal related to
the maximum heights for a single pallet and for stacked pallets. Six
commenters opposed limiting the height of a single pallet of sacks,
parcels, or packages to 77 inches (or letter mail in trays to 12
layers) and asked why the Postal Service proposed a different maximum
height for stacked pallets of 84 inches. They expressed concern over
the possible loss of trailer cube capacity that might result from the
77-inch limit for drop shipments. Two commenters indicated that because
different characteristics of products on pallets affect the stability
of a load, the rule should be amended to allow for taller loads based
on specific product characteristics; one commenter suggested that the
weight limit of 2,200 pounds per pallet or stack of pallets be used as
the controlling maximum rather than the total height of pallet loads.
The maximum height of 77 inches for a single pallet is derived from
the general acceptance throughout the Postal Service of the Postal-PAK
and pallet (with a height of 75 inches), plus allowance for packing
material. Pallet loads exceeding a 77-inch height are a problem when
loaded onto and unloaded from many smaller trucks and vehicles used to
transport mail between postal facilities and when handled within many
smaller postal facilities. The type of transportation used to move
pallet loads and the facilities through which they are processed vary,
depending on the level of pallet sortation and the office of entry. Low
dock-door heights and limited ceiling heights within some facilities,
as well as low door and internal heights of many Postal Service
trailers and vehicles, were factors in establishing this maximum
height. By establishing a maximum height of 77 inches for all single
pallets, the Postal Service is promoting consistency in preparation
standards while ensuring that postal employees can handle pallets
safely and efficiently on all transportation and at all facilities,
regardless of office of entry or level of sortation. The higher maximum
of 84 inches for stacked pallets allows mailers to take advantage of
trailer cube capacity for lighter weight pallets and allows the Postal
Service to unstack the pallets where necessary to ensure compatibility
with Postal Service equipment, transportation, or facilities. The
maximum heights of 77 inches for a single pallet and 84 inches for
stacked pallets are adopted in the final rule.
The Postal Service has also determined to limit the number of
layers of trays of letter mail to 12, which is equivalent to the
maximum height of 77 inches for a single pallet. Mailers will need to
monitor their loads carefully to ensure that fuller trays are placed on
the bottom and interspersed nearer the top to avoid crushing. As the
height and weight of the pallet load increase, so does the likelihood
of the lower trays being crushed and causing the entire load to
collapse, particularly if the trays are older cardboard managed mail
(MM) trays. If a mailing consists of many less-than-full trays, mailers
should consider building loads containing less than the maximum number
of layers.
B. Pallet Boxes
A maximum height of 84 inches was proposed for a single pallet box
on a pallet, with a possible 60-inch maximum height restriction at some
non-BMC facilities. Two commenters suggested that the Postal Service
publish a listing of facilities that cannot handle the taller pallet
boxes so that software developers can build varying height restrictions
into their sortation programs. Ideally, the commenters preferred that
all postal facilities be modified to handle pallet boxes that are 84
inches tall (pallet, box, and mail). The Postal Service was in error
when it proposed a maximum height of 84 inches for any pallet box
because the pallet unloaders being deployed by the Postal Service in
bulk mail centers (BMCs) and many processing and distribution centers
(P&DCs) can accommodate only pallets with pallet boxes that do not
exceed a total height of 77 inches. The Postal Service must cut taller
boxes or otherwise alter them to remove the contents manually,
resulting in slower service for customers, additional handlings, and
inefficient use of newly deployed mechanized equipment. Accordingly,
the Postal Service has determined to adopt a 77-inch maximum, which is
also consistent with the height of the Postal-PAK and pallet. Because
the Postal Service proposed a maximum height of 84 inches and some
mailers might have a stock of pallet boxes designed to meet the
proposed maximum, the mandatory compliance date will be July 1, 1996,
to allow mailers to deplete current stocks of these taller boxes.
II. Pallet Boxes
A. Providing Boxes
One commenter stated that the Postal Service should provide a
pallet box ``for sack mail shippers that would conform to the specifics
outlined in the revisions'' to facilitate uniformity and unloading at
BMCs. The Postal Service has no plans to purchase additional equipment
to provide to sack mailers. The Postal Service is purchasing additional
trays and pallets, however, to meet customer demand in preparation for
implementation of classification reform.
B. Securing Pallet Boxes
One commenter requested that the proposed requirement that mailers
secure boxes to the pallet be optional and indicated that mailers had
been entering unsecured boxes on pallets for many years, without any
negative comment from the Postal Service. The proposed standard is
modified in the final rule to require securing a pallet box to the
pallet only if the pallet requires transportation by the Postal Service
to move it from the entry office to another postal facility for
distribution of the contents and the weight of the mail in the box is
insufficient to hold the box in place on the pallet during
transportation and processing. This modification is consistent with how
the Postal Service prepares and processes mail in its own Postal-PAKs
on pallets and ensures that pallets can be loaded and transported
safely on Postal Service vehicles and processed as a single unit to the
point where the contents are distributed.
C. Construction of Pallet Boxes
No comments were received on the proposal to allow mailers to use
pallet boxes constructed of single-, double-, or triple-wall corrugated
fiberboard. Single-wall corrugated fiberboard may be used only for
light loads (such as lightweight parcels) that do not require
transportation beyond the entry office. The Postal Service will monitor
mailings presented in pallet boxes to ensure that the box construction
maintains its integrity to the point of distribution of the contents.
III. Pallet Load Integrity
Failure of pallets to meet basic DMM standards negates efforts to
ensure safe and efficient handling of palletized loads. Accordingly,
all pallets presented to the Postal Service for acceptance, whether the
pallets are provided by the Postal Service or the mailer, must meet the
basic standards in the DMM pertaining to pallet labels, physical
[[Page 66144]]
pallet dimensions, pallet load integrity, stacking, and minimum/maximum
loads and heights. The Postal Service will consider individual
shipments that are presented for acceptance under the plant-verified
drop shipment (PVDS) program at a destination entry postal facility to
be bedloaded if the load integrity of the pallets or the safety of
postal employees is compromised. Such loads might require driver
unloading or may be refused by the destination facility. If a shipment
is refused, the mailer or mailer's agent who is presenting the mail for
acceptance at the destination entry facility has the option to rework
the mail off-site to match its original preparation as verified, then
resubmit it with the appropriate documentation when the entry facility
can reschedule the shipment.
The Postal Service will monitor load integrity of customers'
pallets at mailers plants when mail is verified by on-site postal
personnel and at postal facilities where mailings are entered, whether
at business mail entry units under local verification and acceptance or
a destination entry facilities where mailings are drop shipped under
programs such as PVDS. The Postal Service may initially notify the
transportation company presenting mail to the Postal Service for
acceptance or the mail preparer, or both, when pallet load integrity
problems are identified. The failure of pallet loads to maintain their
integrity might be caused by poor preparation methods of the mailer
(for example, the load exceeds maximum weight or height limits or the
load is not secured to the pallet) or the improper loading and security
of pallets onto the transportation used to move pallet loads to postal
facilities for acceptance (for example, pallets are not secured with
shoring equipment in vehicles to prevent pallets from toppling in
transit, or heavier pallets are stacked onto lighter pallets and crush
the mail on the bottom).
After a mailer is notified of recurring pallet load integrity
problems and allowed to make changes to improve load integrity, if the
mailer's methods still do not work, the mailer will be considered
nonconforming and required to meet the specifications developed by
Postal Service Engineering for securing pallets, pallet box
construction and dimensions, stacking of pallets, maximum height/layers
of trays, and use of top caps. These specifications are included in the
DMM language at the end of this discussion of comments. Mailers whose
pallets continue to fail to meet minimum load integrity levels will be
suspended from the pallet program.
Three comments were received from two commenters concerning load
integrity. One commenter wanted to know how damaged loads will be
handled, who will be notified, whether the mailer/agent will be allowed
to rework the mail, and how presentation of damaged loads will affect
drop shipment appointments. This commenter also noted that ``in our
business, it is common to refuse loads that have not maintained their
integrity. At that point, it is the shipper's or carrier's
responsibility to see that the load is taken to an alternative site for
reworking.'' This same commenter wanted clarification about who will
determine whether pallets are properly prepared to meet load integrity
standards, at what point a mailer will be considered nonconforming, and
whether the mailer will have an option to pay a penalty or fine at
destination to have nonconforming pallets accepted for time-sensitive
mailings. The commenter also expressed concern about possible
inconsistencies in the determinations by different facilities about
whether a pallet load meets the load integrity standards. The second
commenter wanted feedback from the Postal Service about pallet load
integrity problems, starting with the mail preparer and proceeding to
the owner. The Postal Service will initially contact the mailer or
mailer agent (such as a transportation company) when load integrity
problems are identified.
Training materials will be distributed to postal facilities that
accept pallets from mailers to ensure consistent understanding and
application of pallet load integrity guidelines and the procedures that
apply when problems are identified. The Drop Shipment Appointment
System (DSAS) will be used, where possible, to identify and track the
mailers or their agents presenting problem pallet loads. The DSAS will
also help to establish contact to ensure that corrective actions are
taken to improve future load integrity. The Postal Service will also
work with mailers to ensure that corrective actions are taken to
prevent recurrence of problems and to provide training and other
necessary tools that will communicate the responsibilities of all
mailers or their agents who create or handle mail on pallets.
Over the next few months, the Postal Service will formulate clear,
objective criteria to identify pallet load integrity problems and to
establish consistent feedback mechanisms for notifying mailers or their
agents when problems are identified. Until those details are developed,
load integrity will be monitored at origin and destination postal
facilities as it is today, feedback will be provided to mailers, and
mailers will be allowed to improve preparation methods for identified
problems. However, during that interim, mailers will not be determined
as nonconforming or suspended from the pallet program. Accordingly, the
rules relating to nonconforming mailers and suspension will not take
effect until July 1, 1996.
IV. Sleeving and Strapping of Trays
No comments were received about the proposal to require mailers to
sleeve and strap trays of letter mail placed onto BMC, ASF, SDC, and
mixed BMC pallets; the proposed standards are adopted in the final
rule. These standards provide an incentive to prepare pallets to finer
levels of sortation, allowing for greater cross-dock opportunities at
the BMCs and significant relief for BMC operations heavily affected by
unstrapped trays. In addition, this rule adopts the proposal to extend
the current requirement to sleeve all trays that contain letter-size
automation rate mail and that may be processed at a BMC/ASF or AMF/AMC
(that is, mail that does not originate and destinate in the delivery
area of the same SCF) to include trays containing nonautomation rate
letter-size mail.
V. Maximum Pallet Load
One commenter requested clarification of how the proposed 2,200-
pound maximum for pallets applies to stacked pallets. The proposal to
set 2,200 pounds as the maximum weight for any single pallet and as the
maximum total weight for stacked pallets presented to the Postal
Service is adopted in the final rule. When the weight of a single
pallet or a stack of pallets is calculated, the weight of the mail and
any tare placed on the bottom pallet are included in the calculation.
The proposed maximum load for trays on pallets of 12 layers, not to
exceed 2,200 pounds, is also adopted in the final rule.
VI. Minimum Pallet Load
For packages, parcels, and sacks on pallets, the final rule
requires mailers who prepare mail on pallets to prepare a required
level of pallet sortation when there are 500 pounds of mail for that
destination (for example, for a 5-digit ZIP Code or an SCF). At their
option, mailers may prepare pallets for any required or optional level
of sortation when they prepare at least 250 pounds of mail for a
destination.
Palletization of trays of letter-size mail is based on the number
of layers. Mailers may prepare a pallet when they
[[Page 66145]]
have from three to five layers of 1- or 2-foot managed mail (MM) or
extended managed mail (EMM) trays. Preparation of pallets to required
levels of sortation is mandatory with six layers of trays to that
destination (for example, SCF pallets).
For improved service, the processing and distribution manager of
the facility where a mailing is entered may issue a written
authorization to the mailer, allowing preparation of 5-digit or 3-digit
pallets containing less than the minimum volume (250 pounds of
packages, parcels, or sacks or three layers of trays) if the mail on
those pallets destinates in the service area of that facility.
At the mailer's option, the minimum volume used to determine when a
pallet is prepared may vary within a mailing, provided that pallets are
prepared to required levels of sortation when there are at least 500
pounds or six layers of mail to the destination.
Mailers are reminded that under the Postal Service's Guidelines for
the Plant-Verified Drop Shipment (PVDS) Program, the driver must unload
mail entered at delivery units. In some instances, the driver must
break down palletized loads because of the physical limitations of a
delivery unit (for example, a small or congested office that cannot
accommodate large or stacked pallets).
VII. Stacking Pallets
A. Double- and Triple--Stacking
Several commenters responded favorably to the proposal to allow a
mailer to double- or triple-stack pallets up to the maximum allowable
height and weight (84 inches/2,200 pounds total for the stacked
pallets); this proposal is adopted in the final rule. Such pallets must
be presented for acceptance at the mailer's plant or a postal facility
in a manner that ensures safe and efficient unloading, handling, and
transporting. Triple-stacking allows a mailer to make better use of
transportation for drop shipments when low-weight pallets are prepared.
When stacking pallets, the mailer must place the heaviest pallet on
the bottom and the lightest pallet on the top to prevent crushing or
other damage to mail on the bottom. If part of the load is crushed, the
entire load is likely to collapse.
B. Securing Stacked Pallets Together
The proposed rule required that all stacked pallets be secured
together with at least two straps at least \1/2\ inch wide. Several
commenters were opposed to this requirement. Two commenters stated that
they stretchwrap stacked pallets together and that the stacked loads
maintain their integrity throughout transportation and processing.
These commenters indicated that stretchwrapping stacked pallets is
consistent with the stretchwrapping operation in their plants for
single pallets and that a requirement to strap or band stacked pallets
would add an unnecessary cost to their operations.
The Postal Service proposed that mailers be required to secure
stacked pallets with banding or strapping because this material is
easier to remove than stretchwrap. Only one cut per band is required on
no more than two sides of a banded pallet, whereas a stretchwrapped
pallet must be cut around all four sides of the stacked pallets to
separate the pallets and to insert a forklift or pallet jack. If
pallets are triple-stacked, the stretchwrap must be cut on all four
sides (two times between the bottom and middle pallets and between the
middle and top pallets). Not only is this method time-consuming, it can
be difficult to move around a tall pallet load in a full vehicle in
order to cut the stretchwrap and remove the top pallet(s). The
requirement to strap stacked pallets together is adopted in the final
rule. The mandatory compliance date is July 1, 1996, to allow mailers
who currently use other means of securing stacked pallets together to
change their preparation methods.
C. Use of Top Caps
Three commenters raised issues about top caps. Under the proposed
rule, mailers would have been required to top-cap the lower pallets
when pallets were stacked. Top caps have been found to be one of the
key elements in ensuring the stability of stacked pallets. However, as
one commenter noted, the characteristics of certain mail can provide a
flat, stable, and protective surface on which to place a pallet (for
example, cartons of books placed on a pallet), making top caps
unnecessary. The Postal Service agrees. Therefore, the final rule is
modified to make top caps optional on stacked pallets when the top
surface of the pallet load provides a sturdy, flat surface parallel to
the pallet base, that allows for safe and efficient stacking and for
preventing damage to mail or crushing of the load from pallets placed
on top. The Postal Service will monitor the preparation of all stacked
pallets, particularly those that are triple-stacked, to ensure that the
pallets can be handled safely and without damage to the mail.
One commenter asked whether the Postal Service will provide top
caps. Although the Postal Service does have a limited supply of top
caps, it has no plans, at this time, to provide them to mailers on a
general basis. By limiting the circumstances under which top caps are
required, the Postal Service expects mailers to continue providing
their own top caps to ensure the integrity of stacked mail loads.
Two commenters indicated that top-capping pallets can create
problems for consolidators who combine pallets and move them closer to
destinating postal facilities. Because consolidators are not
manufacturing plants, they do not have scrap material to sue for top-
capping stacked pallets. Mailers who prepare lightweight pallets that
are likely to be stacked by consolidators for drop shipment must work
out arrangements with their transportation agents about whose
responsibility it is to top-cap those pallets. Regardless of the
arrangements, stacked pallets must be top-capped when required to
maintain load integrity.
D. Top Cap Construction
Mailers may determine the best material for ensuring pallet
integrity and may use manufacturing materials that come into their
plants as top-capping material. Mailers must not use flimsy paper
obtained from the ends of paper rolls or similar material for top caps
because this material, used alone, can cause stack failure.
VIII. Securing Single Pallet Loads
Depending on the characteristics of a mail load, strapping might
not be the most effective method of ensuring load integrity of a single
pallet throughout transportation and mail handling. Loads can compress
during storage in a mailer's plant or while in transit, causing
strapping to become loose. In those instances, stretchwrap can be more
effective in securing loads on a single pallet. Therefore, in the final
rule, the proposal allowing mailers to choose the most appropriate
method of securing a single pallet load is adopted. Acceptable methods
include strapping or wrapping with stretchable or shrinkable plastic
wrap.
IX. Pallet Sortation Levels
This final rule does not adopt any of the proposed changes related
to levels of pallet sortation, including the proposed allowance for
working pallets or the elimination of the ``courtesy pallet,'' by
requiring that all mailings placed onto any pallet be sorted to the
finest level of presort. Modified proposed standards will be included
in the Federal Register notice containing proposed DMM
[[Page 66146]]
language to implement the pending classification reform filing.
The following revisions are made to the Domestic Mail Manual,
incorporated by reference in the Code of Federal Regulations, See 39
CFR part 111.
List of Subjects in 39 CFR Part 111
Postal Service.
PART 111--[AMENDED]
1. The authority citation for 39 CFR part 111 continues to read as
follows:
Authority: 5 U.S.C. 552(a); 39 U.S.C. 101, 401, 403, 404, 3001-
3201-3219, 3403-3406, 3621, 3626, 5001.
2. Revise the following sections of the Domestic Mail Manual as set
forth below:
E Eligibility
* * * * *
E300 Third-Class Mail
* * * * *
E333 Carrier Route Presort
* * * * *
3.0 PRESORT
3.1 Qualifying Mail
* * * * *
[Add the following at the end of the current section:]
c. Correctly presorted carrier route packages that meet the package
preparation standards in M043 and are sorted to the appropriate pallet
level.
* * * * *
E350 Destination Entry Discounts
* * * * *
3.0 DEPOSIT
* * * * *
3.8 Unloading Vehicles
The mailer is responsible for the unloading of vehicles, subject to
these conditions:
[Add new 3.8a and redesignate current 3.8a through 3.8c as 3.8b
through 3.8d, respectively. Amend redesignated 3.8b.]
a. Postal employees unload palletized and containerized loads at
MBMCs/FSFs/SCFs, except that the USPS does not unload or permit the
mailer (or mailer agent) to unload palletized or containerized loads
that are unstable or severely leaning or that have otherwise not
maintained their integrity in transit.
b. [Remove the second sentence.]
* * * * *
E400 Fourth-Class Mail
* * * * *
E416 Special Fourth-Class Rates
* * * * *
2.0 SPECIAL FOURTH-CLASS PRESORT
* * * * *
2.6 Level A
[Revise the introductory text as follows:]
To qualify for the special fourth-class presort level A rate, a
piece must be in a mailing of at least 500 pieces receiving identical
service, properly prepared and presorted under M404 in full 5-digit
sacks or under M044 on 5-digit pallets. These conditions also apply:
* * * * *
2.7 Level B
[Revise the introductory text as follows:]
To qualify for the special fourth-class presort level B rate, a
piece must be in a mailing of at least 500 pieces receiving identical
service, properly prepared and presorted under M404 in full or
substantially full bulk mail center (BMC) sacks or under M044 on
destination BMC pallets. These conditions also apply:
* * * * *
E450 Destination BMC/ASF Discount
* * * * *
3.0 DEPOSIT
* * * * *
3.8 Unloading Vehicles
* * * * *
a. [Revise the second sentence as follows:]
* * * The USPS does not unload or permit the mailer (or mailer
agent) to unload palletized or containerized loads that are unstable or
severely leaning or that have otherwise not maintained their integrity
in transit.
* * * * *
M Mail Preparation and Sortation
M000 General Preparation Standards
* * * * *
M030 Container Preparation
* * * * *
M033 Sacks and Trays
1.0 BASIC STANDARDS
* * * * *
[Add new 1.4 and 1.5 as follows:]
1.4 Sleeving and Strapping of Trays
Except under 1.5, each letter mail tray must be sleeved. All
nonpalletized trays of letter mail that are transported from the
mailer's plant to a BMC/ASF or AMF/AMC on USPS or mailer transportation
and all trays placed on BMC/SDC or mixed BMC/SDC pallets must also be
secured with a plastic strap placed tightly around the length of the
tray. The strap must not crush the tray or sleeve. Strapping is not
required on trays placed on pallets prepared to finer levels of
sortation.
1.5 Sleeving Exception
When all pieces in a mailing originate and destinate in the
delivery area of the same SCF and the trays containing those pieces are
not to be processed at a BMC or an AMF, the processing and distribution
manager may (on request) issue a written authorization to the mailer to
submit the mailing in trays without sleeves.
* * * * *
3.0 BASIC STANDARDS FOR TRAYS--AUTOMATION RATES
* * * * *
[Remove current 3.6 and 3.7.]
M040 Palletization
M041 General Pallet Standards
[Revise 1.0 through 3.0 as follows:]
1.0 PHYSICAL CHARACTERISTICS
1.1 Standards
All pallets presented to the USPS, whether USPS- or mailer-
provided, must meet the standards in 1.2 through 1.4. Mail on such
pallets must meet the standards applicable to the class and rate
claimed.
1.2 Construction
Pallets must be made of high-quality material that can hold loads
equal to a gross weight of 2,200 pounds. Pallets must measure 48 by 40
inches and allow for four-way entry by fork trucks and two-way entry by
pallet jacks.
1.3 Securing
Except for pallet boxes under 4.3, loaded pallets of mail must be
wrapped with stretchable or shrinkable plastic strong enough to retain
the integrity of the pallets during transportation and handling.
1.4 Nonconforming Mailers
The USPS informs mailers or their agents who present palletized
mailings, including plant-verified drop shipment (PVDS), when their
pallets fail to meet basic pallet integrity and safety standards. After
July 1, 1996, once a mailer is notified and allowed to make changes to
improve load integrity, if the mailer's methods, or those of the
mailer's agent presenting PVDS mailings, do not work, the mailer is
considered nonconforming. A nonconforming mailer must meet the
[[Page 66147]]
specifications for nonconforming mailers for use of top caps, stacking
of pallets, pallet box construction, and maximum height/layers of trays
in 2.0 through 4.0. After July 1, 1996, mailers will be suspended from
the pallet program if their pallets continue to fail to meeting the
minimum standards for load integrity levels.
2.0 TOP CAPS
2.1 Use
Top caps are used as follows:
a. Except under 2.1b and 2.1c, all pallets of sacks, letter mail
trays, parcels, packages or bundles of mail, or pallet boxes must be
top-capped if the pallets are double- or triple-stacked when presented
to the USPS for acceptance.
b. The top pallet need not be top-capped if the strapping or
banding securing the stacked pallets together neither damages the mail
on the top pallet nor allows the stack to shift.
c. Lower pallet(s) containing either parcels or packages or bundles
of mail need not be top-capped if the top surface of each pallet load
provides a sturdy, flat surface, parallel to the pallet base, that
provides safe and efficient stacking of pallets placed on top and
prevents sliding of the top pallet(s), damage to the loaded mail, or
crushing of the load.
2.2 Construction
Any material may be used as a top cap if it provides a flat, level
surface horizontal to the base pallet, protects the integrity of the
mail below while supporting a loaded pallet above, and allows easy
entry of a forklift to remove the upper pallet(s). Flimsy paper or
fiberboard (e.g., the ends of paper rolls) or similar material is
inadequate and may not be used as a top cap.
2.3 Securing
A top cap must be secured to the pallet horizontal to the plane of
the base pallet, with either stretchwrap or at least two crossed straps
or bands, so that the top cap stays in place to protect the mail and
maintain the integrity of the pallet load.
2.4 Nonconforming Mailers
Nonconforming mailers (see 1.4) must use top caps on all pallets of
sacks, letter mail trays, parcels, or packages or bundles of mail,
regardless of weight, or on pallets containing pallet boxes 60 inches
high or less. Top caps must be approximately 48 by 40 inches and meet
one of these construction standards:
a. Five-wood boards, with uniform edges and nine-leg pallet contact
for stacking.
b. Fiberboard box-end style, with a minimum 3-inch side and wall
material of at least double-wall corrugated fiberboard C and/or B
flute.
c. Fiberboard honeycomb covered on both sides, with heavy
linerboard at least \1/2\ inch thick.
d. Corrugated fiberboard C flute sheet covering the entire top of
the load, with standard pallet solid fiberboard corner edge protectors.
3.0 STACKING PALLETS
3.1 Double- or Triple-Stacking
Pallets may be double- or triple-stacked if:
a. The combined gross weight of the stacked pallets (pallets, top
caps, and mail) does not exceed 2,200 pounds.
b. The heaviest pallet is on the bottom and the lightest is on the
top.
c. The pallets are secured together with at least two straps or
bands of appropriate material to maintain pallet integrity during
transportation and handling. Stretchable or shrinkable plastic wrap be
used to secure stacked pallets together until July 1, 1996.
d. Pallets are top-capped under the standards in 2.0.
e. The combined height of the stacked pallets and their loads does
not exceed 84 inches.
3.2 Nonconforming Mailers
Nonconforming mailers (see 1.4) who stack pallets are subject to
the conditions in 3.1, except that triple-stacking is allowed only for
pallets of parcels and the combined height of stacked pallets may not
exceed 77 inches.
4.0 PALLET BOXES
[Renumber current 4.0 through 6.0 as 5.0 through 7.0; add new 4.0 as
follows:]
4.1 Use
Mailers may use pallet boxes constructed of single-, double-, or
triple-wall corrugated fiberboard placed on pallets to hold sacks or
parcels prepared under M042, M043, or M044. Single-wall corrugated
fiberboard may be used only for light loads (such as lightweight
parcels) that do not require transportation by the Postal Service
beyond the entry office. The boxes must protect the mail and maintain
the integrity of the pallet loads throughout transportation, handling,
and processing. The base of the boxes must measure approximately 40 by
48 inches.
4.2 Maximum Height
The combined height of the pallet, pallet box, and mail may not
exceed 77 inches, except that until July 1, 1996, the combined height
may be up to 84 inches. The contents of the box must not extend above
the top rim of the box.
4.3 Securing
Pallet boxes must be secured to pallets with strapping, banding,
stretchable plastic, shrinkwrap, or other material that ensures that
the pallets can be safely unloaded from vehicles, transported, and
processed as single units to the point where the contents are
distributed with the load intact if:
a. The pallet and its contents are transported by the USPS from the
office where the mail is accepted to another postal facility where the
contents are distributed.
b. The weight of the mail in the box is not sufficient to hold the
box in place on the pallet during transportation and processing, a
pallet box must be secured to the pallet base.
4.4 Nonconforming Mailers
Nonconforming mailers (see 1.4) may use pallet boxes only if the
boxes are constructed of triple-wall corrugated fiberboard (C and/or B
flute material) with a maximum height of 77 inches.
5.0 PALLET PREPARATION
[Renumber 5.3 as 5.8; add new 5.3 through 5.7; revise renumbered 5.0 as
follows:]
5.1 Presort
[Delete the ``s'' at the end of ``Pallets'' in the first sentence.]
5.2 Minimum Load
In a single mailing, the minimum load per pallet is 250 pounds of
second-class, third-class, or fourth-class packages and bundles of
mail, parcels, or sacks (or three layers of letter trays of second-
class or third-class mail), except that the processing and distribution
manager of the facility where a mailing is entered may issue a written
authorization to the mailer allowing preparation of 5-digit or 3-digit
pallets containing less volume if the mail on those pallets is for the
service area of that facility.
5.3 Required Preparation
A pallet must be prepared to a required level of sortation when
there are 500 pounds of second-, third-, or fourth-class packages,
bundles, sacks, or parcels (or six layers of letter trays of second-
class or third-class mail).
5.4 Maximum Weight
The maximum weight (mail and pallet) is 2,200 pounds for a single
pallet.
[[Page 66148]]
5.5 Maximum Height
The combined height of a single pallet and its load may not exceed
these limits:
a. A maximum of 77 inches for packages, bundles, parcels, sacks, or
fiberboard pallet boxes and their contents (sacks or parcels) on
pallets, except that until July 1, 1996, the maximum for pallet boxes
is 84 inches.
b. A maximum of 12 layers of second-class or third-class letter
trays.
5.6 Nonconforming Mailers
For nonconforming mailers (see 1.4) of letter-size mail in trays,
the combined height of a pallet and its load may not exceed six layers
of MM or EMM trays.
5.7 Mail on Pallets
Mailpieces in trays, packages, bundles, and sacks must be prepared
under the standards applicable to the class of mail and rate claimed.
* * * * *
M042 Second-Class Mail
* * * * *
4.0 PREPARING PALLETS OF PACKAGES OR BUNDLES
[Remove current 4.1; renumber 4.2 through 4.5 as 4.1 through 4.4. Amend
renumbered 4.4 as follows:]
* * * * *
4.4 Sacking
[In the first sentence, change ``4.3'' to ``4.2.'']
5.0 PREPARING PALLETS OF COPALLETIZED FLAT-SIZE PUBLICATIONS
[Remove current 5.3; renumber 5.4 through 5.10 as 5.3 through 5.9.
Amend renumbered 5.5 and 5.8 as follows:]
* * * * *
5.5 Sacking
[In the first sentence, change ``under 5.4'' to ``under 5.3.'']
* * * * *
5.8 Documentation
* * * * *
d. [Remove ``/650.'']
* * * * *
[Revise the heading of 6.0 as follows:]
6.0 PREPARING PALLETS OF SACKS OR TRAYS
[Remove current 6.1; renumber 6.2 through 6.4 as 6.1 through 6.3. Amend
renumbered 6.2 and 6.3 as follows:]
* * * * *
6.2 Presort and Labeling
Presort sequence and labeling:
a. 5-digit (required for sacks, optional for trays); use
destination of packages for Line 1.
b. Multicoded city (optional); use L001 for Line 1.
c. 3-digit (required for sacks, optional for trays); use L002,
Column A, for Line 1.
d. SCF (required); use L002, Column B, for Line 1.
e. SDC (optional); use L201 for Line 1.
f. Transfer hub (optional).
[Revise the heading of 6.3 as follows:]
6.3 Sacks and Trays
[Revise the first sentence as follows:]
Mixed states sacks and residual trays may not be included in the
palletized portion of a mailing. * * *
M043 Third-Class Mail
* * * * *
4.0 PREPARING PALLETS OF PACKAGES OR BUNDLES
[Remove current 4.1; renumber 4.2 through 4.6 as 4.1 through 4.5. Amend
renumbered 4.5 as follows:]
* * * * *
4.5 Sacking
[In the first sentence, change ``4.3'' to ``4.2.'']
* * * * *
6.0 PREPARING PALLETS OF COPALLETIZED FLAT-SIZE MAILINGS
[Remove current 6.4; renumber 6.5 through 6.12 as 6.4 through 6.11.
Amend 6.1 and 6.10 as follows:]
6.1 Standards
[Change ``4.2 through 4.6'' to ``4.1 through 4.5.'']
* * * * *
6.10 Sacking
[In the first sentence, change ``4.3'' to ``4.2.'']
* * * * *
7.0 PALLETIZING MACHINABLE THIRD-CLASS PARCELS
[Remove current 7.1; renumber 7.2 through 7.5 as 7.1 through 7.4. In
renumbered 7.2 and 7.3, change all references from ``7.2'' to ``7.1.'']
* * * * *
8.0 PALLETIZING THIRD- AND FOURTH-CLASS MACHINABLE PARCELS
[Remove current 8.2; renumber 8.3 through 8.8 as 8.2 through 8.7. In
renumbered 8.3 and 8.4, change all references from ``8.3'' to ``8.2'';
revise 8.1 as follows:]
8.1 Standards
[Change ``4.2 through 4.6'' to ``4.1 through 4.5.'']
* * * * *
[Revise the heading of 9.0 as follows:]
9.0 PREPARING PALLETS OF SACKS OR TRAYS
[Remove current 9.1; renumber 9.2 through 9.4 as 9.1 through 9.3. Amend
renumbered 9.1 and 9.2 as follows:]
9.1 Presort and Labeling
Presort sequence and labeling:
a. 5-digit (required for sacks, optional for trays); use
destination of packages for Line 1.
b. Multicoded city (optional); use L001 for Line 1.
c. 3-digit (required for sacks, optional for trays); use L002,
Column A, for Line 1.
d. SCF (required); use L002, Column B, for Line 1.
e. BMC (optional); use L705 (or L708 for BMC/ASF if DBMC rate is
claimed) for Line 1.
9.2 Line 2
[Change ``9.2'' to ``9.1'' at the end of the section.]
9.3 Remaining Sacks and Trays
All sacks and trays remaining after all pallets are prepared may be
presented with the palletized mailing (on the same mailing statement),
if the sacks or trays are segregated from the palletized portion of the
mailing.
M044 Fourth-Class Mail
* * * * *
3.0 PREPARING PALLETS OF PACKAGES
[Remove current 3.1; renumber 3.2 through 3.5 as 3.1 through 3.4.]
* * * * *
4.0 PREPARING PALLETS OF MACHINABLE PARCELS
[Remove 4.1; renumber 4.2 through 4.6 as 4.1 through 4.5.]
* * * * *
4.2 Line 2
[Change ``4.2'' to ``4.1'' at the end of the section.]
* * * * *
5.0 PREPARING PALLETS OF SPECIAL FOURTH-CLASS PRESORT
[Remove 5.1; renumber 5.2 and 5.3 as 5.1 and 5.2.]
* * * * *
5.2 Line 2
[Change ``5.2'' to ``5.1'' at the end of the section.]
[[Page 66149]]
M048 Automation-Compatible Flats
* * * * *
2.0 PACKAGE PREPARATION
[Renumber 2.1 as 2.0 and remove the 2.1 section heading; remove 2.2.]
* * * * *
An appropriate amendment to 39 CFR 111.3 to reflect these changes
will be published.
Stanley F. Mires,
Chief Counsel, Legislative.
[FR Doc. 95-30989 Filed 12-20-95; 8:45 am]
BILLING CODE 7710-12-M
Complete official Federal Register PDF
FR Doc. 95-30977 Notice of Significant Reduction in the Rate of Future Benefit Accrual; Correction
[Federal Register Volume 60, Number 245 (Thursday, December 21, 1995)]
[Rules and Regulations]
[Pages 66082-66083]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30977]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
26 CFR Parts 1 and 602
[TD 8631]
RIN 1545-AT79
Notice of Significant Reduction in the Rate of Future Benefit
Accrual; Correction
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Correction to final regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains a correction to the final regulations
(TD 8631) which were published in the Federal Register for Friday,
December 15, 1995 (60 FR 64320). The final regulations provide guidance
concerning the requirements of section 204(h) of the Employee
Retirement Income Security Act of 1974, as amended (ERISA), relating to
defined benefit plans and to individual account plans that are subject
to the finding standards of section 302 of ERISA.
EFFECTIVE DATE: December 15, 1995.
FOR FURTHER INFORMATION CONTACT: Betty J. Clary (202) 622-6070 (not a
toll-free number).
[[Page 66083]]
SUPPLEMENTARY INFORMATION:
Background
The final regulations that are the subject of this correction are
under section 411 of the Internal Revenue Code.
Need for Correction
As published, TD 8631 contains an error which is in need of
correction.
Correction of Publication
Accordingly, the publication to the final regulations which is the
subject of FR Doc. 95-30416, is corrected as follows:
On page 64321, column 3, in the preamble, following the paragraph
heading Effective Dates, line 5, the language ``or after January 2,
1996.'' is corrected to read ``or after December 30, 1995.''.
Michael Slaughter,
Acting Chief, Regulations Unit, Assistant Chief Counsel (Corporate).
[FR Doc. 95-30977 Filed 12-15-95; 3:31 pm]
BILLING CODE 4830-01-U
Complete official Federal Register PDF
FR Doc. 95-30916 Trade Regulation Rule Concerning the Failure To Disclose the Lethal Effects of Inhaling Quick-Freeze Aerosol Spray Products Used for Frosting Cocktail Glasses
[Federal Register Volume 60, Number 245 (Thursday, December 21, 1995)]
[Rules and Regulations]
[Pages 66071-66072]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30916]
=======================================================================
-----------------------------------------------------------------------
FEDERAL TRADE COMMISSION
16 CFR Part 417
Trade Regulation Rule Concerning the Failure To Disclose the
Lethal Effects of Inhaling Quick-Freeze Aerosol Spray Products Used for
Frosting Cocktail Glasses
AGENCY: Federal Trade Commission.
ACTION: Repeal of rule.
-----------------------------------------------------------------------
SUMMARY: The Federal Trade Commission announces the repeal of the Trade
Regulation Rule concerning the Failure to Disclose the Lethal Effects
of Inhaling Quick-Freeze Aerosol Spray Products Used for Frosting
Cocktail Glasses. The Commission has reviewed the rulemaking record and
determined that, because federal law prohibits the sale or distribution
of the products that were the subject of the Quick-Freeze Spray Rule,
the Rule no longer serves the public interest and should be repealed.
This document contains a Statement of Basis and Purpose for repeal of
the Rule.
EFFECTIVE DATE: December 21, 1995.
ADDRESSES: Requests for copies of the Statement of Basis and Purpose
should be sent to Public Reference Branch, Room 130, Federal Trade
Commission, 6th Street & Pennsylvania Avenue N.W., Washington, DC
20580.
FOR FURTHER INFORMATION CONTACT:
Lemuel W. Dowdy or George Brent Mickum IV, Federal Trade Commission,
Division of Enforcement, Bureau of Consumer Protection, Washington,
D.C. 20580, (202) 326-2981, (202) 326-3132.
SUPPLEMENTARY INFORMATION:
Statement of Basis and Purpose
I. Background
The Trade Regulation Rule concerning the Failure to Disclose the
Lethal Effects of Inhaling Quick-Freeze Aerosol Spray Products Used for
Frosting Cocktail Glasses (Quick-Freeze Spray Rule), 16 CFR Part 417,
was promulgated on February 20, 1969 (34 FR 2417). The Quick-Freeze
Spray Rule requires a clear and conspicuous warning on aerosol spray
products used for frosting beverage glasses. The warning states that
the contents should not be inhaled in concentrated form and that doing
so may cause injury or death.
On May 23, 1995, the Commission published an Advance Notice of
Proposed Rulemaking (ANPR) seeking comment on the proposed repeal of
the Quick-Freeze Spray Rule (60 FR 27244). In accordance with Section
18 of the Federal Trade Commission (FTC) Act, 15 U.S.C. 57a, the ANPR
was sent to the Chairman of the Committee on Commerce, Science and
Transportation, United States Senate, and the Chairman of the
Subcommittee on Commerce, Trade and Hazardous Materials, United States
House of Representatives. The comment period closed on June 22, 1995.
The Commission received no comments.
On September 18, 1995, the Commission published a Notice of
Proposed Rulemaking (NPR) initiating a proceeding to consider whether
the Quick-Freeze Spray Rule should be repealed or remain in effect (60
FR 48073).\1\ This rulemaking proceeding was undertaken as part of the
Commission's ongoing program of evaluating trade regulation rules and
industry guides to ascertain their effectiveness, impact, cost and
need. This proceeding also responded to President Clinton's National
Regulatory Reinvention Initiative, which, among other things, urges
agencies to eliminate obsolete or unnecessary regulations. In the NPR,
the Commission announced its determination, pursuant to 16 CFR 1.20, to
use expedited procedures in this proceeding.\2\ The comment period
closed on October 18, 1995. The Commission received no comments and no
requests to hold an informal hearing.
\1\ In accordance with Section 18 of the FTC Act, 15 U.S.C. 57a,
the Commission submitted the NPR to the Chairman of the Committee on
Commerce, Science and Transportation, United States Senate, and the
Chairman of the Subcommittee on Commerce, Trade and Hazardous
Materials, United States House of Representatives, 30 days prior to
its publication.
\2\ These procedures included: publishing a Notice of Proposed
Rulemaking; soliciting written comments on the Commission's proposal
to repeal the Rule; holding an informal hearing, if requested by
interested parties; receiving a final recommendation from Commission
staff; and announcing final Commission action in the Federal
Register.
---------------------------------------------------------------------------
II. Basis for Repeal of Rule
The Commission has determined to repeal the Quick-Freeze Spray Rule
for the following reasons:
1. The active ingredient in quick-freeze spray products was
Fluorocarbon 12. The Clean Air Act, 42 U.S.C. 7401 et seq., and its
implementing regulations, ban chlorofluorocarbons in aerosols and foams
for non-essential uses because they are ozone depleting agents. The
ban, which includes Fluorocarbon 12, became effective on January 17,
1994.\3\ A number of aerosol products containing fluorocarbons have
been exempted from the ban, but glass-frosting aerosols are not among
them.
\3\ 40 CFR 82.64 (1994).
---------------------------------------------------------------------------
2. Based on a 1989 review of the Rule, the Commission determined
that the last known producer of glass-frosting products was Ronco, Inc.
Ronco last produced its glass-frosting machines in 1980. The product
was last sold to retailers in 1982. Ronco has none of the product in
its warehouse and has sold the tooling machinery that was used to
manufacture the product.\4\
\4\ See Rulemaking Record, Staff Submissions: Letter from Donna
Wellington, Executive Vice President, Ronco, Inc., dated April 18,
1995, to Mr. Lemuel W. Dowdy.
---------------------------------------------------------------------------
3. Commission staff was unable to locate any glass-frosting
products for sale anywhere in the country.\5\
\5\ See Rulemaking Record, Staff Submissions: Memorandum to
File, George Brent Mickum IV, dated April 18, 1995.
---------------------------------------------------------------------------
4. Poison treatment centers have reported no cases involving the
product.\6\
\6\ Id.
---------------------------------------------------------------------------
Because the products addressed by this Rule are no longer available
and cannot be sold or distributed legally, the Quick-Freeze Spray Rule
has become obsolete and should be repealed.
III. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601-11, requires an
analysis of the anticipated impact of the repeal of the Rule on small
businesses. The reasons for repeal of the Rule have been explained in
this Notice. Repeal of the
[[Page 66072]]
Rule would appear to have little or no effect on small businesses.
Moreover, the Commission is not aware of any existing federal laws or
regulations that would conflict with repeal of the Rule. For these
reasons, the Commission certifies, pursuant to Section 605 of the RFA,
5 U.S.C. 605, that this action will not have a significant economic
impact on a substantial number of small entities.
IV. Paperwork Reduction Act
The Quick-Freeze Spray Rule does not impose ``information
collection requirements'' under the Paperwork Reduction Act, 44 U.S.C.
3501 et seq. Although the Rule contains disclosure requirements, these
disclosures are not covered under the Act because the disclosure
language is mandatory and provided by the government. Repeal of the
Rule, however, would eliminate any burdens on the public imposed by
these disclosure requirements.
List of Subjects in 16 CFR Part 417
Hazardous substances, Labeling, Trade practices.
PART 417--[REMOVED]
The Commission, under authority of section 18 of the Federal Trade
Commission Act, 15 U.S.C. 57a, amends chapter I of title 16 of the Code
of Federal Regulations by removing part 417.
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 95-30916 Filed 12-20-95; 8:45 am]
BILLING CODE 6750-01-M
Complete official Federal Register PDF
FR Doc. 95-30900 Regulations Under Section 1258 of the Internal Revenue Code of 1986; Netting Rule for Certain Conversion Transactions
[Federal Register Volume 60, Number 245 (Thursday, December 21, 1995)]
[Rules and Regulations]
[Pages 66083-66085]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30900]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
26 CFR Parts 1 and 602
[TD 8649]
RIN 1545-AS87
Regulations Under Section 1258 of the Internal Revenue Code of
1986; Netting Rule for Certain Conversion Transactions
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final regulations relating to
conversion transactions. These regulations provide that certain gains
and losses from positions of the same conversion transaction may be
netted for purposes of determining the amount of gain that is
recharacterized as ordinary income. These regulations reflect changes
to the law made by the Revenue Reconciliation Act of 1993 and affect
persons who enter into conversion transactions.
DATES: These regulations are effective December 21, 1995.
For applicability of these regulations, see EFFECTIVE DATES under
the SUPPLEMENTARY INFORMATION part of the preamble.
FOR FURTHER INFORMATION CONTACT: Alan B. Munro, (202) 622-3950 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in these final regulations
has been reviewed and approved by the Office of Management and Budget
in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under
control number 1545-1452. Responses to this collection of information
are required to obtain netting relief for conversion transactions.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid control number.
The estimated annual burden per recordkeeper varies from .05 to 10
hours, depending on individual circumstances, with an estimated average
of .10 hour.
Comments concerning the accuracy of this burden estimate and
suggestions for reducing this burden should be sent to the Internal
Revenue Service, Attn: IRS Reports Clearance Officer, T:FP, Washington,
DC 20224, and to the Office of Management and Budget, Attn: Desk
Officer for the Department of the Treasury, Office of Information and
Regulatory Affairs, Washington, DC 20503.
Books or records relating to this 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 26 U.S.C. 6103.
Background
On December 27, 1994, the IRS published in the Federal Register a
notice of proposed rulemaking and notice of public hearing at 59 FR
66498 (FI-43-94) under section 1258 of the Internal Revenue Code of
1986.
The IRS received a number of written comments on the proposed
regulations. No requests to speak at the public hearing were received,
however, and consequently the hearing was cancelled.
Explanation of Provisions
A. General
The proposed regulations allow taxpayers to net gains and losses on
the positions of certain conversion transactions for purposes of
section 1258(a). For a taxpayer to be eligible, the proposed
regulations require the taxpayer to identify, before the close of the
day on which the positions become part of the conversion transaction,
all the positions that are part of the conversion transaction. In
addition, the taxpayer has to dispose of all the positions within a 14-
day period that is within a single taxable year. The proposed
regulations also define built- in loss and prohibit the netting of
built-in loss against gain.
The commenters uniformly supported the netting relief provided by
the proposed regulations. Accordingly, the final regulations are
substantially unchanged from the proposed regulations.
The proposed regulations provide that the regulations will be
effective for conversion transactions entered into on or after the date
of filing of final regulations with the Federal Register. Several
commenters requested that the regulations also apply to conversion
transactions entered into prior to the filing date. In response to
these comments, the final regulations provide for application of the
regulations to any conversion transaction that is outstanding on
December 21, 1995, provided that all the positions which are part of
the conversion transaction are identified under Sec. 1.1258-1(b)(2)
before the close of business on February 20, 1996. The final
regulations also provide a transition rule for the same-day
identification requirement that allows taxpayers to identify conversion
transactions entered into prior to February 20, 1996, at any time on or
before February 20, 1996.
Several commenters criticized the examples for failing to adjust
the applicable imputed income amount (AIIA) under section 1258(b) for
interest and dividends received. The scope of these regulations,
however, is limited to netting relief. The IRS is still studying
various situations to determine the extent to which it is appropriate
to reduce the AIIA by reason of amounts capitalized under section
263(g), ordinary income received, or otherwise. Accordingly, Example 3
has been deleted and Examples 1 and 2 have been clarified to eliminate
any implication on this issue.
One commenter requested that the identification requirement be
eliminated as impractical, unnecessary, and a trap for the unwary. This
same-day identification requirement is similar to identification
requirements under sections 475 and 1221. Identification of all the
positions of a conversion transaction will aid examiners attempting to
determine whether conversion transactions are present and will prevent
mismatching of those positions by both taxpayers and agents. The final
regulations retain the same-day identification requirement but provide
a transition rule.
[[Page 66084]]
Some commenters asked that netting relief be expanded to cover
unrealized losses in retained positions by allowing loss positions to
be marked to market when a gain position is disposed of or terminated.
Allowing retained positions to be marked to market raises valuation and
other potentially complex issues. For example, many of the issues
addressed by the regulations under section 475 would have to be
addressed here. The complexity of these issues outweighs the potential
benefit of allowing retained positions to be marked to market. Thus,
the final regulations do not include a mark-to-market provision.
To preserve the character of gain that arose before a position
became part of a conversion transaction, one commenter requested built-
in gain rules similar to the built-in loss rules in the proposed
regulations. The appropriateness of a built-in gain rule under section
1258 is beyond the scope of these regulations. Therefore, the final
regulations do not address this issue.
The IRS is aware that section 1258 presents a number of issues not
addressed by these final regulations. The IRS continues to study the
scope of section 1258, the types of transactions that should be
included under the regulatory authority of section 1258(c)(2)(D), and
what reductions, if any, in the AIIA are appropriate under section
1258(b). The IRS welcomes comments on these and other issues under
section 1258.
B. Effective Dates
The regulations are effective for conversion transactions that are
outstanding on or after December 21, 1995. In the case of a conversion
transaction entered into before February 20, 1996, the same-day
identification requirement is treated as satisfied if the
identification is made on or before February 20, 1996.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It also has been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to
these regulations, and, therefore, a Regulatory Flexibility Analysis is
not required. Pursuant to section 7805(f) of the Internal Revenue Code,
the notice of proposed rulemaking preceding these regulations was
submitted to the Small Business Administration for comment on its
impact on small business.
Drafting Information: The principal author of these regulations
is Alan B. Munro, Office of Assistant Chief Counsel (Financial
Institutions and Products). However, other personnel from the IRS
and Treasury Department participated in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 602 are amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.1258-1 is added to read as follows:
Sec. 1.1258-1 Netting rule for certain conversion transactions.
(a) Purpose. The purpose of this section is to provide taxpayers
with a method to net certain gains and losses from positions of the
same conversion transaction before determining the amount of gain
treated as ordinary income under section 1258(a).
(b) Netting of gain and loss for identified transactions--(1) In
general. If a taxpayer disposes of or terminates all the positions of
an identified netting transaction (as defined in paragraph (b)(2) of
this section) within a 14-day period in a single taxable year, all
gains and losses on those positions taken into account for federal tax
purposes within that period (other than built-in losses as defined in
paragraph (c) of this section) are netted solely for purposes of
determining the amount of gain treated as ordinary income under section
1258(a). For purposes of the preceding sentence, a taxpayer is treated
as disposing of any position that is treated as sold under any
provision of the Code or regulations thereunder (for example, under
section 1256(a)(1)).
(2) Identified netting transaction. For purposes of this section,
an identified netting transaction is a conversion transaction (as
defined in section 1258(c)) that the taxpayer identifies as an
identified netting transaction on its books and records. Identification
of each position of the conversion transaction must be made before the
close of the day on which the position becomes part of the conversion
transaction. No particular form of identification is necessary, but all
the positions of a single conversion transaction must be identified as
part of the same transaction and must be distinguished from all other
positions.
(c) Definition of built-in loss. For purposes of this section,
built-in loss means--
(1) Built-in loss as defined in section 1258(d)(3)(B); and
(2) If a taxpayer realizes gain or loss on any one position of a
conversion transaction (for example, under section 1256), as of the
date that gain or loss is realized, any unrecognized loss in any other
position of the conversion transaction that is not disposed of,
terminated, or treated as sold under any provision of the Code or
regulations thereunder within 14 days of and within the same taxable
year as the realization event.
(d) Examples. These examples illustrate this section:
Example 1. Identified netting transaction with simultaneous
actual dispositions. (i) On December 1, 1995, A purchases 1,000
shares of XYZ stock for $100,000 and enters into a forward contract
to sell 1,000 shares of XYZ stock on November 30, 1997, for
$110,000. The XYZ stock is actively traded as defined in
Sec. 1.1092(d)-1(a) and is a capital asset in A's hands. A maintains
books and records on which, on December 1, 1995, it identifies the
two positions as all the positions of a single conversion
transaction. A owns no other XYZ stock. On December 1, 1996, when
the applicable imputed income amount for the transaction is $7,000,
A sells the 1,000 shares of XYZ stock for $95,000. On the same day,
A terminates its forward contract with its counterparty, receiving
$10,200. No dividends were received on the stock during the time it
was part of the conversion transaction.
(ii) The XYZ stock and forward contract are positions of a
conversion transaction. Under section 1258(c)(1), substantially all
of A's expected return from the overall transaction is attributable
to the time value of the net investment in the transaction. Under
section 1258(c)(2)(B), the transaction is an applicable straddle as
defined in section 1258(d)(1).
(iii) A disposed of or terminated all the positions of the
conversion transaction within 14 days and within the same taxable
year as required by paragraph (b)(1) of this section. The
transaction is an identified netting transaction because it meets
the identification requirement of paragraph (b)(2) of this section.
Solely for purposes of section 1258(a), the $5,000 loss realized
($100,000 basis less $95,000 amount realized) on the disposition of
the XYZ stock is netted against the $10,200 gain recognized on the
disposition of the forward contract. Thus, the net gain from the
conversion transaction for purposes of section 1258(a) is $5,200
[[Page 66085]]
($10,200 gain less $5,000 loss). Only the $5,200 net gain is
recharacterized as ordinary income under section 1258(a) even though
the applicable imputed income amount is $7,000. For federal tax
purposes other than section 1258(a), A has recognized a $10,200 gain
on the disposition of the forward contract ($5,200 of which is
treated as ordinary income) and realized a separate $5,000 loss on
the sale of the XYZ stock.
Example 2. Identified netting transaction with built-in loss.
(i) The facts are the same as in Example 1, except that A had
purchased the XYZ stock for $104,000 on May 15, 1995. The XYZ stock
had a fair market value of $100,000 on December 1, 1995, the date it
became part of a conversion transaction.
(ii) The results are the same as in Example 1, except that A has
built-in loss (in addition to the $5,000 loss that arose
economically during the period of the conversion transaction), as
defined in section 1258(d)(3)(B), of $4,000 on the XYZ stock. That
$4,000 built-in loss is not netted against the $10,200 gain on the
forward contract for purposes of section 1258(a). Thus, the net gain
from the conversion transaction for purposes of section 1258(a) is
$5,200, the same as in Example 1. The $4,000 built-in loss is
recognized and has a character determined without regard to section
1258.
(e) Effective date and transition rule--(1) In general. These
regulations are effective for conversion transactions that are
outstanding on or after December 21, 1995.
(2) Transition rule for identification requirements. In the case of
a conversion transaction entered into before February 20, 1996,
paragraph (b)(2) of this section is treated as satisfied if the
identification is made before the close of business on February 20,
1996.
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Par. 3. The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
Sec. 602.101 [Amended]
Par. 4. In Sec. 602.101, paragraph (c) is amended by adding the
entry ``1.1258-1 * * * .1545-1452'' in numerical order to the table.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved: November 28, 1995.
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 95-30900 Filed 12-20-95; 8:45 am]
BILLING CODE 4830-01-U
Complete official Federal Register PDF
FR Doc. 95-30875 Controlling corporation's basis adjustment in its controlled corporation's stock following a triangular reorganization
[Federal Register Volume 60, Number 245 (Thursday, December 21, 1995)]
[Rules and Regulations]
[Pages 66077-66082]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30875]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 8648]
RIN 1545-AB21
Controlling corporation's basis adjustment in its controlled
corporation's stock following a triangular reorganization
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final regulations under sections 358,
1032, and 1502 of the Internal Revenue Code of 1986. The final
regulations provide rules for adjusting the basis of a controlling
corporation in the stock of a controlled corporation as the result of
certain triangular reorganizations involving the stock of the
controlling corporation. They also generally provide that the use of
the controlling corporation's stock provided by the controlling
corporation pursuant to the plan of reorganization is treated as a
disposition of those shares by the controlling corporation.
DATES: These regulations are effective December 21, 1995.
For dates of applicability, see the ``Effective Dates'' section
under the SUPPLEMENTARY INFORMATION portion of the preamble and the
effective date provisions of the new or revised regulations.
FOR FURTHER INFORMATION CONTACT: Curt Cutting, (202) 622-7550 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains final regulations under sections 358, 1032,
and 1502. The proposed regulations were published in the Federal
Register on December 23, 1994 (59 FR 66280 [CO-993-71], 1995-4 I.R.B.
59 (January 23, 1995)). The IRS received many comments on the proposed
regulations and held a public hearing on March 31, 1995.
After consideration of the comments and the statements made at the
hearing, the proposed regulations are adopted as revised by this
Treasury decision.
[[Page 66078]]
Overview
The final regulations adopt the over-the-top model contained in the
proposed regulations. Subject to certain modifications, the model
generally adjusts a controlling corporation's (P's) basis in the stock
of its controlled corporation (S or T) as a result of certain
triangular reorganizations as if P had acquired the T assets (and any
liabilities assumed or to which the T assets were subject) directly
from T in a transaction in which P's basis in the T assets was
determined under section 362(b), and P then had transferred the T
assets (and liabilities) to S in a transaction in which P's basis in
the S or T stock was adjusted under section 358. The preamble to the
proposed regulations contains a discussion of the justification for the
model. See 59 FR 66280-81.
The final regulations also provide a special rule that treats S's
use of P's stock provided by P pursuant to the plan of reorganization
as a disposition of those shares by P.
The final regulations apply only for the purpose of determining P's
basis in its S or T stock following a transaction that otherwise
qualifies as a reorganization within the meaning of section 368. They
do not address issues concerning the qualification of a transaction as
a reorganization.
With the publication of these final regulations, the IRS announces
the closing of its study project referred to in Sec. 5.14 of Rev. Proc.
95-3, 1995-1 C.B. 385, 395.
The significant comments on the proposed regulations and revisions
made are discussed below.
Summary of Comments and Explanation of Revisions P's Basis in T
Stock Owned Before a Reverse Triangular Merger
The proposed regulations adjusted basis as a result of a reverse
triangular merger to reflect the amount of T stock received in the
transaction. Comments on the proposed regulations questioned how an
adjustment based on the amount of T stock received in the transaction
would apply in the case in which P owns T stock before the transaction.
In response to these comments, the final regulations allow P to
treat its T stock as acquired in the transaction or not, without regard
to the form of the transaction. Thus, P may retain its basis in the T
stock owned before the transaction, or may determine its basis in that
stock as an allocable portion of T's net asset basis. The regulations
require no explicit election. Instead, it is assumed P will pick the
higher basis. This rule applies only for determining basis, and not for
qualifying the transaction as a reverse triangular merger. See Rev.
Rul. 74-564, 1974-2 C.B. 124.
The Treasury and the IRS continue to study issues relating to
restructurings involving related parties and cross-ownership, and
welcome comments and suggestions on these issues.
Net Negative Adjustment
Under the proposed regulations, P's basis adjustment was reduced by
the fair market value of consideration not provided by P, and by the
amount of liabilities assumed by S or to which T assets are subject.
These reductions did not result in a net negative basis adjustment to
P's basis in its S stock before the transaction. This limitation did
not apply, however, where P and S, or P and T, as applicable, were
members of a consolidated group following the triangular
reorganization. In the consolidated context, the negative adjustments
could result in a net negative adjustment to P's basis in its S stock
before the transaction, even if the adjustment resulted in an excess
loss account under Sec. 1.1502-19.
Some comments on the proposed regulations argued against reducing
P's basis in its S stock before the transaction by a net negative
adjustment in the consolidated context. Other comments, however, agreed
that it is appropriate not to limit the net negative adjustment in this
context.
The Treasury and the IRS continue to believe that the proposed
regulations reach the correct result. Therefore, the final regulations
adopt the rules as proposed.
Overlap of Reverse Triangular Merger and Other Transactions
The proposed regulations provided that if a transaction qualified
as both a reverse triangular merger and a stock acquisition under
section 368(a)(1)(B), P adjusted its basis in its T stock based either
on T's net asset basis or on the aggregate basis of the T stock
surrendered in the transaction (as if the transaction were a
reorganization under section 368(a)(1)(B)).
One comment noted that a reverse triangular merger might overlap
with a section 351 transfer and therefore requested that this rule also
apply to such a case. The final regulations adopt this suggestion.
Manner of Making Elections
The proposed and final regulations provide P with elections for its
basis adjustments when P owns stock of T and when a reverse triangular
merger also qualifies as a section 351 transaction or B reorganization.
In these situations, P does not have to declare how it will compute its
basis. Rather, P must simply retain appropriate records. See
Sec. 1.368-3.
Application of Section 1032
The proposed regulations under section 1032 generally provided that
P stock provided by P to S, or directly to T or T's shareholders on
behalf of S, pursuant to the plan of reorganization would be treated as
a disposition by P of shares of its own stock for T assets or stock, as
applicable. Thus, no gain or loss was recognized on the use of such P
stock in the transaction. S, however, recognized gain or loss on its
use of P stock if S did not receive the stock from P as part of the
plan of reorganization. This rule did not apply in the case of a
reverse triangular merger; section 361 provides nonrecognition
treatment for S's use of P stock in such a case. To clarify this
treatment, a cross-reference has been added to the final regulations.
Comments to the proposed regulations requested that they be
expanded to cover P debt, warrants and options provided by P to S, or
directly to T or T's shareholders on behalf of S, pursuant to the plan
of reorganization. Comments also requested that the rule be extended to
taxable transactions.
The issues raised in these comments are beyond the scope of this
project. However, the Treasury and the IRS are studying issues relating
to the scope of section 1032 and welcome comments and suggestions.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It has also been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to
these regulations, and, therefore, a Regulatory Flexibility Analysis is
not required. Pursuant to section 7805(f) of the Internal Revenue Code,
the notice of proposed rulemaking preceding these regulations was
submitted to the Small Business Administration for comment on its
impact on small business.
Effective Dates
Generally, Sec. 1.358-6 applies with respect to all triangular
reorganizations occurring on or after December 23, 1994, the day that
the proposed regulations were published in the Federal Register.
As stated in the preamble to the proposed regulations, any
adjustment to
[[Page 66079]]
P's basis in its S or T stock (as applicable) following a triangular
reorganization occurring before December 23, 1994, must be consistent
with the adjustment that would be made if P had made the acquisition
directly and P then transferred the assets to a controlled subsidiary.
However, with respect to reverse triangular mergers occurring before
December 23, 1994, P may adjust its basis in its T stock as if P
acquired the stock of the former T shareholders in a transaction in
which its basis was determined under section 362(b).
Section 1.1032-2 applies with respect to certain triangular
reorganizations occurring on or after December 23, 1994. With respect
to triangular reorganizations occurring before December 23, 1994, see,
e.g., Sec. 1.1032-1 and Rev. Rul. 57-278, 1957-1 C.B. 124.
Section 1.1502-30 applies with respect to triangular
reorganizations occurring on or after December 21, 1995, in which P and
S, or P and T, as applicable, are members of a consolidated group
following the triangular reorganization. For similar triangular
reorganizations occurring before December 21, 1995, any adjustments to
P's basis in its S or T stock (as applicable) must be consistent with
the rules applicable for nonconsolidated taxpayers, except to the
extent that Sec. 1.1502-31 applies to a transaction that is a group
structure change.
Drafting Information
The principal authors of these regulations are Rose Williams and
Curt Cutting, Office of Assistant Chief Counsel (Corporate). However,
other personnel from the IRS and the Treasury Department participated
in their development.
List of Subjects for 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in
part:
Authority: 26 U.S.C. 7805 * * *
Section 1.1502-30 also issued under 26 U.S.C. 1502 * * *
Sec. 1.358-2 [Amended]
Par. 2. Section 1.358-2(d) is removed.
Par. 3. Section 1.358-6 is added to read as follows:
Sec. 1.358-6 Stock basis in certain triangular reorganizations.
(a) Scope. This section provides rules for computing the basis of a
controlling corporation in the stock of a controlled corporation as the
result of certain reorganizations involving the stock of the
controlling corporation as described in paragraph (b) of this section.
The rules of this section are in addition to rules under other
provisions of the Internal Revenue Code and principles of law. See,
e.g., section 1001 for the recognition of gain or loss by the
controlled corporation on the exchange of property for the assets or
stock of a target corporation in a reorganization described in section
368.
(b) Triangular reorganizations--(1) Nomenclature. For purposes of
this section--
(i) P is a corporation--
(A) That is a party to a reorganization,
(B) That is in control (within the meaning of section 368(c)) of
another party to the reorganization, and
(C) Whose stock is transferred pursuant to the reorganization.
(ii) S is a corporation--
(A) That is a party to the reorganization, and
(B) That is controlled by P.
(iii) T is a corporation that is another party to the
reorganization.
(2) Definitions of triangular reorganizations. This section applies
to the following reorganizations (which are referred to collectively as
triangular reorganizations):
(i) Forward triangular merger. A forward triangular merger is a
statutory merger of T and S, with S surviving, that qualifies as a
reorganization under section 368(a)(1)(A) or (G) by reason of the
application of section 368(a)(2)(D).
(ii) Triangular C reorganization. A triangular C reorganization is
an acquisition by S of substantially all of T's assets in exchange for
P stock in a transaction that qualifies as a reorganization under
section 368(a)(1)(C).
(iii) Reverse triangular merger. A reverse triangular merger is a
statutory merger of S and T, with T surviving, that qualifies as a
reorganization under section 368(a)(1)(A) by reason of the application
of section 368(a)(2)(E).
(iv) Triangular B reorganization. A triangular B reorganization is
an acquisition by S of T stock in exchange for P stock in a transaction
that qualifies as a reorganization under section 368(a)(1)(B).
(c) General rules. Subject to the special rule provided in
paragraph (d) of this section, P's basis in the stock of S or T, as
applicable, as a result of a triangular reorganization, is adjusted
under the following rules--
(1) Forward triangular merger or triangular C reorganization--(i)
In general. In a forward triangular merger or a triangular C
reorganization, P's basis in its S stock is adjusted as if--
(A) P acquired the T assets acquired by S in the reorganization
(and P assumed any liabilities which S assumed or to which the T assets
acquired by S were subject) directly from T in a transaction in which
P's basis in the T assets was determined under section 362(b); and
(B) P transferred the T assets (and liabilities which S assumed or
to which the T assets acquired by S were subject) to S in a transaction
in which P's basis in S stock was determined under section 358.
(ii) Limitation. If, in applying section 358, the amount of T
liabilities assumed by S or to which the T assets acquired by S are
subject equals or exceeds T's aggregate adjusted basis in its assets,
the amount of the adjustment under paragraph (c)(1)(i) of this section
is zero. P recognizes no gain under section 357(c) as a result of a
triangular reorganization.
(2) Reverse triangular merger--(i) In general--(A) Treated as a
forward triangular merger. Except as otherwise provided in this
paragraph (c)(2), P's basis in its T stock acquired in a reverse
triangular merger equals its basis in its S stock immediately before
the transaction adjusted as if T had merged into S in a forward
triangular merger to which paragraph (c)(1) of this section applies.
(B) Allocable share. If P acquires less than all of the T stock in
the transaction, the basis adjustment described in paragraph
(c)(2)(i)(A) of this section is reduced in proportion to the percentage
of T stock not acquired in the transaction. The percentage of T stock
not acquired in the transaction is determined by taking into account
the fair market value of all classes of T stock.
(C) Special rule if P owns T stock before the transaction. Solely
for purposes of paragraphs (c)(2)(i)(A) and (B) of this section, if P
owns T stock before the transaction, P may treat that stock as acquired
in the transaction or not, without regard to the form of the
transaction.
(ii) Reverse triangular merger that qualifies as a section 351
transfer or section 368(a)(1)(B) reorganization. Notwithstanding
paragraph (c)(2)(i) of this section, if a reorganization qualifies as
both a reverse triangular merger and
[[Page 66080]]
as a section 351 transfer or as both a reverse triangular merger and a
reorganization under section 368(a)(1)(B), P can--
(A) Determine the basis in its T stock as if paragraph (c)(2)(i) of
this section applies; or
(B) Determine the basis in the T stock acquired as if P acquired
such stock from the former T shareholders in a transaction in which P's
basis in the T stock was determined under section 362(b).
(3) Triangular B reorganization. In a triangular B reorganization,
P's basis in its S stock is adjusted as if--
(i) P acquired the T stock acquired by S in the reorganization
directly from the T shareholders in a transaction in which P's basis in
the T stock was determined under section 362(b); and
(ii) P transferred the T stock to S in a transaction in which P's
basis in its S stock was determined under section 358.
(4) Examples. The rules of this paragraph (c) are illustrated by
the following examples. For purposes of these examples, P, S, and T are
domestic corporations, P and S do not file consolidated returns, P owns
all of the only class of S stock, the P stock exchanged in the
transaction satisfies the requirements of the applicable triangular
reorganization provisions, and the facts set forth the only corporate
activity.
Example 1. Forward triangular merger. (a) Facts. T has assets
with an aggregate basis of $60 and fair market value of $100 and no
liabilities. Pursuant to a plan, P forms S with $5 cash (which S
retains), and T merges into S. In the merger, the T shareholders
receive P stock worth $100 in exchange for their T stock. The
transaction is a reorganization to which sections 368(a)(1)(A) and
(a)(2)(D) apply.
(b) Basis adjustment. Under Sec. 1.358-6(c)(1), P's $5 basis in
its S stock is adjusted as if P acquired the T assets acquired by S
in the reorganization directly from T in a transaction in which P's
basis in the T assets was determined under section 362(b). Under
section 362(b), P would have an aggregate basis of $60 in the T
assets. P is then treated as if it transferred the T assets to S in
a transaction in which P's basis in the S stock was determined under
section 358. Under section 358, P's $5 basis in its S stock would be
increased by the $60 basis in the T assets deemed transferred.
Consequently, P has a $65 basis in its S stock as a result of the
reorganization.
(c) Use of pre-existing S. The facts are the same as paragraph
(a) of this Example 1, except that S is an operating company with
substantial assets that has been in existence for several years. P
has a $110 basis in the S stock. Under Sec. 1.358-6(c)(1), P's $110
basis in its S stock is increased by the $60 basis in the T assets
deemed transferred. Consequently, P has a $170 basis in its S stock
as a result of the reorganization.
(d) Mixed consideration. The facts are the same as paragraph (a)
of this Example 1, except that the T shareholders receive P stock
worth $80 and $20 cash from P. Under section 358, P's $5 basis in
its S stock is increased by the $60 basis in the T assets deemed
transferred. Consequently, P has a $65 basis in its S stock as a
result of the reorganization.
(e) Liabilities. The facts are the same as paragraph (a) of this
Example 1, except that T's assets are subject to $50 of liabilities,
and the T shareholders receive $50 of P stock in exchange for their
T stock. Under section 358, P's basis in its S stock is increased by
the $60 basis in the T assets deemed transferred and decreased by
the $50 of liabilities to which the T assets acquired by S are
subject. Consequently, P has a net basis adjustment of $10, and a
$15 basis in its S stock as a result of the reorganization.
(f) Liabilities in excess of basis. The facts are the same as in
paragraph (a) of this Example 1, except that T's assets are subject
to liabilities of $90, and the T shareholders receive $10 of P stock
in exchange for their T stock in the reorganization. Under
Sec. 1.358-6(c)(1)(ii), the adjustment under Sec. 1.358-6(c) is zero
if the amount of the liabilities which S assumed or to which the T
assets acquired by S are subject exceeds the aggregate adjusted
basis in T's assets. Consequently, P has no adjustment in its S
stock, and P has a $5 basis in its S stock as a result of the
reorganization.
Example 2. Reverse triangular merger. (a) Facts. T has assets
with an aggregate basis of $60 and a fair market value of $100 and
no liabilities. P has a $110 basis in its S stock. Pursuant to a
plan, S merges into T with T surviving. In the merger, the T
shareholders receive $10 cash from P and P stock worth $90 in
exchange for their T stock. The transaction is a reorganization to
which sections 368(a)(1)(A) and (a)(2)(E) apply.
(b) Basis adjustment. Under Sec. 1.358-6(c)(2)(i)(A), P's basis
in the T stock acquired is P's $110 basis in its S stock before the
transaction, adjusted as if T had merged into S in a forward
triangular merger to which Sec. 1.358-6(c)(1) applies. In such a
case, P's $110 basis in its S stock before the transaction would
have been increased by the $60 basis of the T assets deemed
transferred. Consequently, P has a $170 basis in its T stock
immediately after the transaction.
(c) Reverse triangular merger that also qualifies under section
368(a)(1)(B). The facts relating to T are the same as in paragraph
(a) of this Example 2. P, however, forms S pursuant to the plan of
reorganization. The T shareholders receive $100 worth of P stock
(and no cash) in exchange for their T stock. The T shareholders have
an aggregate basis in their T stock of $85 immediately before the
reorganization. The reorganization qualifies as both a reverse
triangular merger and a reorganization under section 368(a)(1)(B).
Under Sec. 1.358-6(c)(2)(ii), P may determine its basis in its T
stock either as if Sec. 1.358-6(c)(2)(i) applied to the T stock
acquired, or as if P acquired the T stock from the former T
shareholders in a transaction in which P's basis in the T stock was
determined under section 362(b). Accordingly, P may determine a
basis in its T stock of $60 (T's net asset basis) or $85 (the T
shareholders' aggregate basis in the T stock immediately before the
reorganization).
(d) Allocable share in a reverse triangular merger. The facts
are the same as in paragraph (a) of this Example 2, except that X, a
10% shareholder of T, does not participate in the transaction. The
remaining T shareholders receive $10 cash from P and P stock worth
$80 for their T stock. P owns 90% of the T stock after the
transaction. Under 1.358-6(c)(2)(i)(A), P's basis in its T stock is
P's $110 basis in its S stock before the reorganization, adjusted as
if T had merged into S in a forward triangular merger. In such a
case, P's basis would have been adjusted by the $60 basis in the T
assets deemed transferred. Under Sec. 1.358-6(c)(2)(i)(B), however,
the basis adjustment determined under Sec. 1.358-6(c)(2)(i)(A) is
reduced in proportion to the percentage of T stock not acquired by P
in the transaction. The percentage of T stock not acquired in the
transaction is 10%. Therefore, P reduces its $60 basis adjustment by
10%, resulting in a net basis adjustment of $54. Consequently, P has
a $164 basis in its T stock as a result of the transaction.
(e) P's ownership of T stock. The facts are the same as in
paragraph (a) of this Example 2, except that P owns 10% of the T
stock before the transaction. P's basis in that T stock is $8. All
the T shareholders other than P surrender their T stock for $10 cash
from P and P stock worth $80. P does not surrender the stock in the
transaction. Under Sec. 1.358-6(c)(2)(i)(C), P may treat its T stock
owned before the transaction as acquired in the transaction or not.
If P treats that T stock as acquired in the transaction, P's basis
in that T stock and the T stock actually acquired in the transaction
equals P's $110 basis in its S stock before the transaction,
adjusted by the $60 basis of the T assets deemed transferred, for a
total basis of $170. If P treats its T stock as not acquired, P
retains its $8 pre-transaction basis in that stock. P's basis in its
other T shares equals P's $110 basis in its S stock before the
transaction, adjusted by $54 (the $60 basis in the T assets deemed
transferred, reduced by 10%), for a total basis of $164 in those
shares. See Sec. 1.358-6(c)(2)(i)(A) and (B). Consequently, if P
treats its T shares as not acquired, P's total basis in all of its T
shares is $172.
Example 3. Triangular B reorganization. (a) Facts. T has assets
with a fair market value of $100 and no liabilities. The T
shareholders have an aggregate basis in their T stock of $85
immediately before the reorganization. Pursuant to a plan, P forms S
with $5 cash and S acquires all of the T stock in exchange for $100
of P stock. The transaction is a reorganization to which section
368(a)(1)(B) applies.
(b) Basis adjustment. Under Sec. 1.358-6(c)(3), P adjusts its $5
basis in its S stock by treating P as if it acquired the T stock
acquired by S in the reorganization directly from the T shareholders
in exchange for the P stock in a transaction in which P's basis in
the T stock was determined under section 362(b). Under section
362(b), P would have an aggregate basis of $85 in the T stock
[[Page 66081]]
received by S in the reorganization. P is then treated as if it
transferred the T stock to S in a transaction in which P's basis in
the S stock was determined under section 358. Under section 358, P's
basis in its S stock would be increased by the $85 basis in the T
stock deemed transferred. Consequently, P has a $90 basis in its S
stock as a result of the reorganization.
(d) Special rule for consideration not provided by P--(1) In
general. The amount of P's adjustment to basis in its S or T stock, as
applicable, described in paragraph (c) of this section is decreased by
the fair market value of any consideration (including P stock in which
gain or loss is recognized, see Sec. 1.1032-2(c)) that is exchanged in
the reorganization and that is not provided by P pursuant to the plan
of reorganization. This paragraph (d) does not apply to the amount of T
liabilities assumed by S or to which the T assets acquired by S are
subject under paragraph (c)(1) of this section (or deemed assumed or
taken subject to by S under paragraph (c)(2)(i) of this section).
(2) Limitation. P makes no adjustment to basis under this section
if the decrease required under paragraph (d)(1) of this section equals
or exceeds the amount of the adjustment described in paragraph (c) of
this section.
(3) Example. The rules of this paragraph (d) are illustrated by the
following example. For purposes of this example, P, S, and T are
domestic corporations, P and S do not file consolidated returns, P owns
all of the only class of S stock, the P stock exchanged in the
transaction satisfies the requirements of the applicable triangular
reorganization provisions, and the facts set forth the only corporate
activity.
Example. (a) Facts. T has assets with an aggregate basis of $60
and fair market value of $100 and no liabilities. S is an operating
company with substantial assets that has been in existence for
several years. P has a $100 basis in its S stock. Pursuant to a
plan, T merges into S and the T shareholders receive $70 of P stock
provided by P pursuant to the plan and $30 of cash provided by S in
exchange for their T stock. The transaction is a reorganization to
which sections 368(a)(1)(A) and (a)(2)(D) apply.
(b) Basis adjustment. Under Sec. 1.358-6(c)(1), P's $100 basis
in its S stock is increased by the $60 basis in the T assets deemed
transferred. Under Sec. 1.358-6(d)(1), the $60 adjustment is
decreased by the $30 of cash provided by S in the reorganization.
Consequently, P has a net adjustment of $30 in its S stock, and P
has a $130 basis in its S stock as a result of the reorganization.
(c) Appreciated asset. The facts are the same as in paragraph
(a) of this Example, except that in the reorganization S provides an
asset with a $20 adjusted basis and $30 fair market value instead of
$30 of cash. The basis results are the same as in paragraph (b) of
this Example. In addition, S recognizes $10 of gain under section
1001 on its disposition of the asset in the reorganization.
(d) Depreciated asset. The facts are the same as in paragraph
(c) of this Example, except that S has a $60 adjusted basis in the
asset. The basis results are the same as in paragraph (b) of this
Example. In addition, S recognizes $30 of loss under section 1001 on
its disposition of the asset in the reorganization.
(e) P stock. The facts are the same as in paragraph (a) of this
Example, except that in the reorganization S provides P stock with a
fair market value of $30 instead of $30 of cash. S acquired the P
stock in an unrelated transaction several years before the
reorganization. S has a $20 adjusted basis in the P stock. The basis
results are the same as in paragraph (b) of this Example. In
addition, S recognizes $10 of gain on its disposition of the P stock
in the reorganization. See Sec. 1.1032-2(c).
(e) Cross-reference. For rules relating to stock basis adjustments
made as a result of a triangular reorganization in which P and S, or P
and T, as applicable, are, or become, members of a consolidated group,
see Sec. 1.1502-30. For rules relating to stock basis adjustments after
a group structure change, see Sec. 1.1502-31.
(f) Effective dates--(1) General rule. Except as otherwise provided
in this paragraph (f), this section applies to triangular
reorganizations occurring on or after December 23, 1994.
(2) Special rule for reverse triangular mergers. For a reverse
triangular merger occurring before December 23, 1994, P may--
(i) Determine the basis in its T stock as if paragraph (c)(2)(i) of
this section applied; or
(ii) Determine the basis in its T stock acquired as if P acquired
such stock from the former T shareholders in a transaction in which P's
basis in the T stock was determined under section 362(b).
Par. 4. Section 1.1032-2 is added to read as follows:
Sec. 1.1032-2 Disposition by a corporation of stock of a controlling
corporation in certain triangular reorganizations.
(a) Scope. This section provides rules for certain triangular
reorganizations described in Sec. 1.358-6(b) when the acquiring
corporation (S) acquires property or stock of another corporation (T)
in exchange for stock of the corporation (P) in control of S.
(b) General nonrecognition of gain or loss. For purposes of
Sec. 1.1032-1(a), in the case of a forward triangular merger, a
triangular C reorganization, or a triangular B reorganization (as
described in Sec. 1.358-6(b)), P stock provided by P to S, or directly
to T or T's shareholders on behalf of S, pursuant to the plan of
reorganization is treated as a disposition by P of shares of its own
stock for T's assets or stock, as applicable. For rules governing the
use of P stock in a reverse triangular merger, see section 361.
(c) Treatment of S. S must recognize gain or loss on its exchange
of P stock as consideration in a forward triangular merger, a
triangular C reorganization, or a triangular B reorganization (as
described in Sec. 1.358-6(b)), if S did not receive the P stock from P
pursuant to the plan of reorganization. See Sec. 1.358-6(d) for the
effect on P's basis in its S or T stock, as applicable. For rules
governing S's use of P stock in a reverse triangular merger, see
section 361.
(d) Examples. The rules of this section are illustrated by the
following examples. For purposes of these examples, P, S, and T are
domestic corporations, P and S do not file consolidated returns, P owns
all of the only class of S stock, the P stock exchanged in the
transaction satisfies the requirements of the applicable reorganization
provisions, and the facts set forth the only corporate activity.
Example 1. Forward triangular merger solely for P stock. (a)
Facts. T has assets with an aggregate basis of $60 and fair market
value of $100 and no liabilities. Pursuant to a plan, P forms S by
transferring $100 of P stock to S and T merges into S. In the
merger, the T shareholders receive, in exchange for their T stock,
the P stock that P transferred to S. The transaction is a
reorganization to which sections 368(a)(1)(A) and (a)(2)(D) apply.
(b) No gain or loss recognized on the use of P stock. Under
paragraph (b) of this section, the P stock provided by P pursuant to
the plan of reorganization is treated for purposes of Sec. 1.1032-
1(a) as disposed of by P for the T assets acquired by S in the
merger. Consequently, neither P nor S has taxable gain or deductible
loss on the exchange.
Example 2. Forward triangular merger solely for P stock provided
in part by S. (a) Facts. T has assets with an aggregate basis of $60
and fair market value of $100 and no liabilities. S is an operating
company with substantial assets that has been in existence for
several years. S also owns P stock with a $20 adjusted basis and $30
fair market value. S acquired the P stock in an unrelated
transaction several years before the reorganization. Pursuant to a
plan, P transfers additional P stock worth $70 to S and T merges
into S. In the merger, the T shareholders receive $100 of P stock
($70 of P stock provided by P to S as part of the plan and $30 of P
stock held by S previously). The transaction is a reorganization to
which sections 368(a)(1)(A) and (a)(2)(D) apply.
(b) Gain or loss recognized by S on the use of its P stock.
Under paragraph (b) of this section, the $70 of P stock provided by
P pursuant to the plan of reorganization is treated as disposed of
by P for the T assets
[[Page 66082]]
acquired by S in the merger. Consequently, neither P nor S has taxable
gain or deductible loss on the exchange of those shares. Under
paragraph (c) of this section, however, S recognizes $10 of gain on
the exchange of its P stock in the reorganization because S did not
receive the P stock from P pursuant to the plan of reorganization.
See Sec. 1.358-6(d) for the effect on P's basis in its S stock.
(e) Effective date. This section applies to triangular
reorganizations occurring on or after December 23, 1994.
Par. 5. Section 1.1502-30 is added to read as follows:
Sec. 1.1502-30 Stock basis after certain triangular reorganizations.
(a) Scope. This section provides rules for determining the basis of
the stock of an acquiring corporation as a result of a triangular
reorganization. The definitions and nomenclature contained in
Sec. 1.358-6 apply to this section.
(b) General rules--(1) Forward triangular merger, triangular C
reorganization, or triangular B reorganization. P adjusts its basis in
the stock of S as a result of a forward triangular merger, triangular C
reorganization, or triangular B reorganization under Sec. 1.358-6(c)
and (d), except that Sec. 1.358-6 (c)(1)(ii) and (d)(2) do not apply.
Instead, P adjusts such basis by taking into account the full amount
of--
(i) T liabilities assumed by S or the amount of liabilities to
which the T assets acquired by S are subject, and
(ii) The fair market value of any consideration not provided by P
pursuant to the plan of reorganization.
(2) Reverse triangular merger. If P adjusts its basis in the T
stock acquired as a result of a reverse triangular merger under
Sec. 1.358-6 (c)(2)(i) and (d), Sec. 1.358-6 (c)(1)(ii) and (d)(2) do
not apply. Instead, P adjusts such basis by taking into account the
full amount of--
(i) T liabilities deemed assumed by S or the amount of liabilities
to which the T assets deemed acquired by S are subject, and
(ii) The fair market value of any consideration not provided by P
pursuant to the plan of reorganization.
(3) Excess loss accounts. Negative adjustments under this section
may exceed P's basis in its S or T stock. The resulting negative amount
is P's excess loss account in its S or T stock. See Sec. 1.1502-19 for
rules treating excess loss accounts as negative basis, and treating
references to stock basis as including references to excess loss
accounts.
(4) Application of other rules of law. The rules for this section
are in addition to other rules of law. See Sec. 1.1502-80(d) for the
non-application of section 357(c) to P.
(5) Examples. The rules of this paragraph (b) are illustrated by
the following examples. For purposes of these examples, P, S, and T are
domestic corporations, P and S file consolidated returns, P owns all of
the only class of S stock, the P stock exchanged in the transaction
satisfies the requirements of the applicable triangular reorganization
provisions, the facts set forth the only corporate activity, and tax
liabilities are disregarded.
Example 1. Liabilities. (a) Facts. T has assets with an
aggregate basis of $60 and fair market value of $100. T's assets are
subject to $70 of liabilities. Pursuant to a plan, P forms S with $5
of cash (which S retains), and T merges into S. In the merger, the T
shareholders receive P stock worth $30 in exchange for their T
stock. The transaction is a reorganization to which sections 368
(a)(1)(A) and (a)(2)(D) apply.
(b) Basis adjustment. Under Sec. 1.358-6, P adjusts its $5 basis
in the S stock as if P had acquired the T assets with a carryover
basis under section 362 and transferred these assets to S in a
transaction in which P determines its basis in the S stock under
section 358. Under the rules of this section, the limitation
described in Sec. 1.358-6(c)(1)(ii) does not apply. Thus, P adjusts
its basis in the S stock by -$10 (the aggregate adjusted basis of
T's assets decreased by the amount of liabilities to which the T
assets are subject). Consequently, as a result of the
reorganization, P has an excess loss account of $5 in its S stock.
Example 2. Consideration not provided by P. (a) Facts. T has
assets with an aggregate basis of $10 and fair market value of $100
and no liabilities. S is an operating company with substantial
assets that has been in existence for several years. P has a $5
basis in its S stock. Pursuant to a plan, T merges into S and the T
shareholders receive $70 of P stock provided by P pursuant to the
plan of reorganization and $30 of cash provided by S in exchange for
their T stock. The transaction is a reorganization to which sections
368 (a)(1)(A) and (a)(2)(D) apply.
(b) Basis adjustment. Under Sec. 1.358-6, P adjusts its $5 basis
in the S stock as if P had acquired the T assets with a carryover
basis under section 362 and transferred these assets to S in a
transaction in which P determines its basis in the S stock under
section 358. Under the rules of this section, the limitation
described in Sec. 1.358-6(d)(2) does not apply. Thus, P adjusts its
basis in the S stock by -$20 (the aggregate adjusted basis of T's
assets decreased by the fair market value of the consideration
provided by S). As a result of the reorganization, P has an excess
loss account of $15 in its S stock.
(c) Appreciated asset. The facts are the same as in paragraph
(a) of this Example 2, except that in the reorganization S provides
an asset with a $20 adjusted basis and $30 fair market value instead
of $30 cash. The basis is adjusted in the same manner as in
paragraph (b) of this Example 2. In addition, because S recognizes a
$10 gain from the asset under section 1001, P's basis in its S stock
is increased under Sec. 1.1502-32(b) by S's $10 gain. Consequently,
as a result of the reorganization, P has an excess loss account of
$5 in its S stock. (The results would be the same if the appreciated
asset provided by S was P stock with respect to which S recognized
gain. See Sec. 1.1032-2(c)).
Example 3. Reverse triangular merger. (a) Facts. T has assets
with an aggregate basis of $60 and fair market value of $100. T's
assets are subject to $70 of liabilities. P owns all of the only
class of S stock. P has a $5 basis in its S stock. Pursuant to a
plan, S merges into T with T surviving. In the merger, the T
shareholders exchange their T stock for $2 cash from P and $28 worth
of P stock provided by P pursuant to the plan. The transaction is a
reorganization to which sections 368 (a)(1)(A) and (a)(2)(E) apply.
(b) Basis adjustment. Under Sec. 1.358-6, P's basis in the T
stock acquired equals its $5 basis in its S stock immediately before
the transaction adjusted by the $60 basis in the T assets deemed
transferred, and the $70 of liabilities to which the T assets are
subject. Under the rules of this section, the limitation described
in Sec. 1.358-6(c)(1)(ii) does not apply. Consequently, P has an
excess loss account of $5 in its T stock as a result of the
transaction.
(c) Effective date. This section applies to reorganizations
occurring on or after December 21, 1995.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved: December 12, 1995.
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 95-30875 Filed 12-20-95; 8:45 am]
BILLING CODE 4830-01-U
Complete official Federal Register PDF
FR Doc. 95-30871 Withholding of Tax on Dispositions of U.S. Real Property Interests by Foreign Persons
[Federal Register Volume 60, Number 245 (Thursday, December 21, 1995)]
[Rules and Regulations]
[Pages 66076-66077]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30871]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 8647]
RIN 1545-AS51
Withholding of Tax on Dispositions of U.S. Real Property
Interests by Foreign Persons
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final regulations relating to
withholding upon certain distributions or dispositions of U.S. real
property interests. These regulations reflect changes to the law made
by the Omnibus Budget Reconciliation Act of 1993 and affect withholding
agents required to withhold tax due on certain dispositions and
distributions of U.S. real property interests.
DATES: These final regulations are effective January 22, 1996. These
regulations are applicable to transactions occurring after August 9,
1993.
FOR FURTHER INFORMATION CONTACT: Gwendolyn A. Stanley (202) 622-3860
(not a toll free-call).
SUPPLEMENTARY INFORMATION:
Background
This document contains final regulations reflecting changes made by
the Omnibus Budget Reconciliation Act of 1993 to the withholding rates
on certain distributions and dispositions of U.S. real property
interests. These regulations were not preceded by a Notice of Proposed
Rulemaking because the withholding rates were changed by the Act. This
document also updates the address of the Assistant Commissioner
(International) to whom various forms must be sent.
Explanation of Provisions
The rate of withholding under section 1445(e) (1) and (2) of the
Internal Revenue Code was increased from 34% to 35% by the Omnibus
Budget Reconciliation Act of 1993. The existing regulations reflect the
prior 34% withholding rate. These regulations reflect the increase in
withholding to 35% (or the highest rate specified in section 1445(e)
(1) or (2)) for dispositions occurring on or after August 10, 1993.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It has also been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to
these regulations, and, therefore, a Regulatory Flexibility Analysis is
not required. Pursuant to section 7805(f) of the Internal Revenue Code,
these final regulations were submitted to the Small Business
Administration for comment on their impact on small business.
Drafting Information
The principal author of these regulations is Gwendolyn Stanley,
Office of Associate Chief Counsel (International), IRS. However, other
personnel from the IRS and Treasury Department participated in their
development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Section 1.1445-5 also issued under 26 U.S.C. 1445(e)(6).
Section 1.1445-8 also issued under 26 U.S.C. 1445(e)(6). * * *
Authority: 26 U.S.C. 7805. * * *
Par. 2. In section 1.1445-1, the section heading and paragraph
(g)(10) are revised to read as follows:
Sec. 1.1445-1 Withholding on dispositions of U.S. real property
interests by foreign persons: In general.
* * * * *
(g) * * *
(10) Address of the Assistant Commissioner International. Any
written communication directed to the Assistant Commissioner
(International) is to be addressed as follows: Director, Philadelphia
Service Center; 11601 Roosevelt Blvd.; Philadelphia, PA 19255; ATTN:
Drop Point 543X.
Par. 3. Section 1.1445-5 is amended as follows:
1. Paragraph (c)(1)(ii) is revised.
2. The third sentence and the last sentence of paragraph
(c)(1)(iii)(A) are revised.
3. Paragraph (c)(1)(iii)(B) is removed.
4. Paragraph (c)(1)(iii)(C) is redesignated as (c)(1)(iii)(B) and
revised.
5. Paragraph (c)(1)(iv) is revised.
6. Paragraph (c)(3)(ii) is revised.
7. The first sentence of paragraph (d)(1) is revised.
8. The second sentence of paragraph (d)(1) is removed.
The revisions read as follows:
Sec. 1.1445-5 Special rules concerning distributions and other
transactions by corporations, partnerships, trusts, and estates.
* * * * *
(c)(1) * * *
(ii) Disposition by partnership. A partnership must withhold a tax
equal to 35 percent (or the highest rate specified in section
1445(e)(1)) of each foreign partner's distributive share of the gain
realized by the partnership upon the disposition of each U.S. real
[[Page 66077]]
property interest. Such distributive share of the gain must be
determined pursuant to the principles of section 704 and the
regulations thereunder. For the rules applicable to partnerships,
interests in which are regularly traded on an established securities
market, see Sec. 1.1445-8.
(iii) Disposition by trust or estate--(A) In general. * * * The
fiduciary must withhold 35 percent (or the highest rate specified in
section 1445(e)(1)) of any distribution to a foreign beneficiary that
is attributable to the balance in the U.S. real property interest
account on the day of the distribution. * * * For rules applicable to
trusts, interests in which are regularly traded on an established
securities market and real estate investment trusts, see Sec. 1.1445-8.
(B) Example. The following example illustrates the rules of
paragraph (c)(1)(iii)(A) of this section.
On January 1, 1994, A establishes a domestic trust (which has as
its taxable year, the calendar year) for the benefit of B, a
nonresident alien, and C, a U.S. citizen. The trust is not a trust
subject to sections 671 through 679. Under the terms of the trust,
the trustee, T, is given discretion to distribute income and corpus
of the trust to provide for the reasonable needs of B and C. During
the trust's 1994 tax year, T disposes of three parcels of vacant
land located in the United States. The following chart illustrates
the computation of the amount subject to withholding under section
1445 with respect to distributions made by T to B and C during 1994.
--------------------------------------------------------------------------------------------------------------------------------------------------------
U.S. real
Gains or Distributions Distributions Section 1445 property
Date Parcel sold (loss) to C to B (before withholding interest
realized withholding) 35% rate account
--------------------------------------------------------------------------------------------------------------------------------------------------------
1/01/94.................................. ............................ .............. .............. .............. .............. ..............
3/01/94.................................. Parcel 1.................... 140,000 .............. .............. .............. 140,000
3/05/94.................................. ............................ .............. 5,000 10,000 3,500 125,000
3/15/94.................................. ............................ .............. 10,000 5,000 1,750 110,000
5/01/94.................................. Parcel 2.................... 300,000 .............. .............. .............. 410,000
5/15/94.................................. Parcel 3.................... (50,000) .............. .............. .............. 360,000
12/01/94.................................. ............................ .............. 170,000 170,000 59,500 20,000
1/01/95.................................. ............................ .............. .............. .............. .............. ..............
--------------------------------------------------------------------------------------------------------------------------------------------------------
(iv) Disposition by grantor trust. The trustee or equivalent
fiduciary of a trust that is subject to the provisions of subpart E of
part 1 of subchapter J (sections 671 through 679) must withhold a tax
equal to 35 percent (or the highest rate specified in section
1445(e)(1)) of the gain realized from each disposition of a U.S. real
property interest to the extent such gain is allocable to a portion of
the trust treated as owned by a foreign person under subpart E of part
1 of subchapter J.
* * * * *
(3) * * *
(ii) Amount to be withheld. A partnership or trust electing to
withhold under this Sec. 1.1445-5(c)(3) shall withhold from each
distribution to a foreign person an amount equal to 35 percent (or the
highest rate specified in section 1445(e)(1)) of the amount
attributable to section 1445(e)(1) transfers.
* * * * *
(d) Distributions of U.S. real property interests by foreign
corporations--(1) In general. A foreign corporation that distributes a
U.S. real property interest must deduct and withhold a tax equal to 35
percent (or the rate specified in section 1445(e)(2)) of the amount of
gain recognized by the corporation on the distribution. * * *
* * * * *
Par. 4. Section 1.1445-8(c)(2)(i) is revised to read as follows:
Sec. 1.1445-8 Special rules regarding publicly traded partnerships,
publicly traded trusts and real estate investment trusts (REITS).
* * * * *
(c) * * *
(2) REITS--(i) In general. The amount to be withheld with respect
to a distribution by a REIT, under this section shall be equal to 35
percent (or the highest rate specified in section 1445(e)(1)) of the
amount described in paragraph (c)(2)(ii) of this section.
* * * * *
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved: November 28, 1995.
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 95-30871 Filed 12-20-95; 8:45 am]
BILLING CODE 4830-01-U
Complete official Federal Register PDF
FR Doc. 95-30831 Distributions of Stock and Stock Rights
[Federal Register Volume 60, Number 245 (Thursday, December 21, 1995)]
[Rules and Regulations]
[Pages 66134-66139]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30831]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
26 CFR Parts 1 and 602
[TD 8643]
RIN 1545-AQ42
Distributions of Stock and Stock Rights
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final regulations amending regulations
under section 305(c) of the Internal Revenue Code relating to
constructive distributions on preferred stock. The final regulations
concern the treatment of stock redeemable at a premium by the issuer.
The regulations generally treat a call premium as giving rise to a
constructive distribution only if redemption pursuant to the call
provision is more likely than not to occur. The final regulations also
reflect 1990 amendments to section 305(c).
DATES: These regulations are effective December 20, 1995.
For dates of applicability of these regulations, see Effective
dates under SUPPLEMENTARY INFORMATION.
FOR FURTHER INFORMATION CONTACT: Kirsten L. Simpson, (202) 622-7790
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in these final regulations
has been reviewed and approved by the Office of Management and Budget
in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under
control number 1545-1438. Responses to this collection of information
are required to comply with the consistency requirements of the
regulation.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid control number. The
[[Page 66135]]
estimated annual burden per respondent varies from 5 minutes to 15
minutes, depending on individual circumstances, with an estimated
average of 10 minutes.
Comments concerning the accuracy of this burden estimate and
suggestions for reducing this burden should be sent to the Internal
Revenue Service, Attn: IRS Reports Clearance Officer, T:FP, Washington,
DC 20224, and to the Office of Management and Budget, Attn: Desk
Officer for the Department of the Treasury, Office of Information and
Regulatory Affairs, Washington, DC 20503.
Books or records relating to this 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 26 U.S.C. 6103.
Background
On June 22, 1994, a notice of proposed rulemaking (CO-8-91),
amending regulations under section 305(c) of the Internal Revenue Code
relating to constructive distributions on preferred stock, was
published in the Federal Register (59 FR 32160). No public hearing was
requested and none was held.
Written comments responding to the notice were received. After
consideration of all the comments, the regulations proposed by CO-8-91
are adopted as revised by this Treasury decision. The principal
revisions are discussed below.
Explanation of Provisions
The primary focus of the final regulations is on preferred stock
callable at a premium at the option of the issuer. The final
regulations retain the approach of the proposed regulations and require
constructive distribution treatment with respect to an issuer call only
if, based on all of the facts and circumstances as of the issue date,
redemption pursuant to the call right is more likely than not to occur.
Safe harbor rule. The proposed regulations provided a safe harbor,
under which constructive distribution treatment does not result from an
issuer call if the issuer and holder are unrelated, there are no
arrangements that effectively require the issuer to redeem the stock,
and exercise of the option to redeem would not reduce the yield of the
stock. In response to comments, the final regulations make certain
modifications to the safe harbor to clarify its scope.
Commentators suggested that the exclusion from the safe harbor
where there are ``arrangements that effectively require the issuer to
redeem'' is too narrow and will permit taxpayers who issue stock with
``understandings'' concerning redemption, whether or not legally
enforceable, to qualify for the safe harbor. Commentators recommended
safeguarding against abuse by changing the effectively requires
redemption test to one that requires a lesser degree of probability.
The IRS and Treasury intend that the safe harbor not be available where
an issuer and a holder have an underlying understanding. Although the
IRS and Treasury believe that the word ``arrangement'' is broad enough
to include such understandings, in response to these comments, this
prong of the safe harbor has been clarified.
To retain greater certainty for non-abusive transactions, however,
the effectively requires redemption test has not been substantially
modified. Instead, the final regulations safeguard against abuse by
lowering the threshold for determining whether an issuer and a holder
are related. The proposed regulations adopted a 50-percent threshold
for determining whether an issuer and a holder are related. The final
regulations lower this threshold to 20 percent. This threshold relates
only to eligibility for the safe harbor, and not to the application of
the general ``more likely than not'' test. When a holder's ownership
interest exceeds this threshold, the IRS and Treasury believe it is
appropriate to determine whether redemption is more likely than not to
occur based on all of the facts and circumstances.
Commentators also suggested that the IRS and Treasury except
preferred stock within the meaning of section 1504(a)(4) in determining
whether the issuer and holder are related. The regulations do not adopt
this suggestion. As noted above, the determination of whether the
issuer and holder are related only governs eligibility for the safe
harbor. The IRS and Treasury believe that when a holder's ownership
interest in an issuer exceeds the threshold, even if all that the
holder owns is preferred stock within the meaning of section
1504(a)(4), it is appropriate to determine whether redemption is more
likely than not to occur based on all of the facts and circumstances.
In response to comments, the final regulations clarify that the
``arrangements'' that effectively require or are intended to compel the
issuer to redeem the stock relate to the issuer call right, and not to
a later mandatory redemption feature.
In testing whether a call right meets the yield prong of the safe
harbor, the final regulations clarify that principles similar to the
principles of section 1272(a) and the original issue discount
regulations apply to determine whether exercise of the right to redeem
would reduce the yield of the stock.
Miscellaneous. The final regulations expand the definition of
issuer in certain circumstances. In particular, the regulations provide
that if preferred stock may be acquired by a person other than the
issuer (a third person), the term issuer includes such third person if
the regulations would apply to the stock if the third person were the
issuer, and acquisition of the stock by the third person would be
treated as a redemption for federal income tax purposes (under section
304 or otherwise). In addition, if the issuer and the third person are
members of the same affiliated group, the term issuer includes the
third person if a principal purpose of the arrangement is to avoid the
application of section 305 and the final regulations. Furthermore, an
agreement or other arrangement for a person other than the issuer of
the stock to acquire the stock may create a conversion transaction
within the meaning of section 1258.
The final regulations provide rules for the treatment of mandatory
redemption obligations and put options that are subject to
contingencies. Generally, premiums on such stock are not subject to
constructive distribution treatment if the contingency renders remote
the likelihood of redemption. For example, where an issuer issues stock
that is mandatorily redeemable in the event of an initial public
offering, the regulations require evaluation of the likelihood of the
occurrence of the initial public offering. The regulations provide,
however, that a contingency does not include the possibility of
default, insolvency, or similar circumstances, or that a redemption may
be precluded by applicable law due to insufficient capital.
The preamble to the proposed regulations requested comments on the
appropriate treatment of unpaid cumulative dividends. Because of the
complexity of this issue, the final regulations do not provide rules
for those dividends. The IRS and Treasury will continue to consider the
issue, as well as other issues involving the implementation of the
amendments to section 305(c) made by the Revenue Reconciliation Act of
1990. The IRS and Treasury continue to invite public comments on these
issues.
[[Page 66136]]
EFFECTIVE DATES. The regulations apply to stock issued on or after
December 20, 1995. Although the regulations do not apply to stock
issued before December 20, 1995, the rules of sections 305(c) (1), (2),
and (3) apply to stock described therein issued on or after October 10,
1990, except as provided in section 11322(b)(2) of the Revenue
Reconciliation Act of 1990 (Pub. L. 101-508 Stat.). Moreover, except as
provided in section 11322(b)(2) of the Revenue Reconciliation Act of
1990 (Pub. L. 101-508 Stat.), with respect to stock issued on or after
October 10, 1990, and issued before December 20, 1995, the economic
accrual rule of section 305(c)(3) will apply to the entire call premium
on stock that is not described in paragraph (b)(2) of this section if
the premium is considered to be unreasonable under the principles of
Sec. 1.305-5(b) (as contained in the 26 CFR part 1 edition revised
April 1, 1995). A call premium described in the preceding sentence will
be accrued over the period of time during which the preferred stock
cannot be called for redemption.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It has also been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to
these regulations, and, therefore, a Regulatory Flexibility Analysis is
not required. Pursuant to section 7805(f) of the Internal Revenue Code,
the notice of proposed rulemaking preceding these regulations was
submitted to the Small Business Administration for comment on its
impact on small business.
Drafting Information
The principal author of these regulations is Kirsten L. Simpson of
the Office of Assistant Chief Counsel (Corporate), IRS. However, other
personnel of the IRS and Treasury Department participated in their
development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 602 are amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended by adding
the following entries in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * * Section 1.305-3 also issued
under 26 U.S.C. 305. Section 1.305-5 also issued under 26 U.S.C.
305. Section 1.305-7 also issued under 26 U.S.C. 305. * * *
Par. 2. Section 1.305-3 is amended as follows: 1. In paragraph (e),
remove the parentheses from the numbers in the headings for Examples
(1) through (15).
2. In paragraph (e), Example 15 is revised to read as follows:
Sec. 1.305-3 Disproportionate distributions.
* * * * *
(e) * * *
Example 15. (i) Facts. Corporation V is organized with two
classes of stock, class A common and class B convertible preferred.
The class B stock is issued for $100 per share and is convertible at
the holder's option into class A at a fixed ratio that is not
subject to full adjustment in the event stock dividends or rights
are distributed to the class A shareholders. The class B stock pays
no dividends but it is mandatorily redeemable in 10 years for $200.
Under sections 305(c) and 305(b)(4), the entire redemption premium
(i.e., the excess of the redemption price over the issue price) is
deemed to be a distribution of preferred stock on preferred stock
which is taxable as a distribution of property under section 301.
This amount is considered to be distributed over the 10-year period
under principles similar to the principles of section 1272(a).
During the year, the corporation declares a dividend on the class A
stock payable in additional shares of class A stock.
(ii) Analysis. The distribution on the class A stock is a
distribution to which sections 305(b)(2) and 301 apply since it
increases the proportionate interests of the class A shareholders in
the assets and earnings and profits of the corporation and the class
B shareholders have received property (i.e., the constructive
distribution described above). If, however, the conversion ratio of
the class B stock were subject to full adjustment to reflect the
distribution of stock to class A shareholders, the distribution of
stock dividends on the class A stock would not increase the
proportionate interest of the class A shareholders in the assets and
earnings and profits of the corporation and such distribution would
not be a distribution to which section 301 applies.
(iii) Effective date. This Example 15 applies to stock issued on
or after December 20, 1995. For previously issued stock, see
Sec. 1.305-3(e) Example (15) (as contained in the 26 CFR part 1
edition revised April 1, 1995).
Par. 3. Section 1.305-5 is amended as follows:
1. Paragraph (b) is revised.
2. In paragraph (d), remove the parentheses from the numbers in the
headings for Examples (1) through (9), redesignate Examples 8 and 9 as
Examples 9 and 10, respectively.
3. In paragraph (d), Examples 4, 5, and 7 are revised, and Example
8 is added.
4. Paragraph (e) is added.
The revisions read as follows:
Sec. 1.305-5 Distributions on preferred stock.
* * * * *
(b) Redemption premium--(1) In general. If a corporation issues
preferred stock that may be redeemed under the circumstances described
in this paragraph (b) at a price higher than the issue price, the
difference (the redemption premium) is treated under section 305(c) as
a constructive distribution (or series of constructive distributions)
of additional stock on preferred stock that is taken into account under
principles similar to the principles of section 1272(a). However,
constructive distribution treatment does not result under this
paragraph (b) if the redemption premium does not exceed a de minimis
amount, as determined under the principles of section 1273(a)(3). For
purposes of this paragraph (b), preferred stock that may be acquired by
a person other than the issuer (the third person) is deemed to be
redeemable under the circumstances described in this paragraph (b), and
references to the issuer include the third person, if--
(i) This paragraph (b) would apply to the stock if the third person
were the issuer; and
(ii) Either--
(A) The acquisition of the stock by the third person would be
treated as a redemption for federal income tax purposes (under section
304 or otherwise); or
(B) The third person and the issuer are members of the same
affiliated group (having the meaning for this purpose given the term by
section 1504(a), except that section 1504(b) shall not apply) and a
principal purpose of the arrangement for the third person to acquire
the stock is to avoid the application of section 305 and paragraph
(b)(1) of this section.
(2) Mandatory redemption or holder put. Paragraph (b)(1) of this
section applies to stock if the issuer is required to redeem the stock
at a specified time or the holder has the option (whether or not
currently exercisable) to require the issuer to redeem the stock.
However, paragraph (b)(1) of this section will not
[[Page 66137]]
apply if the issuer's obligation to redeem or the holder's ability to
require the issuer to redeem is subject to a contingency that is beyond
the legal or practical control of either the holder or the holders as a
group (or through a related party within the meaning of section 267(b)
or 707(b)), and that, based on all of the facts and circumstances as of
the issue date, renders remote the likelihood of redemption. For
purposes of this paragraph, a contingency does not include the
possibility of default, insolvency, or similar circumstances, or that a
redemption may be precluded by applicable law which requires that the
issuer have a particular level of capital, surplus, or similar items. A
contingency also does not include an issuer's option to require earlier
redemption of the stock. For rules applicable if stock may be redeemed
at more than one time, see paragraph (b)(4) of this section.
(3) Issuer call--(i) In general. Paragraph (b)(1) of this section
applies to stock by reason of the issuer's right to redeem the stock
(even if the right is immediately exercisable), but only if, based on
all of the facts and circumstances as of the issue date, redemption
pursuant to that right is more likely than not to occur. However, even
if redemption is more likely than not to occur, paragraph (b)(1) of
this section does not apply if the redemption premium is solely in the
nature of a penalty for premature redemption. A redemption premium is
not a penalty for premature redemption unless it is a premium paid as a
result of changes in economic or market conditions over which neither
the issuer nor the holder has legal or practical control.
(ii) Safe harbor. For purposes of this paragraph (b)(3), redemption
pursuant to an issuer's right to redeem is not treated as more likely
than not to occur if--
(A) The issuer and the holder are not related within the meaning of
section 267(b) or 707(b) (for purposes of applying sections 267(b) and
707(b) (including section 267(f)(1)), the phrase ``20 percent'' shall
be substituted for the phrase ``50 percent'');
(B) There are no plans, arrangements, or agreements that
effectively require or are intended to compel the issuer to redeem the
stock (disregarding, for this purpose, a separate mandatory redemption
obligation described in paragraph (b)(2) of this section); and
(C) Exercise of the right to redeem would not reduce the yield of
the stock, as determined under principles similar to the principles of
section 1272(a) and the regulations under sections 1271 through 1275.
(iii) Effect of not satisfying safe harbor. The fact that a
redemption right is not described in paragraph (b)(3)(ii) of this
section does not affect the determination of whether a redemption
pursuant to the right to redeem is more likely than not to occur.
(4) Coordination of multiple redemption provisions. If stock may be
redeemed at more than one time, the time and price at which redemption
is most likely to occur must be determined based on all of the facts
and circumstances as of the issue date. Any constructive distribution
under paragraph (b)(1) of this section will result only with respect to
the time and price identified in the preceding sentence. However, if
redemption does not occur at that identified time, the amount of any
additional premium payable on any later redemption date, to the extent
not previously treated as distributed, is treated as a constructive
distribution over the period from the missed call or put date to that
later date, to the extent required under the principles of this
paragraph (b).
(5) Consistency. The issuer's determination as to whether there is
a constructive distribution under this paragraph (b) is binding on all
holders of the stock, other than a holder that explicitly discloses
that its determination as to whether there is a constructive
distribution under this paragraph (b) differs from that of the issuer.
Unless otherwise prescribed by the Commissioner, the disclosure must be
made on a statement attached to the holder's timely filed federal
income tax return for the taxable year that includes the date the
holder acquired the stock. The issuer must provide the relevant
information to the holder in a reasonable manner. For example, the
issuer may provide the name or title and either the address or
telephone number of a representative of the issuer who will make
available to holders upon request the information required for holders
to comply with this provision of this paragraph (b).
* * * * *
(d) * * *
Example 4--(i) Facts. Corporation X is a domestic corporation
with only common stock outstanding. In connection with its
acquisition of Corporation T, X issues 100 shares of its 4%
preferred stock to the shareholders of T, who are unrelated to X
both before and after the transaction. The issue price of the
preferred stock is $40 per share. Each share of preferred stock is
convertible at the shareholder's election into three shares of X
common stock. At the time the preferred stock is issued, the X
common stock has a value of $10 per share. The preferred stock does
not provide for its mandatory redemption or for redemption at the
option of the holder. It is callable at the option of X at any time
beginning three years from the date of issuance for $100 per share.
There are no other plans, arrangements, or agreements that
effectively require or are intended to compel X to redeem the stock.
(ii) Analysis. The preferred stock is described in the safe
harbor rule of paragraph (b)(3)(ii) of this section because X and
the former shareholders of T are unrelated, there are no plans,
arrangements, or agreements that effectively require or are intended
to compel X to redeem the stock, and calling the stock for $100 per
share would not reduce the yield of the preferred stock. Therefore,
the $60 per share call premium is not treated as a constructive
distribution to the shareholders of the preferred stock under
paragraph (b) of this section.
Example 5--(i) Facts--(A) Corporation Y is a domestic
corporation with only common stock outstanding. On January 1, 1996,
Y issues 100 shares of its 10% preferred stock to a holder. The
holder is unrelated to Y both before and after the stock issuance.
The issue price of the preferred stock is $100 per share. The
preferred stock is--
(1) Callable at the option of Y on or before January 1, 2001, at
a price of $105 per share plus any accrued but unpaid dividends; and
(2) Mandatorily redeemable on January 1, 2006, at a price of
$100 per share plus any accrued but unpaid dividends.
(B) The preferred stock provides that if Y fails to exercise its
option to call the preferred stock on or before January 1, 2001, the
holder will be entitled to appoint a majority of Y's directors.
Based on all of the facts and circumstances as of the issue date, Y
is likely to have the legal and financial capacity to exercise its
right to redeem. There are no other facts and circumstances as of
the issue date that would affect whether Y will call the preferred
stock on or before January 1, 2001.
(ii) Analysis. Under paragraph (b)(3)(i) of this section,
paragraph (b)(1) of this section applies because, by virtue of the
change of control provision and the absence of any contrary facts,
it is more likely than not that Y will exercise its option to call
the preferred stock on or before January 1, 2001. The safe harbor
rule of paragraph (b)(3)(ii) of this section does not apply because
the provision that failure to call will cause the holder to gain
control of the corporation is a plan, arrangement, or agreement that
effectively requires or is intended to compel Y to redeem the
preferred stock. Under paragraph (b)(4) of this section, the
constructive distribution occurs over the period ending on January
1, 2001. Redemption is most likely to occur on that date, because
that is the date on which the corporation minimizes the rate of
return to the holder while preventing the holder from gaining
control. The de minimis exception of paragraph (b)(1) of this
section does not apply because the $5 per share difference between
the redemption price and the issue price exceeds the amount
determined under the principles of section 1273(a)(3)
(5 x .0025 x $105 = $1.31). Accordingly, $5 per share, the
difference between the redemption price and the issue price, is
treated as a constructive distribution
[[Page 66138]]
received by the holder on an economic accrual basis over the five-year
period ending on January 1, 2001, under principles similar to the
principles of section 1272(a). * * *
Example 7--(i) Facts--(A) Corporation Z is a domestic
corporation with only common stock outstanding. On January 1, 1996,
Z issues 100 shares of its 10% preferred stock to C, an individual
unrelated to Z both before and after the stock issuance. The issue
price of the preferred stock is $100 per share. The preferred stock
is--
(1) Not callable for a period of 5 years from the issue date;
(2) Callable at the option of Z on January 1, 2001, at a price
of $110 per share plus any accrued but unpaid dividends;
(3) Callable at the option of Z on July 1, 2002, at a price of
$120 per share plus any accrued but unpaid dividends; and
(4) Mandatorily redeemable on January 1, 2004, at a price of
$150 per share plus any accrued but unpaid dividends.
(B) There are no other plans, arrangements, or agreements
between Z and C concerning redemption of the stock. Moreover, there
are no other facts and circumstances as of the issue date that would
affect whether Z will call the preferred stock on either January 1,
2001, or July 1, 2002.
(ii) Analysis. This stock is described in paragraph (b)(2) of
this section because it is mandatorily redeemable. It is also
potentially described in paragraph (b)(3)(i) of this section because
it is callable at the option of the issuer. The safe harbor rule of
paragraph (b)(3)(ii) of this section does not apply to the option to
call on January 1, 2001, because the call would reduce the yield of
the stock when compared to the yield produced by the January 1,
2004, mandatory redemption feature. Moreover, absent any other facts
indicating a contrary result, the fact that redemption on January 1,
2001, would produce the lowest yield indicates that redemption is
most likely to occur on that date. Under paragraph (b)(4) of this
section, paragraph (b)(1) of this section applies with respect to
the issuer's right to call on January 1, 2001, because redemption is
most likely to occur on January 1, 2001, for $110 per share. The de
minimis exception of paragraph (b)(1) of this section does not apply
because the $10 per share difference between the redemption price
payable in 2001 and the issue price exceeds the amount determined
under the principles of section 1273(a)(3) (5 x .0025 x $110=$1.38).
Accordingly, $10 per share, the difference between the redemption
price and the issue price, is treated as a constructive distribution
received by the holder on an economic accrual basis over the five-
year period ending January 1, 2001, under principles similar to the
principles of section 1272(a).
(iii) Coordination rules--(A) If Z does not exercise its option
to call the preferred stock on January 1, 2001, paragraph (b)(4) of
this section provides that the principles of paragraph (b) of this
section must be applied to determine if any remaining constructive
distribution occurs. Under paragraphs (b)(3)(i) and (b)(4) of this
section, paragraph (b)(1) of this section applies because, absent
any other facts indicating a contrary result, the fact that
redemption on July 1, 2002, would produce a lower yield than the
yield produced by the mandatory redemption feature indicates that
redemption on that date is most likely to occur. The safe harbor
rule of paragraph (b)(3)(ii) of this section does not apply to the
option to call on July 1, 2002, because, as of January 1, 2001, a
call by Z on July 1, 2002, for $120 would reduce the yield of the
stock. The de minimis exception of paragraph (b)(1) of this section
does not apply because the $10 per share difference between the
redemption price and the issue price (revised as of the missed call
date as provided by paragraph (b)(4) of this section) exceeds the
amount determined under the principles of section 1273(a)(3)
(1 x .0025 x $120=$.30). Accordingly, the $10 per share of
additional redemption premium that is payable on July 1, 2002, is
treated as a constructive distribution received by the holder on an
economic accrual basis over the period between January 1, 2001, and
July 1, 2002, under principles similar to the principles of section
1272(a).
(B) If Z does not exercise its second option to call the
preferred stock on July 1, 2002, then the $30 additional redemption
premium that is payable on January 1, 2004, is treated as a
constructive distribution under paragraphs (b)(2) and (b)(1) of this
section. The de minimis exception of paragraph (b)(1) of this
section does not apply because the $30 per share difference between
the redemption price and the issue price (revised as of the second
missed call date) exceeds the amount determined under the principles
of section 1273(a)(3) (1 x .0025 x $150=$.38). The holder is treated
as receiving the constructive distribution on an economic accrual
basis over the period between July 1, 2002, and January 1, 2004,
under principles similar to the principles of section 1272(a).
Example 8--(i) Facts. The facts are the same as in paragraph (i)
of Example 7, except that, based on all of the facts and
circumstances as of the issue date (including an expected lack of
funds on the part of Z), it is unlikely that Z will exercise the
right to redeem on either January 1, 2001, or July 1, 2002.
(ii) Analysis. The safe harbor rule of paragraph (b)(3)(ii) of
this section does not apply to the option to call on either January
1, 2001, or July 1, 2002, because each call would reduce the yield
of the stock. Under paragraph (b)(3)(i) of this section, neither
option to call is more likely than not to occur, because, based on
all of the facts and circumstances as of the issue date (including
an expected lack of funds on the part of Z), it is not more likely
than not that Z will exercise either option. However, the $50 per
share redemption premium that is payable on January 1, 2004, is
treated as a constructive distribution under paragraphs (b) (1) and
(2) of this section, regardless of whether Z is anticipated to have
sufficient funds to redeem on that date, because Z is required to
redeem the stock on that date. The de minimis exception of paragraph
(b)(1) of this section does not apply because the $50 per share
difference between the redemption price and the issue price exceeds
the amount determined under the principles of section 1273(a)(3)
(8 x .0025 x $150=$3).
* * * * *
(e) Effective date. The rules of paragraph (b) of this section and
Examples 4, 5, 7, and 8 of paragraph (d) of this section apply to stock
issued on or after December 20, 1995. For rules applicable to
previously issued stock, see Sec. 1.305-5 (b) and (d) Examples (4),
(5), and (7) (as contained in the 26 CFR part 1 edition revised April
1, 1995). Although the rules of paragraph (b) of this section and the
revised examples do not apply to stock issued before December 20, 1995,
the rules of sections 305(c) (1), (2), and (3) apply to stock described
therein issued on or after October 10, 1990, except as provided in
section 11322(b)(2) of the Revenue Reconciliation Act of 1990 (Public
Law 101-508 Stat.). Moreover, except as provided in section 11322(b)(2)
of the Revenue Reconciliation Act of 1990 (Public Law 101-508 Stat.),
with respect to stock issued on or after October 10, 1990, and issued
before December 20, 1995, the economic accrual rule of section
305(c)(3) will apply to the entire call premium on stock that is not
described in paragraph (b)(2) of this section if the premium is
considered to be unreasonable under the principles of Sec. 1.305-5(b)
(as contained in the 26 CFR part 1 edition revised April 1, 1995). A
call premium described in the preceding sentence will be accrued over
the period of time during which the preferred stock cannot be called
for redemption.
Par. 4. Section 1.305-7 is amended by revising the fourth sentence
in the concluding text of paragraph (a) to read as follows:
Sec. 1.305-7 Certain transactions treated as distributions.
(a) * * *
* * * For example, where a redemption premium exists with respect to a
class of preferred stock under the circumstances described in
Sec. 1.305-5(b) and the other requirements of this section are also
met, the distribution will be deemed made with respect to such
preferred stock, in stock of the same class. * * *
* * * * *
[[Page 66139]]
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Par. 5. The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
Sec. 602.101 [Amended]
Par. 6. In Sec. 602.101, paragraph (c) is amended in the table by
adding the entry ``1.305-5.........1545-1438'' in numerical order.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved: December 11, 1995.
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 95-30831 Filed 12-20-95; 8:45 am]
BILLING CODE 4830-01-U
Complete official Federal Register PDF
FR Doc. 95-30827 Treatment of Acquisition of Certain Financial Institutions; Certain Tax Consequences of Federal Financial Assistance to Financial Institutions
[Federal Register Volume 60, Number 245 (Thursday, December 21, 1995)]
[Rules and Regulations]
[Pages 66091-66105]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30827]
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DEPARTMENT OF THE TREASURY
26 CFR Parts 1, 301 and 602
[TD 8641]
RIN 1545-AN71
Treatment of Acquisition of Certain Financial Institutions;
Certain Tax Consequences of Federal Financial Assistance to Financial
Institutions
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final regulations relating to Federal
financial assistance, as defined in section 597(c) of the Internal
Revenue Code, that is received by a financially troubled bank or thrift
institution, and to acquisitions of financially troubled bank or thrift
institutions in which Federal financial assistance is provided. This
document also contains final regulations under section 7507. These
regulations provide guidance concerning the proper tax treatment of
various transactions involving the receipt of Federal financial
assistance.
DATES: These regulations are effective December 21, 1995.
For dates of applicability, see the ``Sec. 1.597-7 Effective date''
section under the SUPPLEMENTARY INFORMATION portion of the preamble and
the effective date provisions (Sec. 1.597-7) of this document.
FOR FURTHER INFORMATION CONTACT: Steven M. Flanagan at 202-622-7790,
Vicki J. Hyche at 202-622-7530, William D. Alexander at 202-622-7710,
or Steven R. Glickstein at 202-622-4439 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information contained in these final regulations
have been reviewed and approved by the Office of Management and Budget
in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under
control number 1545-1300. Responses to these collections of information
are required to track deferred income and its subsequent recapture,
elect to disaffiliate earlier than would otherwise be permitted, elect
to apply the provisions of the regulation retroactively, and report
uncollected income tax.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid control number.
The estimated annual burden per respondent/recordkeeper varies from
1 hour to 11 hours, depending on individual circumstances, with an
estimated average of 4.4 hours.
Comments concerning the accuracy of this burden estimate and
suggestions for reducing this burden should be sent to the Internal
Revenue Service, Attn: IRS Reports Clearance Officer T:FP, Washington,
DC 20224, and to the Office of Management and Budget, Attn: Desk
Officer for the Department of the Treasury, Office of Information and
Regulatory Affairs, Washington, DC 20503.
Books or records relating to these collections 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 26 U.S.C. 6103.
Background
This document contains final regulations under section 597, as
amended by section 1401 of the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989 (Public Law 101-73) (FIRREA). The
regulations provide guidance for banks and domestic building and loan
associations (Institutions) and their affiliates in connection with
receipt of Federal financial assistance (FFA), as defined in section
597(c).
Section 597(a) delegates to the Secretary of the Treasury authority
to prescribe regulations concerning ``any transaction in which Federal
financial assistance is provided.'' These regulations are issued under
the authority of section 597(a).
This document also amends the regulations under section 7507 to
reflect the treatment of FFA under FIRREA.
The IRS published proposed regulations under sections 597 and 7507
on April 22, 1992 (57 FR 14794, FI-46-89, 1992-1 C.B. 1037).
Public Comments and the Final Regulations
The IRS received comments on the proposed regulations, and a public
hearing was held on July 17, 1992. After consideration of the comments
and the statements made at the hearing, the proposed regulations are
adopted as revised by this Treasury decision. The principal comments
and revisions are discussed below.
Section 1.597-2 Taxation of FFA
Section 1.597-2 contains rules concerning accounting for FFA as
income. The final regulations retain the proposed rule that, generally,
FFA is income to the failed Institution when it is received or accrued
in accordance with the Institution's method of accounting. Section
1.597-2(c) contains rules permitting certain Institutions to defer the
inclusion of FFA.
Deferral formula without Continuing Equity. Under the proposed
regulations, unresolved Institutions without Continuing Equity were
permitted to defer inclusion of FFA in excess of amounts determined
under a formula. The proposed formula required current inclusion equal
to the sum of liabilities less aggregate adjusted basis at the
[[Page 66092]]
beginning of the assistance year (representing losses already
recognized), plus loss in the current year (disregarding FFA). The
proposed formula generally allowed the Institution the benefit of any
prior losses of its owners' equity, but offset any losses of creditors'
capital by the inclusion of FFA. However, with respect to losses during
the year FFA is received, the proposed formula did not distinguish
between losses of owners' equity and losses of creditors' capital and,
therefore, offset losses of owners' equity by inclusion of FFA. The
formula (together with related recapture rules) in the final
regulations has been changed to reflect that the owners' equity is the
first capital lost and, in a transaction without Continuing Equity, is
not offset by inclusion of FFA.
Deferral formula with Continuing Equity. The proposed regulations
allowed deferral under different conditions where Continuing Equity is
present. In that case, the Institution must include currently, in
addition to the normal formula amount, income equal to all net
operating loss carryovers available to it. Also, an Institution with
Continuing Equity must recapture deferred FFA at least as quickly as
pro rata over a maximum of six years, regardless of whether it
recognizes all of its built-in losses during that time.
Commentators suggested that the proposed regulations unfairly
limited deferral for Institutions with Continuing Equity and
recommended the same deferral formula apply in all cases. They
criticized the Continuing Equity concept because it focused on the
identity of the Institution's shareholders after the assistance
transaction.
Under the definition of Continuing Equity in the proposed
regulations, an Institution generally would have Continuing Equity if
five percent or more of its stock at the end of a taxable year was
owned by shareholders who owned stock before the Institution was placed
in receivership by a supervisory agency (Agency) or first received FFA.
The five percent reference was misleading because, under Sec. 1.597-5,
a 50 percent change in ownership generally results in a deemed Taxable
Transfer (now defined in Sec. 1.597-5(a)(1)) in which the failed
Institution is treated as a New Entity. The deferral rules do not apply
after a deemed Taxable Transfer. The final regulations thus clarify
that Continuing Equity exists only if the Institution is not (i) a
Bridge Bank, (ii) in Agency receivership, or (iii) treated as a New
Entity. The modification to the definition of Continuing Equity is not
intended as a substantive change. The Continuing Equity deferral
provisions apply only to the limited number of ``open bank''
resolutions not subject to the deemed Taxable Transfer rules. (As
discussed below, the Taxable Transfer definitions have also been
modified to clarify that most ``open bank'' assisted transactions are
treated as Taxable Transfers.)
The final regulations do not eliminate the special treatment of
Institutions with Continuing Equity. The regulations provide deferral
rules to ameliorate a timing mismatch between FFA income and related
losses. Deferral is not designed to allow built-in losses to offset
operating income instead of FFA or to permit the permanent elimination
of any subsidy provided by Agency. The requirement that Institutions
with Continuing Equity recapture their deferred FFA within six years is
a reasonable safeguard against indefinite deferral of FFA income. The
results under these rules are comparable in effect to those applicable
to acquirors in Taxable Transfers.
The final regulations do, however, modify the Continuing Equity
formula, which, in the proposed regulations, counted some losses twice.
Recognized losses represented in the first prong of the formula
(liabilities minus asset bases) may comprise part of the third prong
(net operating losses available to the Institution or its consolidated
group). The final regulations correct this double counting of losses.
Transfers of money and property to Agency. The proposed regulations
contained rules for taxing FFA if money or property is also transferred
to Agency. These rules, together with rules for the treatment of FFA
received pursuant to a Loss Guarantee, have been clarified,
reorganized, and restated in Sec. 1.597-2(d).
The proposed regulations provided an offset or deduction for
payments by an Institution to Agency to the extent of previously
received FFA. The rule as proposed provided limited relief for payments
made to Agency by a New Entity or Acquiring, because they receive
little or no FFA. However, an assisted acquisition can result in income
to a New Entity or Acquiring in the form of built-in gain. Under
section 597(c) and Sec. 1.597-3(b), an instrument issued to Agency by a
New Entity or Acquiring is, in effect, disregarded. If a New Entity or
Acquiring issues its instrument to Agency in connection with the
acquisition of an Institution, the value of the instrument is not
included in the purchase price. Consequently, a New Entity or Acquiring
may have a basis shortfall in the assets acquired (or deemed acquired)
from the failed Institution. The final regulations provide a New Entity
or Acquiring a purchase price adjustment upon any transfer to Agency
(e.g., in satisfaction of the disregarded instrument).
In response to comments, the final regulations also specifically
provide for repayments to Agency by Institution affiliates. Moreover,
the final regulations provide that if Agency sells an Institution's
instrument to a third party, the sales price is treated as a repayment
to Agency by the issuer. Furthermore, the instrument is treated as
having been newly issued by the issuer to the holder at that time. The
IRS and Treasury believe that this is an appropriate time for the
issuer to offset FFA or increase its basis, because the sales price
reasonably fixes the value of the instrument, and any subsequent cost
associated with the instrument should be accounted for in accordance
with the nature of the instrument.
Section 1.597-4(g) Elective Disaffiliation
The proposed regulations would allow a consolidated group to elect
(after the regulations became final) to exclude an Institution in
receivership from its group. The election potentially requires the
inclusion of a ``toll charge'' in the income of those members owning
the common stock of the Institution (the member shareholders). The
amount of the toll charge is the excess of the disaffiliated
Institution's liabilities over the adjusted basis of its assets. The
toll charge is intended to reflect the amount that would be included in
income if Agency were to provide the entire amount of FFA necessary to
restore the Institution's solvency at the time of the event permitting
disaffiliation. Commentators suggested that the final regulations
should include the toll charge in the income of the disaffiliated
Institution (rather than its member shareholders), provide the group
with a ``toll charge deduction,'' and clarify the ability of the member
shareholders to take a worthless stock deduction.
Toll charge. Commentators suggested that the final regulations
include the toll charge in the income of the failed Institution rather
than its member shareholders. According to the commentators, including
the toll charge in the income of the member shareholders may result in
disadvantageous state tax consequences in those states where banking
corporations are not permitted to file consolidated returns with
nonbanking corporations. Under the proposed regulations, a bank holding
corporation (the disaffiliated Institution's shareholder) would have to
include in income the toll charge without the
[[Page 66093]]
benefit of the Institution's offsetting losses.
The IRS and Treasury agree that the toll charge is more
appropriately included in the income of the Institution (i.e., the
entity that is reimbursed by Agency for its loss), because the toll
charge represents accelerated FFA income. Thus, the final regulations
provide that the Institution, rather than its member shareholders,
takes the toll charge into income.
Toll charge deduction. Under the proposed regulations, the
Institution does not recognize built-in losses on disaffiliation. One
commentator suggested the final regulations provide for a ``toll charge
deduction'' for the excess of the Institution's adjusted basis over its
liabilities. According to the commentator, such a deduction is
appropriate because the Institution incurred economic loss while it was
a member of the consolidated group, before the Institution was placed
in receivership by Agency.
The commentator's recommendation is not adopted in the final
regulations because a toll charge deduction would accelerate
recognition of losses in advance of realization. Such a deduction is
particularly inappropriate because federal banking laws now permit
placing solvent institutions in receivership. In such cases, it is
uncertain whether the loss represented by such a deduction will ever be
realized.
Worthless stock deduction. Under the proposed regulations, if an
election to disaffiliate is made, the members of the consolidated group
are treated as having disposed of their stock in the Institution. One
commentator suggested that the final regulations clarify that, upon
disaffiliation, the Institution's stock is worthless.
The final regulations address the commentator's concerns by
providing that, as a consequence of the election, the members of the
consolidated group treat their stock in the Institution as worthless if
the Institution is factually insolvent on the date the Institution is
placed in receivership (or on the date the consolidated group is deemed
to make the election to disaffiliate). This rule preempts otherwise
applicable tests for worthlessness under section 165 and Sec. 1.1502-
19. Any worthless stock deduction is subject to the limitations of the
loss disallowance regulations (Secs. 1.337(d)-1 and 1.1502-20).
Consistency rule. Under the proposed regulations, a consolidated
group could elect to disaffiliate a subsidiary Institution only if the
Institution was its first subsidiary placed in Agency receivership
after the enactment of FIRREA. The election made for the first
subsidiary bound all future subsidiaries placed in Agency receivership.
To address the concern that the scope of the proposed consistency rule
was too broad, the final regulations modify the consistency rule to
require, generally, that a consolidated group must elect consistently
only for subsidiary Institutions placed in Agency receivership within
five years of each other.
Section 1.597-5 Taxable Transfers
Section 597 applies to FFA and transactions in connection with
which FFA is provided. The proposed regulations generally define a
Taxable Transfer as a transfer of deposit liabilities or stock while an
Institution is under Agency Control. However, IRS and Treasury now
understand that it is possible for Agency to resolve an Institution
under its control without providing assistance, or to provide
assistance without placing an Institution under its control. In light
of this information, the final regulations refine the definition of a
Taxable Transfer.
Under the final regulations, Taxable Transfers include the transfer
of any deposit liability in connection with which FFA is provided or
the transfer of any asset for which Agency has an obligation (e.g.,
assets covered by Loss Guarantees). Certain transfers of stock cause a
Taxable Transfer if FFA is provided in connection with the transfer, if
the Institution is a Bridge Bank or if the Institution has a balance in
its deferred FFA account. The phrase ``in connection with'' should be
interpreted broadly. If any party to a transaction receives FFA, all
parties and all related transactions are within the scope of these
regulations. To provide certainty regarding tax treatment for
purchasers of stock of subsidiaries of Institutions under Agency
Control, the final regulations treat all transactions in which such a
subsidiary leaves its group as Taxable Transfers.
Section 1.597-6 Limitation on Collection of Income Tax
Limitation where tax is borne by Agency. The proposed regulations
provided that income tax attributable to the receipt of FFA or gain on
a Taxable Transfer would not be collected from an Institution without
Continuing Equity if Agency would bear the burden of the tax.
Commentators suggested that the limitation on noncollection in cases of
Continuing Equity is inappropriate because it requires Agency to gross-
up any assistance paid to cover the tax thereon.
The final regulations retain the limitation on noncollection in
cases of Continuing Equity. The IRS and Treasury believe that the
limitation is appropriate for transactions in which Agency assists an
Institution while allowing old shareholders to retain their ownership.
Noncollection should not inure to the benefit of the Institution's old
shareholders, who would have use of the Institution's losses while
escaping responsibility for the tax on related FFA income. The
congressional purpose in FIRREA to eliminate any tax subsidy for
assisted transactions requires that the IRS not waive its rights as a
creditor in cases where all other creditors and equity holders retain
their rights.
Transferee liability. The proposed regulations limited the
collection of a failed Institution's income taxes from a transferee in
a Taxable Transfer (i.e., a New Entity or Acquiring). This rule would
not apply if (similar to the Continuing Equity rule discussed above
under the heading ``Deferral formula with Continuing Equity'') there is
a five percent overlap in the ownership of the transferor Institution
and the New Entity or Acquiring.
Commentators suggested that the final regulations should not
include the five percent overlap exception because the exception
appears to punish former owners of Institutions, Institutions have
difficulty tracking ownership, and the exception contains no limits on
aggregation.
Because good faith purchasers of assets for value generally do not
have transferee liability, the final regulations clarify that Acquiring
(the purchaser of Institution's assets in an actual Taxable Transfer)
is not subject to such liability in any case. This rule applies even if
shareholders of Acquiring were shareholders of the selling Institution.
The final regulations do not, however, except a New Entity (the
resulting corporation in a deemed Taxable Transfer) from collection if
the Institution's previous equity interests remain outstanding in the
New Entity, or are reacquired or exchanged for consideration. As in
those cases in which a Taxable Transfer does not occur, the IRS should
remain a creditor if all other creditors retain their interests and the
Institution's previous equity interests had retained value. However, by
focusing on whether previous equity interests retain value, the final
regulations eliminate the need to track or aggregate ownership and do
not penalize any particular potential acquirors.
[[Page 66094]]
Section 1.597-7 Effective Date
As proposed, these final regulations generally apply to taxable
years ending on or after April 22, 1992. However, the provisions of
these regulations do not apply to FFA received or accrued for taxable
years ending after April 22, 1992, in connection with an Agency
assisted acquisition that occurs before April 22, 1992. Taxpayers not
subject to these regulations must comply with an interpretation of the
statute that is reasonable in light of the legislative history and
applicable administrative pronouncements. For this purpose, the rules
contained in Notice 89-102 (1989-2 C.B. 436) apply to the extent
provided in the Notice.
An irrevocable election is available to apply the regulations to
taxable years prior to the general effective date. However, the
election cannot be made if the Institution's statute of limitations has
expired or a section 338 election was available but not made for the
Institution. In addition, consistent treatment is required in ``open
bank'' resolutions that would result under the regulations in deemed
Taxable Transfers before April 22, 1992.
The proposed regulations required an electing taxpayer to extend
the statute of limitations for all items for three years from the date
of filing the election. The final regulations adopt a commentator's
suggestion that the taxpayer extend the statute of limitations only for
items affected by application of the regulations.
An Institution or consolidated group makes the election on its
first annual income tax return filed on or after March 15, 1996.
However, to make the affirmative election to disaffiliate under
Sec. 1.597-4(g)(5) for an Institution placed in Agency receivership in
a taxable year ending before April 22, 1992, a consolidated group must
send the affected Institution the required statement advising it of the
elective disaffiliation on or before May 31, 1996. In that case, the
consolidated group is deemed to have elected retroactive application of
these regulations but must nevertheless attach the required statement
to its first annual income tax return filed on or after March 15, 1996.
The final regulations provide that taxpayers may rely on the
provisions of the proposed regulations to the extent they acted in
reliance on the proposed regulations prior to December 21, 1995. Such
reliance must be reasonable and transactions with respect to which such
taxpayers rely must be consistent with the overriding policies of
section 597, as expressed in the legislative history, as well as the
overriding policies of the proposed regulations.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It is hereby certified that
these regulations do not have a significant economic impact on a
substantial number of small entities. This certification is based on
the fact that these regulations will generally only apply to certain
financially troubled financial institutions and the consolidated
groups, if any, to which they belong. Therefore, a Regulatory
Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. Pursuant to section 7805(f) of the Internal
Revenue Code, the notice of proposed rulemaking preceding these
regulations was submitted to the Chief Counsel for Advocacy of the
Small Business Administration for comment on its impact on small
business.
Drafting Information
The principal author of these regulations is Steven M. Flanagan,
Office of the Assistant Chief Counsel (Corporate), IRS. However, other
personnel from the IRS and Treasury Department participated in their
development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 1, 301 and 602 are amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority for part 1 is amended by adding the
following citation:
Authority: 26 U.S.C. 7805 * * *
Sections 1.597-1 through 1.597-7 also issued under 26 U.S.C. 597
and 1502.
Par. 2. Sections 1.597-1 through 1.597-7 are added to read as
follows:
Sec. 1.597-1 Definitions.
For purposes of the regulations under section 597--
(a) Unless the context otherwise requires, the terms consolidated
group, member and subsidiary have the meanings provided in Sec. 1.1502-
1; and
(b) The following terms have the meanings provided below--
Acquiring. The term Acquiring means a corporation that is a
transferee in a Taxable Transfer, other than a deemed transferee in a
Taxable Transfer described in Sec. 1.597-5(b).
Agency. The term Agency means the Resolution Trust Corporation, the
Federal Deposit Insurance Corporation, any similar instrumentality of
the United States government, and any predecessor or successor of the
foregoing (including the Federal Savings and Loan Insurance
Corporation).
Agency Control. An Institution or entity is under Agency Control if
Agency is conservator or receiver of the Institution or entity, or if
Agency has the right to appoint any of the Institution's or entity's
directors.
Agency Obligation. The term Agency Obligation means a debt
instrument that Agency issues to an Institution or to a direct or
indirect owner of an Institution.
Bridge Bank. The term Bridge Bank means an Institution that is
organized by Agency to hold assets and liabilities of another
Institution and that continues the operation of the other Institution's
business pending its acquisition or liquidation, and that is any of the
following--
(1) A national bank chartered by the Comptroller of the Currency
under section 11(n) of the Federal Deposit Insurance Act (12 U.S.C.
1821(n)) or section 21A(b)(10)(A) of the Federal Home Loan Bank Act (12
U.S.C. 1441a(b)(10)(A)) or any successor sections;
(2) A Federal savings association chartered by the Director of the
Office of Thrift Supervision under section 21A(b)(10)(A) of the Federal
Home Loan Bank Act (12 U.S.C. 1441a(b)(10)(A)) or any successor
section; or
(3) A similar Institution chartered under any other statutory
provisions.
Consolidated Subsidiary. The term Consolidated Subsidiary means a
member of the consolidated group of which an Institution is a member
that bears the same relationship to the Institution that the members of
a consolidated group bear to their common parent under section
1504(a)(1).
Continuing Equity. An Institution has Continuing Equity for any
taxable year if, on the last day of the taxable year, the
[[Page 66095]]
Institution is not (1) a Bridge Bank, (2) in Agency receivership, or
(3) treated as a New Entity.
Controlled Entity. The term Controlled Entity means an entity under
Agency Control.
Federal Financial Assistance (FFA). The term Federal Financial
Assistance (FFA), as defined by section 597(c), means any money or
property provided by Agency to an Institution or to a direct or
indirect owner of stock in an Institution under section 406(f) of the
National Housing Act (12 U.S.C. 1729(f)), section 21A(b)(4) of the
Federal Home Loan Bank Act (12 U.S.C. 1441a(b)(4)), section 11(f) or
13(c) of the Federal Deposit Insurance Act (12 U.S.C. 1821(f),
1823(c)), or under any similar provision of law. Any such money or
property is FFA, regardless of whether the Institution or any of its
affiliates issues Agency a note or other obligation, stock, warrants,
or other rights to acquire stock in connection with Agency's provision
of the money or property. FFA includes Net Worth Assistance, Loss
Guarantee payments, yield maintenance payments, cost to carry or cost
of funds reimbursement payments, expense reimbursement or indemnity
payments, and interest (including original issue discount) on an Agency
Obligation.
Institution. The term Institution means an entity that is, or
immediately before being placed under Agency Control was, a bank or
domestic building and loan association within the meaning of section
597 (including a Bridge Bank). Except as otherwise provided in the
regulations under section 597, the term Institution includes a New
Entity or Acquiring that is a bank or domestic building and loan
association within the meaning of section 597.
Loss Guarantee. The term Loss Guarantee means an agreement pursuant
to which Agency or a Controlled Entity guarantees or agrees to pay an
Institution a specified amount upon the disposition or charge-off (in
whole or in part) of specific assets, an agreement pursuant to which an
Institution has a right to put assets to Agency or a Controlled Entity
at a specified price, or a similar arrangement.
Net Worth Assistance. The term Net Worth Assistance means money or
property (including an Agency Obligation to the extent it has a fixed
principal amount) that Agency provides as an integral part of a Taxable
Transfer, other than FFA that accrues after the date of the Taxable
Transfer. For example, Net Worth Assistance does not include Loss
Guarantee payments, yield maintenance payments, cost to carry or cost
of funds reimbursement payments, or expense reimbursement or indemnity
payments. An Agency Obligation is considered to have a fixed principal
amount notwithstanding an agreement providing for its adjustment after
issuance to reflect a more accurate determination of the condition of
the Institution at the time of the acquisition.
New Entity. The term New Entity means the new corporation that is
treated as purchasing all of the assets of an Old Entity in a Taxable
Transfer described in Sec. 1.597-5(b).
Old Entity. The term Old Entity means the Institution or
Consolidated Subsidiary that is treated as selling all of its assets in
a Taxable Transfer described in Sec. 1.597-5(b).
Residual Entity. The term Residual Entity means the entity that
remains after an Institution transfers deposit liabilities to a Bridge
Bank.
Taxable Transfer. The term Taxable Transfer has the meaning
provided in Sec. 1.597-5(a)(1).
Sec. 1.597-2 Taxation of Federal Financial Assistance.
(a) Inclusion in income--(1) In general. Except as otherwise
provided in the regulations under section 597, all FFA is includible as
ordinary income to the recipient at the time the FFA is received or
accrued in accordance with the recipient's method of accounting. The
amount of FFA received or accrued is the amount of any money, the fair
market value of any property (other than an Agency Obligation), and the
issue price of any Agency Obligation (determined under Sec. 1.597-
3(c)(2)). An Institution (and not the nominal recipient) is treated as
receiving directly any FFA that Agency provides in a taxable year to a
direct or indirect shareholder of the Institution, to the extent money
or property is transferred to the Institution pursuant to an agreement
with Agency.
(2) Cross references. See paragraph (c) of this section for rules
regarding the timing of inclusion of certain FFA. See paragraph (d) of
this section for additional rules regarding the treatment of FFA
received in connection with transfers of money or property to Agency or
a Controlled Entity, or paid pursuant to a Loss Guarantee. See
Sec. 1.597-5(c)(1) for additional rules regarding the inclusion of Net
Worth Assistance in the income of an Institution.
(b) Basis of property that is FFA. If FFA consists of property, the
Institution's basis in the property equals the fair market value of the
property (other than an Agency Obligation) or the issue price of the
Agency Obligation, as determined under Sec. 1.597-3(c)(2).
(c) Timing of inclusion of certain FFA--(1) Scope. This paragraph
(c) limits the amount of FFA an Institution must include in income
currently under certain circumstances and provides rules for the
deferred inclusion in income of amounts in excess of those limits. This
paragraph (c) does not apply to a New Entity or Acquiring.
(2) Amount currently included in income by an Institution without
Continuing Equity. The amount of FFA an Institution without Continuing
Equity must include in income in a taxable year under paragraph (a)(1)
of this section is limited to the sum of--
(i) The excess at the beginning of the taxable year of the
Institution's liabilities over the adjusted bases of the Institution's
assets; and
(ii) The amount by which the excess for the taxable year of the
Institution's deductions allowed by chapter 1 of the Internal Revenue
Code (other than net operating and capital loss carryovers) over its
gross income (determined without regard to FFA); is greater than the
excess at the beginning of the taxable year of the adjusted bases of
the Institution's assets over the Institution's liabilities.
(3) Amount currently included in income by an Institution with
Continuing Equity. The amount of FFA an Institution with Continuing
Equity must include in income in a taxable year under paragraph (a)(1)
of this section is limited to the sum of--
(i) The excess at the beginning of the taxable year of the
Institution's liabilities over the adjusted bases of the Institution's
assets;
(ii) The greater of--
(A) The excess for the taxable year of the Institution's deductions
allowed by chapter 1 of the Internal Revenue Code (other than net
operating and capital loss carryovers) over its gross income
(determined without regard to FFA); or
(B) The excess for the taxable year of the deductions allowed by
chapter 1 of the Internal Revenue Code (other than net operating and
capital loss carryovers) of the consolidated group of which the
Institution is a member on the last day of the Institution's taxable
year over the group's gross income (determined without regard to FFA);
and
(iii) The excess of the amount of any net operating loss carryover
of the Institution (or in the case of a carryover from a consolidated
return year of the Institution's current consolidated group, the net
operating loss carryover of the group) to the taxable year over the
[[Page 66096]]
amount described in paragraph (c)(3)(i) of this section.
(4) Deferred FFA--(i) Maintenance of account. An Institution must
establish a deferred FFA account commencing in the first taxable year
in which it receives FFA that is not currently included in income under
paragraph (c)(2) or (c)(3) of this section, and must maintain that
account in accordance with the requirements of this paragraph (c)(4).
The Institution must add the amount of any FFA that is not currently
included in income under paragraph (c)(2) or (c)(3) of this section to
its deferred FFA account. The Institution must decrease the balance of
its deferred FFA account by the amount of deferred FFA included in
income under paragraphs (c)(4)(ii), (iv) and (v) of this section. (See
also paragraph (d)(5)(i)(B) of this section for other adjustments that
decrease the deferred FFA account.) If, under paragraph (c)(3) of this
section, FFA is not currently included in income in a taxable year, the
Institution thereafter must maintain its deferred FFA account on a FIFO
(first in, first out) basis (e.g., for purposes of the first sentence
of paragraph (c)(4)(iv) of this section).
(ii) Deferred FFA recapture. In any taxable year in which an
Institution has a balance in its deferred FFA account, it must include
in income an amount equal to the lesser of the amount described in
paragraph (c)(4)(iii) of this section or the balance in its deferred
FFA account.
(iii) Annual recapture amount--(A) Institutions without Continuing
Equity--(1) In general. In the case of an Institution without
Continuing Equity, the amount described in this paragraph (c)(4)(iii)
is the amount by which--
(i) The excess for the taxable year of the Institution's deductions
allowed by chapter 1 of the Internal Revenue Code (other than net
operating and capital loss carryovers) over its gross income (taking
into account FFA included in income under paragraph (c)(2) of this
section); is greater than
(ii) The Institution's remaining equity as of the beginning of the
taxable year.
(2) Remaining equity. The Institution's remaining equity is--
(i) The amount at the beginning of the taxable year in which the
deferred FFA account was established equal to the adjusted bases of the
Institution's assets minus the Institution's liabilities (which amount
may be positive or negative); plus
(ii) The Institution's taxable income (computed without regard to
any carryover from any other year) in any subsequent taxable year or
years; minus
(iii) The excess in any subsequent taxable year or years of the
Institution's deductions allowed by chapter 1 of the Internal Revenue
Code (other than net operating and capital loss carryovers) over its
gross income.
(B) Institutions with Continuing Equity. In the case of an
Institution with Continuing Equity, the amount described in this
paragraph (c)(4)(iii) is the amount by which the Institution's
deductions allowed by chapter 1 of the Internal Revenue Code (other
than net operating and capital loss carryovers) exceed its gross income
(taking into account FFA included in income under paragraph (c)(3) of
this section).
(iv) Additional deferred FFA recapture by an Institution with
Continuing Equity. To the extent that, as of the end of a taxable year,
the cumulative amount of FFA deferred under paragraph (c)(3) of this
section that an Institution with Continuing Equity has recaptured under
this paragraph (c)(4) is less than the cumulative amount of FFA
deferred under paragraph (c)(3) of this section that the Institution
would have recaptured if that FFA had been included in income ratably
over the six taxable years immediately following the taxable year of
deferral, the Institution must include that difference in income for
the taxable year. An Institution with Continuing Equity must include in
income the balance of its deferred FFA account in the taxable year in
which it liquidates, ceases to do business, transfers (other than to a
Bridge Bank) substantially all of its assets and liabilities, or is
deemed to transfer all of its assets under Sec. 1.597-5(b).
(v) Optional accelerated recapture of deferred FFA. An Institution
that has a deferred FFA account may include in income the balance of
its deferred FFA account on its timely filed (including extensions)
original income tax return for any taxable year that it is not under
Agency Control. The balance of its deferred FFA account is income on
the last day of that year.
(5) Exceptions to limitations on use of losses. In computing an
Institution's taxable income or alternative minimum taxable income for
a taxable year, sections 56(d)(1), 382 and 383 and Secs. 1.1502-15,
1.1502-21 and 1.1502-22 do not limit the use of the attributes of the
Institution to the extent, if any, that the inclusion of FFA (including
recaptured FFA) in income results in taxable income or alternative
minimum taxable income (determined without regard to this paragraph
(c)(5)) for the taxable year. This paragraph (c)(5) does not apply to
any limitation under section 382 or 383 or Sec. 1.1502-15, 1.1502-21 or
1.1502-22 that arose in connection with or prior to a corporation
becoming a Consolidated Subsidiary of the Institution.
(6) Operating rules--(i) Bad debt reserves. For purposes of
paragraphs (c)(2), (c)(3) and (c)(4) of this section, the adjusted
bases of an Institution's assets are reduced by the amount of the
Institution's reserves for bad debts under section 585 or 593, other
than supplemental reserves under section 593.
(ii) Aggregation of Consolidated Subsidiaries. For purposes of this
paragraph (c), an Institution is treated as a single entity that
includes the income, expenses, assets, liabilities, and attributes of
its Consolidated Subsidiaries, with appropriate adjustments to prevent
duplication.
(iii) Alternative minimum tax. To compute the alternative minimum
taxable income attributable to FFA of an Institution for any taxable
year under section 55, the rules of this section, and related rules,
are applied by using alternative minimum tax basis, deductions, and all
other items required to be taken into account. All other alternative
minimum tax provisions continue to apply.
(7) Earnings and profits. FFA that is not currently included in
income under this paragraph (c) is included in earnings and profits for
all purposes of the Internal Revenue Code to the extent and at the time
it is included in income under this paragraph (c).
(d) Transfers of money or property to Agency, and property subject
to a Loss Guarantee--(1) Transfers of property to Agency. The transfer
of property to Agency or a Controlled Entity is a taxable sale or
exchange in which the Institution is treated as realizing an amount
equal to--
(i) The property's fair market value; or
(ii) For property subject to a Loss Guarantee, the greater of the
property's fair market value or the guaranteed value or price at which
the property can be put at the time of transfer.
(2) FFA with respect to property covered by a Loss Guarantee other
than on transfer to Agency. (i) FFA provided pursuant to a Loss
Guarantee with respect to covered property is included in the amount
realized with respect to the property to the extent the total amount
realized does not exceed the greater of--
(A) The property's fair market value; or
(B) The guaranteed value or price at which the property can be put
at the time of transfer.
(ii) For the purposes of this paragraph (d)(2), references to an
amount realized include amounts obtained in whole or partial
satisfaction of loans, amounts
[[Page 66097]]
obtained by virtue of charging off or marking to market covered
property, and other amounts similarly related to property, whether or
not disposed of.
(3) Treatment of FFA received in exchange for property. FFA
included in the amount realized for property under this paragraph (d)
is not includible in income under paragraph (a)(1) of this section. The
amount realized is treated in the same manner as if realized from a
person other than Agency or a Controlled Entity. For example, gain
attributable to FFA received with respect to a capital asset retains
its character as capital gain. Similarly, FFA received with respect to
property that has been charged off for income tax purposes is treated
as a recovery to the extent of the amount previously charged off. Any
FFA provided in excess of the amount realized under this paragraph (d)
is includible in income under paragraph (a)(1) of this section.
(4) Adjustment to FFA--(i) In general. If an Institution pays or
transfers money or property to Agency or a Controlled Entity, the
amount of money and fair market value of the property is an adjustment
to its FFA to the extent the amount paid and transferred exceeds the
amount of money and fair market value of property Agency or a
Controlled Entity provides in exchange.
(ii) Deposit insurance. This paragraph (d)(4) does not apply to
amounts paid to Agency with respect to deposit insurance.
(iii) Treatment of an interest held by Agency or a Controlled
Entity--(A) In general. For purposes of this paragraph (d), an interest
described in Sec. 1.597-3(b) is not treated as property when
transferred by the issuer to Agency or a Controlled Entity nor when
acquired from Agency or a Controlled Entity by the issuer.
(B) Dispositions to persons other than issuer. On the date Agency
or a Controlled Entity transfers an interest described in Sec. 1.597-
3(b) to a holder other than the issuer, Agency or a Controlled Entity,
the issuer is treated for purposes of this paragraph (d)(4) as having
transferred to Agency an amount of money equal to the sum of the amount
of money and the fair market value of property that was paid by the new
holder as consideration for the interest.
(iv) Consolidated groups. For purposes of this paragraph (d), an
9Institution will be treated as having made any transfer to Agency or a
Controlled Entity that was made by any other member of its consolidated
group. The consolidated group must make appropriate investment basis
adjustments to the extent the member transferring money or other
property is not the member that received FFA.
(5) Manner of making adjustments to FFA--(i) Reduction of FFA and
deferred FFA. An Institution adjusts its FFA under paragraph (d)(4) of
this section by reducing in the following order and in an aggregate
amount not greater than the adjustment--
(A) The amount of any FFA that is otherwise includible in income
for the taxable year (before application of paragraph (c) of this
section); and
(B) The balance (but not below zero) in the deferred FFA account,
if any, maintained under paragraph (c)(4) of this section.
(ii) Deduction of excess amounts. If the amount of the adjustment
exceeds the sum of the amounts described in paragraph (d)(5) (i) of
this section, the Institution may deduct the excess to the extent the
deduction does not exceed the amount of FFA included in income for
prior taxable years reduced by the amount of deductions allowable under
this paragraph (d)(5)(ii) in prior taxable years.
(iii) Additional adjustments. Any adjustment to FFA in excess of
the sum of the amounts described in paragraphs (d)(5)(i) and (ii) of
this section is treated--
(A) By an Institution other than a New Entity or Acquiring, as a
deduction of the amount in excess of FFA received that is required to
be transferred to Agency under section 11(g) of the Federal Deposit
Insurance Act (12 U.S.C. 1821(g)); or
(B) By a New Entity or Acquiring, as an adjustment to the purchase
price paid in the Taxable Transfer (see Sec. 1.338(b)-3T).
(e) Examples. The following examples illustrate the provisions of
this section:
Example 1. Timing of inclusion of FFA in income. (i) Institution
M, a calendar year taxpayer without Continuing Equity because it is
in Agency receivership, is not a member of a consolidated group and
has not been acquired in a Taxable Transfer. On January 1, 1997, M
has assets with a total adjusted basis of $100 million and total
liabilities of $120 million. M's deductions do not exceed its gross
income (determined without regard to FFA) for 1997. Agency provides
$30 million of FFA to M in 1997. The amount of this FFA that M must
include in income in 1997 is limited by Sec. 1.597-2(c)(2) to $20
million, the amount by which M's liabilities ($120 million) exceed
the total adjusted basis of its assets ($100 million) at the
beginning of the taxable year. Pursuant to Sec. 1.597-2(c)(4)(i), M
must establish a deferred FFA account for the remaining $10 million.
(ii) If Agency instead lends M the $30 million, M's indebtedness
to Agency is disregarded and the results are the same as in
paragraph (i) of this Example 1. Section 597(c); Secs. 1.597-1(b)
(defining FFA) and 1.597-3(b).
Example 2. Transfer of property to Agency. (i) Institution M, a
calendar year taxpayer without Continuing Equity because it is in
Agency receivership, is not a member of a consolidated group and has
not been acquired in a Taxable Transfer. At the beginning of 1998,
M's remaining equity is $0 and M has a deferred FFA account of $10
million. Agency does not provide any FFA to M in 1998. During the
year, M transfers property not covered by a Loss Guarantee to Agency
and does not receive any consideration. The property has an adjusted
basis of $5 million and a fair market value of $1 million at the
time of the transfer. M has no other taxable income or loss in 1998.
(ii) Under Sec. 1.597-2(d)(1), M is treated as selling the
property for $1 million, its fair market value, thus recognizing a
$4 million loss ($5 million-$1 million). In addition, because M did
not receive any consideration from Agency, under Sec. 1.597-2(d)(4)
M has an adjustment to FFA of $1 million, the amount by which the
fair market value of the transferred property ($1 million) exceeds
the consideration M received from Agency ($0). Because no FFA is
provided to M in 1998, this adjustment reduces the balance of M's
deferred FFA account to $9 million ($10 million-$1 million). Section
1.597-2(d)(5)(i)(B). Because M's $4 million loss causes M's
deductions to exceed its gross income by $4 million in 1998 and M
has no remaining equity, under Sec. 1.597-2(c)(4)(iii)(A) M must
include $4 million of deferred FFA in income, and must decrease the
remaining $9 million balance of its deferred FFA account by the same
amount, leaving a balance of $5 million.
Example 3. Loss Guarantee. Institution Q, a calendar year
taxpayer, sells an asset covered by a Loss Guarantee to an unrelated
third party for $4,000. Q's adjusted basis in the asset at the time
of sale and the asset's guaranteed value are both $10,000. Pursuant
to the Loss Guarantee, Agency pays Q $6,000 ($10,000-$4,000). Q's
amount realized from the sale of the asset is $10,000 ($4,000 from
the third party and $6,000 from Agency). Section 1.597-2(d)(2). Q
realizes no gain or loss on the sale ($10,000-$10,000 = $0), and
therefore includes none of the $6,000 of FFA it receives pursuant to
the Loss Guarantee in income. Section 1.597-2(d)(3).
Sec. 1.597-3 Other rules.
(a) Ownership of assets. For all income tax purposes, an
Institution is treated as the owner of all assets covered by a Loss
Guarantee, yield maintenance agreement, or cost to carry or cost of
funds reimbursement agreement, regardless of whether Agency (or a
Controlled Entity) otherwise would be treated as the owner under
general principles of income taxation.
(b) Debt and equity interests received by Agency. Debt instruments,
stock, warrants, or other rights to acquire stock of an Institution (or
any of its affiliates) that Agency or a Controlled Entity
[[Page 66098]]
receives in connection with a transaction in which FFA is provided are
not treated as debt, stock or other equity interests of or in the
issuer for any purpose of the Internal Revenue Code while held by
Agency or a Controlled Entity. On the date Agency or a Controlled
Entity transfers an interest described in this paragraph (b) to a
holder other than Agency or a Controlled Entity, the interest is
treated as having been newly issued by the issuer to the holder with an
issue price equal to the sum of the amount of money and the fair market
value of property paid by the new holder in exchange for the interest.
(c) Agency Obligations--(1) In general. Except as otherwise
provided in this paragraph (c), the original issue discount rules of
sections 1271 et seq. apply to Agency Obligations.
(2) Issue price of Agency Obligations provided as Net Worth
Assistance. The issue price of an Agency Obligation that is provided as
Net Worth Assistance and that bears interest at either a single fixed
rate or a qualified floating rate (and provides for no contingent
payments) is the lesser of the sum of the present values of all
payments due under the obligation, discounted at a rate equal to the
applicable Federal rate (within the meaning of section 1274(d) (1) and
(3)) in effect for the date of issuance, or the stated principal amount
of the obligation. The issue price of an Agency Obligation that bears a
qualified floating rate of interest (within the meaning of Sec. 1.1275-
5(b)) is determined by treating the obligation as bearing a fixed rate
of interest equal to the rate in effect on the date of issuance under
the obligation.
(3) Adjustments to principal amount. Except as provided in
Sec. 1.597-5(d)(2)(iv), this paragraph (c)(3) applies if Agency
modifies or exchanges an Agency Obligation provided as Net Worth
Assistance (or a successor obligation). The issue price of the modified
or new Agency Obligation is determined under paragraphs (c) (1) and (2)
of this section. If the issue price is greater than the adjusted issue
price of the existing Agency Obligation, the difference is treated as
FFA. If the issue price is less than the adjusted issue price of the
existing Agency Obligation, the difference is treated as an adjustment
to FFA under Sec. 1.597-2(d)(4).
(d) Successors. To the extent necessary to effectuate the purposes
of the regulations under section 597, an entity's treatment under the
regulations applies to its successor. A successor includes a transferee
in a transaction to which section 381(a) applies or a Bridge Bank to
which another Bridge Bank transfers deposit liabilities.
(e) Loss disallowance. For purposes of Sec. 1.1502-20, FFA and the
amount described in Sec. 1.597-4(g)(3) are treated as an extraordinary
gain disposition within the meaning of Sec. 1.1502-20(c)(2)(i) and a
Taxable Transfer is treated as an applicable asset acquisition under
section 1060(c) within the meaning of Sec. 1.1502-20(c)(2)(i)(A)(4).
(f) Losses and deductions with respect to covered assets. Prior to
the disposition of an asset covered by a Loss Guarantee, the asset
cannot be charged off, marked to a market value, depreciated,
amortized, or otherwise treated in a manner that supposes an actual or
possible diminution of value below the greater of the asset's highest
guaranteed value or the highest price at which the asset can be put.
(g) Anti-abuse rule. The regulations under section 597 must be
applied in a manner consistent with the purposes of section 597.
Accordingly, if, in structuring or engaging in any transaction, a
principal purpose is to achieve a tax result that is inconsistent with
the purposes of section 597 and the regulations thereunder, the
Commissioner can make appropriate adjustments to income, deductions and
other items that would be consistent with those purposes.
Sec. 1.597-4 Bridge Banks and Agency Control.
(a) Scope. This section provides rules that apply to a Bridge Bank
or other Institution under Agency Control and to transactions in which
an Institution transfers deposit liabilities (whether or not the
Institution also transfers assets) to a Bridge Bank.
(b) Status as taxpayer. A Bridge Bank or other Institution under
Agency Control is a corporation within the meaning of section
7701(a)(3) for all purposes of the Internal Revenue Code and is subject
to all Internal Revenue Code provisions that generally apply to
corporations, including those relating to methods of accounting and to
requirements for filing returns, even if Agency owns stock of the
Institution.
(c) No section 382 ownership change. The imposition of Agency
Control, the cancellation of Institution stock by Agency, a transaction
in which an Institution transfers deposit liabilities to a Bridge Bank,
and an election under paragraph (g) of this section are disregarded in
determining whether an ownership change has occurred within the meaning
of section 382(g).
(d) Transfers to Bridge Banks--(1) In general. Except as otherwise
provided in paragraph (g) of this section, the rules of this paragraph
(d) apply to transfers to Bridge Banks. In general, a Bridge Bank and
its associated Residual Entity are together treated as the successor
entity to the transferring Institution. If an Institution transfers
deposit liabilities to a Bridge Bank (whether or not it also transfers
assets), the Institution recognizes no gain or loss on the transfer and
the Bridge Bank succeeds to the transferring Institution's basis in any
transferred assets. The associated Residual Entity retains its basis in
any assets it continues to hold. Immediately after the transfer, the
Bridge Bank succeeds to and takes into account the transferring
Institution's items described in section 381(c) (subject to the
conditions and limitations specified in section 381(c)), taxpayer
identification number (``TIN''), deferred FFA account, and account
receivable for future FFA as described in paragraph (g)(4)(ii) of this
section. The Bridge Bank also succeeds to and continues the
transferring Institution's taxable year.
(2) Transfers to a Bridge Bank from multiple Institutions. If two
or more Institutions transfer deposit liabilities to the same Bridge
Bank, the rules in paragraph (d)(1) of this section are modified to the
extent provided in this paragraph (d)(2). The Bridge Bank succeeds to
the TIN and continues the taxable year of the Institution that
transfers the largest amount of deposits. The taxable years of the
other transferring Institutions close at the time of the transfer. If
all the transferor Institutions are members of the same consolidated
group, the Bridge Bank's carryback of losses to the Institution that
transfers the largest amount of deposits is not limited by section
381(b)(3). The limitations of section 381(b)(3) do apply to the Bridge
Bank's carrybacks of losses to all other transferor Institutions. If
the transferor Institutions are not all members of the same
consolidated group, the limitations of section 381(b)(3) apply with
respect to all transferor Institutions. See paragraph (g)(6)(ii) of
this section for additional rules that apply if two or more
Institutions that are not members of the same consolidated group
transfer deposit liabilities to the same Bridge Bank.
(e) Treatment of Bridge Bank and Residual Entity as a single
entity. A Bridge Bank and its associated Residual Entity or Entities
are treated as a single entity for income tax purposes and must file a
single combined income tax return. The Bridge Bank is responsible for
filing all income tax returns and statements for this single entity and
is
[[Page 66099]]
the agent of each associated Residual Entity to the same extent as if
the Bridge Bank were the common parent of a consolidated group
including the Residual Entity. The term Institution includes a Residual
Entity that files a combined return with its associated Bridge Bank.
(f) Rules applicable to members of consolidated groups--(1) Status
as members. Unless an election is made under paragraph (g) of this
section, Agency Control of an Institution does not terminate the
Institution's membership in a consolidated group. Stock of a subsidiary
that is canceled by Agency is treated as held by the members of the
consolidated group that held the stock prior to its cancellation. If an
Institution is a member of a consolidated group immediately before it
transfers deposit liabilities to a Bridge Bank, the Bridge Bank
succeeds to the Institution's status as the common parent or, unless an
election is made under paragraph (g) of this section, as a subsidiary
of the group. If a Bridge Bank succeeds to an Institution's status as a
subsidiary, its stock is treated as held by the shareholders of the
transferring Institution, and the stock basis or excess loss account of
the Institution carries over to the Bridge Bank. A Bridge Bank is
treated as owning stock owned by its associated Residual Entities,
including for purposes of determining membership in an affiliated
group.
(2) No 30-day election to be excluded from consolidated group.
Neither an Institution nor any of its Consolidated Subsidiaries may be
excluded from a consolidated group for a taxable year under
Sec. 1.1502-76(b)(5)(ii), as contained in 26 CFR part 1 edition revised
April 1, 1994, if the Institution is under Agency Control at any time
during the year.
(3) Coordination with consolidated return regulations. The
provisions of the regulations under section 597 take precedence over
conflicting provisions in the regulations under section 1502.
(g) Elective disaffiliation--(1) In general. A consolidated group
of which an Institution is a subsidiary may elect irrevocably not to
include the Institution in its affiliated group if the Institution is
placed in Agency receivership (whether or not assets or deposit
liabilities of the Institution are transferred to a Bridge Bank). See
paragraph (g)(6) of this section for circumstances under which a
consolidated group is deemed to make this election.
(2) Consequences of election. If the election under this paragraph
(g) is made with respect to an Institution, the following consequences
occur immediately before the subsidiary Institution to which the
election applies is placed in Agency receivership (or, in the case of a
deemed election under paragraph (g)(6) of this section, immediately
before the consolidated group is deemed to make the election) and in
the following order--
(i) All adjustments of the Institution and its Consolidated
Subsidiaries under section 481 are accelerated;
(ii) Deferred intercompany gains and losses with respect to the
Institution and its Consolidated Subsidiaries are taken into account
and the Institution and its Consolidated Subsidiaries take into account
any other items required under the regulations under section 1502 for
members that become nonmembers within the meaning of Sec. 1.1502-
32(d)(4);
(iii) The taxable year of the Institution and its Consolidated
Subsidiaries closes and the Institution includes the amount described
in paragraph (g)(3) of this section in income as ordinary income as its
last item for that taxable year;
(iv) The members of the consolidated group owning the common stock
of the Institution include in income any excess loss account with
respect to the Institution's stock under Sec. 1.1502-19 and any other
items required under the regulations under section 1502 for members
that own stock of corporations that become nonmembers within the
meaning of Sec. 1.1502-32(d)(4); and
(v) If the Institution's liabilities exceed the aggregate fair
market value of its assets on the date the Institution is placed in
Agency receivership (or, in the case of a deemed election under
paragraph (g)(6) of this section, on the date the consolidated group is
deemed to make the election), the members of the consolidated group
treat their stock in the Institution as worthless. (See Secs. 1.337(d)-
1 and 1.1502-20 for potential limitations on the group's worthless
stock deduction.) In all other cases, the consolidated group will be
treated as owning stock of a nonmember corporation until such stock is
disposed of or becomes worthless under rules otherwise applicable.
(3) Toll charge. The amount described in this paragraph (g)(3) is
the excess of the Institution's liabilities over the adjusted bases of
its assets immediately before the Institution is placed in Agency
receivership (or, in the case of a deemed election under paragraph
(g)(6) of this section, immediately before the consolidated group is
deemed to make the election). In computing this amount, the adjusted
bases of an Institution's assets are reduced by the amount of the
Institution's reserves for bad debts under section 585 or 593, other
than supplemental reserves under section 593. For purposes of this
paragraph (g)(3), an Institution is treated as a single entity that
includes the assets and liabilities of its Consolidated Subsidiaries,
with appropriate adjustments to prevent duplication. The amount
described in this paragraph (g)(3) for alternative minimum tax purposes
is determined using alternative minimum tax basis, deductions, and all
other items required to be taken into account. In computing the
increase in the group's taxable income or alternative minimum taxable
income, sections 56(d)(1), 382 and 383 and Secs. 1.1502-15, 1.1502-21
and 1.1502-22 do not limit the use of the attributes of the Institution
and its Consolidated Subsidiaries to the extent, if any, that the
inclusion of the amount described in this paragraph (g)(3) in income
would result in the group having taxable income or alternative minimum
taxable income (determined without regard to this sentence) for the
taxable year. The preceding sentence does not apply to any limitation
under section 382 or 383 or Secs. 1.1502-15, 1.1502-21, or 1.1502-22
that arose in connection with or prior to a corporation becoming a
Consolidated Subsidiary of the Institution.
(4) Treatment of Institutions after disaffiliation--(i) In general.
If the election under this paragraph (g) is made with respect to an
Institution, immediately after the Institution is placed in Agency
receivership (or, in the case of a deemed election under paragraph
(g)(6) of this section, immediately after the consolidated group is
deemed to make the election), the Institution and each of its
Consolidated Subsidiaries are treated for income tax purposes as new
corporations that are not members of the electing group's affiliated
group. Each new corporation retains the TIN of the corresponding
disaffiliated corporation and is treated as having received the assets
and liabilities of the corresponding disaffiliated corporation in a
transaction to which section 351 applies (and in which no gain was
recognized under section 357(c) or otherwise). Thus, the new
corporation has no net operating or capital loss carryforwards. An
election under this paragraph (g) does not terminate the single entity
treatment of a Bridge Bank and its Residual Entities provided in
paragraph (e) of this section.
(ii) FFA. A new Institution is treated as having a non- interest
bearing, nontransferable account receivable for future FFA with a basis
equal to the amount described in paragraph (g)(3) of this section. If a
disaffiliated Institution has a deferred FFA account at the time
[[Page 66100]]
of its disaffiliation, the corresponding new Institution succeeds to
and takes into account that deferred FFA account.
(iii) Filing of consolidated returns. If a disaffiliated
Institution has Consolidated Subsidiaries at the time of its
disaffiliation, the corresponding new Institution is required to file a
consolidated income tax return with the subsidiaries in accordance with
the regulations under section 1502.
(iv) Status as Institution. If an Institution is disaffiliated
under this paragraph (g), the resulting new corporation is treated as
an Institution for purposes of the regulations under section 597
regardless of whether it is a bank or domestic building and loan
association within the meaning of section 597.
(v) Loss carrybacks. To the extent a carryback of losses would
result in a refund being paid to a fiduciary under section 6402(i), an
Institution or Consolidated Subsidiary with respect to which an
election under this paragraph (g) (other than under paragraph
(g)(6)(ii) of this section) applies is allowed to carry back losses as
if the Institution or Consolidated Subsidiary had continued to be a
member of the consolidated group that made the election.
(5) Affirmative election--(i) Original Institution--(A) Manner of
making election. Except as otherwise provided in paragraph (g)(6) of
this section, a consolidated group makes the election provided by this
paragraph (g) by sending a written statement by certified mail to the
affected Institution on or before the later of 120 days after its
placement in Agency receivership or May 31, 1996. The statement must
contain the following legend at the top of the page: ``THIS IS AN
ELECTION UNDER Sec. 1.597-4(g) TO EXCLUDE THE BELOW-REFERENCED
INSTITUTION AND CONSOLIDATED SUBSIDIARIES FROM THE AFFILIATED GROUP,''
and must include the names and taxpayer identification numbers of the
common parent and of the Institution and Consolidated Subsidiaries to
which the election applies, and the date on which the Institution was
placed in Agency receivership. The consolidated group must send a
similar statement to all subsidiary Institutions placed in Agency
receivership during the consistency period described in paragraph
(g)(5)(ii) of this section. (Failure to satisfy the requirement in the
preceding sentence, however, does not invalidate the election with
respect to any subsidiary Institution placed in Agency receivership
during the consistency period described in paragraph (g)(5)(ii) of this
section.) The consolidated group must include a copy of any election
statement and accompanying certified mail receipt as part of its first
income tax return filed after the due date under this paragraph (g)(5)
for such statement. A statement must be attached to this return
indicating that the individual who signed the election was authorized
to do so on behalf of the consolidated group. Agency cannot make this
election under the authority of section 6402(i) or otherwise.
(B) Consistency limitation on affirmative elections. A consolidated
group may make an affirmative election under this paragraph (g)(5) with
respect to a subsidiary Institution placed in Agency receivership only
if the group made, or is deemed to have made, the election under this
paragraph (g) with respect to every subsidiary Institution of the group
placed in Agency receivership on or after May 10, 1989 and within five
years preceding the date the subject Institution was placed in Agency
receivership.
(ii) Effect on Institutions placed in receivership simultaneously
or subsequently. An election under this paragraph (g), other than under
paragraph (g)(6)(ii) of this section, applies to the Institution with
respect to which the election is made or deemed made (the original
Institution) and each subsidiary Institution of the group placed in
Agency receivership or deconsolidated in contemplation of Agency
Control or the receipt of FFA simultaneously with the original
Institution or within five years thereafter.
(6) Deemed Election--(i) Deconsolidations in contemplation. If one
or more members of a consolidated group deconsolidate (within the
meaning of Sec. 1.1502-19(c)(1)(ii)(B)) a subsidiary Institution in
contemplation of Agency Control or the receipt of FFA, the consolidated
group is deemed to make the election described in this paragraph (g)
with respect to the Institution on the date the deconsolidation occurs.
A subsidiary Institution is conclusively presumed to have been
deconsolidated in contemplation of Agency Control or the receipt of FFA
if either event occurs within six months after the deconsolidation.
(ii) Transfers to a Bridge Bank from multiple groups. On the day an
Institution's transfer of deposit liabilities to a Bridge Bank results
in the Bridge Bank holding deposit liabilities from both a subsidiary
Institution and an Institution not included in the subsidiary
Institution's consolidated group, each consolidated group of which a
transferring Institution or the Bridge Bank is a subsidiary is deemed
to make the election described in this paragraph (g) with respect to
its subsidiary Institution. If deposit liabilities of another
Institution that is a subsidiary member of any consolidated group
subsequently are transferred to the Bridge Bank, the consolidated group
of which the Institution is a subsidiary is deemed to make the election
described in this paragraph (g) with respect to that Institution at the
time of the subsequent transfer.
(h) Examples. The following examples illustrate the provisions of
this section:
Facts. Corporation X, the common parent of a consolidated group,
owns all the stock (with a basis of $4 million) of Institution M, an
insolvent Institution with no Consolidated Subsidiaries. At the
close of business on April 30, 1996, M has $4 million of deposit
liabilities, $1 million of other liabilities, and assets with an
adjusted basis of $4 million and a fair market value of $3 million.
Example 1. Effect of receivership on consolidation. On May 1,
1996, Agency places M in receivership and begins liquidating M. X
does not make an election under Sec. 1.597-4(g). M remains a member
of the X consolidated group after May 1, 1996. Section 1.597-
4(f)(1).
Example 2. Effect of Bridge Bank on consolidation--(i)
Additional facts. On May 1, 1996, Agency places M in receivership
and causes M to transfer all of its assets and deposit liabilities
to Bridge Bank MB.
(ii) Consequences without an election to disaffiliate. M
recognizes no gain or loss from the transfer and MB succeeds to M's
basis in the transferred assets, M's items described in section
381(c) (subject to the conditions and limitations specified in
section 381(c)) and TIN. Section 1.597-4(d)(1). (If M had a deferred
FFA account, MB would also succeed to that account. Section 1.597-
4(d)(1).) MB continues M's taxable year and succeeds to M's status
as a member of the X consolidated group after May 1, 1996. Section
1.597-4 (d)(1) and (f). MB and M are treated as a single entity for
income tax purposes. Section 1.597-4(e).
(iii) Consequences with an election to disaffiliate. If, on July
1, 1996, X makes an election under Sec. 1.597-4(g) with respect to
M, the following consequences are treated as occurring immediately
before M was placed in Agency receivership. M must include $1
million ($5 million of liabilities--$4 million of adjusted basis) in
income as of May 1, 1996. Section 1.597-4(g) (2) and (3). M is then
treated as a new corporation that is not a member of the X
consolidated group and that has assets (including a $1 million
account receivable for future FFA) with a basis of $5 million and $5
million of liabilities received from disaffiliated corporation M in
a section 351 transaction. New corporation M retains the TIN of
disaffiliated corporation M. Section 1.597-4(g)(4). Immediately
after the disaffiliation, new corporation M is treated as
transferring its assets and deposit liabilities to Bridge Bank MB.
New corporation M recognizes no gain or loss from the
FR Doc. 95-30827 Treatment of Acquisition of Certain Financial Institutions; Certain Tax Consequences of Federal Financial Assistance to Financial Institutions
transfer and
MB succeeds to M's TIN and taxable year.
[[Page 66101]]
Section 1.597-4(d)(1). Bridge Bank MB is treated as a single entity
that includes M and has $5 million of liabilities, an account
receivable for future FFA with a basis of $1 million, and other
assets with a basis of $4 million. Section 1.597-4(d)(1).
Sec. 1.597-5 Taxable Transfers.
(a) Taxable Transfers--(1) Defined. The term Taxable Transfer
means--
(i) A transaction in which an entity transfers to a transferee
other than a Bridge Bank--
(A) Any deposit liability (whether or not the Institution also
transfers assets), if FFA is provided in connection with the
transaction; or
(B) Any asset for which Agency or a Controlled Entity has any
financial obligation (e.g., pursuant to a Loss Guarantee or Agency
Obligation); or
(ii) A deemed transfer of assets described in paragraph (b) of this
section.
(2) Scope. This section provides rules governing Taxable Transfers.
Rules applicable to both actual and deemed asset acquisitions are
provided in paragraphs (c) and (d) of this section. Special rules
applicable only to deemed asset acquisitions are provided in paragraph
(e) of this section.
(b) Deemed asset acquisitions upon stock purchase--(1) In general.
In a deemed transfer of assets under this paragraph (b), an Institution
(including a Bridge Bank or a Residual Entity) or a Consolidated
Subsidiary of the Institution (the Old Entity) is treated as selling
all of its assets in a single transaction and is treated as a new
corporation (the New Entity) that purchases all of the Old Entity's
assets at the close of the day immediately preceding the occurrence of
an event described in paragraph (b)(2) of this section. However, such
an event results in a deemed transfer of assets under this paragraph
(b) only if it occurs--
(i) In connection with a transaction in which FFA is provided;
(ii) While the Old Entity is a Bridge Bank;
(iii) While the Old Entity has a positive balance in a deferred FFA
account (see Sec. 1.597-2(c)(4)(v) regarding the optional accelerated
recapture of deferred FFA); or
(iv) With respect to a Consolidated Subsidiary, while the
Institution of which it is a Consolidated Subsidiary is under Agency
Control.
(2) Events. A deemed transfer of assets under this paragraph (b)
results if the Old Entity--
(i) Becomes a non-member within the meaning of Sec. 1.1502-32(d)(4)
of its consolidated group (other than pursuant to an election under
Sec. 1.597-4(g));
(ii) Becomes a member of an affiliated group of which it was not
previously a member (other than pursuant to an election under
Sec. 1.597-4(g)); or
(iii) Issues stock such that the stock that was outstanding before
the imposition of Agency Control or the occurrence of any transaction
in connection with the provision of FFA represents 50 percent or less
of the vote or value of its outstanding stock (disregarding stock
described in section 1504(a)(4) and stock owned by Agency or a
Controlled Entity).
(3) Bridge Banks and Residual Entities. If a Bridge Bank is treated
as selling all of its assets to a New Entity under this paragraph (b),
each associated Residual Entity is treated as simultaneously selling
its assets to a New Entity in a Taxable Transfer described in this
paragraph (b).
(c) Treatment of transferor--(1) FFA in connection with a Taxable
Transfer. A transferor in a Taxable Transfer is treated as having
directly received immediately before a Taxable Transfer any Net Worth
Assistance that Agency provides to the New Entity or Acquiring in
connection with the transfer. (See Sec. 1.597-2 (a) and (c) for rules
regarding the inclusion of FFA in income and Sec. 1.597-2(a)(1) for
related rules regarding FFA provided to shareholders.) The Net Worth
Assistance is treated as an asset of the transferor that is sold to the
New Entity or Acquiring in the Taxable Transfer.
(2) Amount realized in a Taxable Transfer. In a Taxable Transfer
described in paragraph (a)(1)(i) of this section, the amount realized
is determined under section 1001(b) by reference to the consideration
paid for the assets. In a Taxable Transfer described in paragraph
(a)(1)(ii) of this section, the amount realized is the sum of the
grossed-up basis of the stock acquired in connection with the Taxable
Transfer (excluding stock acquired from the Old or New Entity), plus
the amount of liabilities assumed or taken subject to in the deemed
transfer, plus other relevant items. The grossed-up basis of the
acquired stock equals the acquirors' basis in the acquired stock
divided by the percentage of the Old Entity's stock (by value)
attributable to the acquired stock.
(3) Allocation of amount realized--(i) In general. The amount
realized under paragraph (c)(2) of this section is allocated among the
assets transferred in the Taxable Transfer in the same manner as
amounts are allocated among assets under Sec. 1.338(b)-2T (b), (c)(1)
and (2).
(ii) Modifications to general rule. This paragraph (c)(3)(ii)
modifies certain of the allocation rules of paragraph (c)(3)(i) of this
section. Agency Obligations and assets covered by Loss Guarantees in
the hands of the New Entity or Acquiring are treated as Class II
assets. Stock of a Consolidated Subsidiary is treated as a Class II
asset to the extent the fair market value of the Consolidated
Subsidiary's Class I and Class II assets exceeds the amount of its
liabilities. The fair market value of an Agency Obligation is deemed to
equal its adjusted issue price immediately before the Taxable Transfer.
The fair market value of an asset covered by a Loss Guarantee
immediately after the Taxable Transfer is deemed to be not less than
the greater of the asset's highest guaranteed value or the highest
price at which the asset can be put.
(d) Treatment of a New Entity and Acquiring--(1) Purchase price.
The purchase price for assets acquired in a Taxable Transfer described
in paragraph (a)(1)(i) of this section is the cost of the assets
acquired. See Sec. 1.1060-1T(c)(1). The purchase price for assets
acquired in a Taxable Transfer described in paragraph (a)(1)(ii) of
this section is the sum of the grossed-up basis of the stock acquired
in connection with the Taxable Transfer (excluding stock acquired from
the Old or New Entity), plus the amount of liabilities assumed or taken
subject to in the deemed transfer, plus other relevant items. The
grossed-up basis of the acquired stock equals the acquirors' basis in
the acquired stock divided by the percentage of the Old Entity's stock
(by value) attributable to the acquired stock. FFA provided in
connection with a Taxable Transfer is not included in the New Entity's
or Acquiring's purchase price for the acquired assets. Any Net Worth
Assistance so provided is treated as an asset of the transferor sold to
the New Entity or Acquiring in the Taxable Transfer.
(2) Allocation of basis--(i) In general. Except as otherwise
provided in this paragraph (d)(2), the purchase price determined under
paragraph (d)(1) of this section is allocated among the assets
transferred in the Taxable Transfer in the same manner as amounts are
allocated among assets under Sec. 1.338(b)-2T(b), (c) (1) and (2).
(ii) Modifications to general rule. The allocation rules contained
in paragraph (c)(3)(ii) of this section apply to the allocation of
basis among assets acquired in a Taxable Transfer. No basis is
allocable to Agency's agreement to provide Loss Guarantees, yield
maintenance payments, cost to carry or cost of funds reimbursement
payments, or expense reimbursement or indemnity payments. A New
Entity's basis in assets it receives from its shareholders is
[[Page 66102]]
determined under general principles of income taxation and is not
governed by this paragraph (d).
(iii) Allowance and recapture of additional basis in certain cases.
If the fair market value of the Class I and Class II assets acquired in
a Taxable Transfer is greater than the New Entity's or Acquiring's
purchase price for the acquired assets, the basis of the Class I and
Class II assets equals their fair market value. The amount by which the
fair market value of the Class I and Class II assets exceeds the
purchase price is included ratably as ordinary income by the New Entity
or Acquiring over a period of six taxable years beginning in the year
of the Taxable Transfer. The New Entity or Acquiring must include as
ordinary income the entire amount remaining to be recaptured under the
preceding sentence in the taxable year in which an event occurs that
would accelerate inclusion of an adjustment under section 481.
(iv) Certain post-transfer adjustments--(A) Agency Obligations. If
an adjustment to the principal amount of an Agency Obligation or cash
payment to reflect a more accurate determination of the condition of
the Institution at the time of the Taxable Transfer is made before the
earlier of the date the New Entity or Acquiring files its first post-
transfer income tax return or the due date of that return (including
extensions), the New Entity or Acquiring must adjust its basis in its
acquired assets to reflect the adjustment. In making adjustments to the
New Entity's or Acquiring's basis in its acquired assets, paragraph
(c)(3)(ii) of this section is applied by treating an adjustment to the
principal amount of an Agency Obligation pursuant to the first sentence
of this paragraph (d)(2)(iv)(A) as occurring immediately before the
Taxable Transfer. (See Sec. 1.597-3(c)(3) for rules regarding other
adjustments to the principal amount of an Agency Obligation.)
(B) Assets covered by a Loss Guarantee. If, immediately after a
Taxable Transfer, an asset is not covered by a Loss Guarantee but the
New Entity or Acquiring has the right to designate specific assets that
will be covered by a Loss Guarantee, the New Entity or Acquiring must
treat any asset so designated as having been subject to the Loss
Guarantee at the time of the Taxable Transfer. The New Entity or
Acquiring must adjust its basis in the covered assets and in its other
acquired assets to reflect the designation in the manner provided by
paragraph (d)(2) of this section. The New Entity or Acquiring must make
appropriate adjustments in subsequent taxable years if the designation
is made after the New Entity or Acquiring files its first post-transfer
income tax return or the due date of that return (including extensions)
has passed.
(e) Special rules applicable to Taxable Transfers that are deemed
asset acquisitions--(1) Taxpayer identification numbers. Except as
provided in paragraph (e)(3) of this section, a New Entity succeeds to
the TIN of the transferor in a deemed sale under paragraph (b) of this
section.
(2) Consolidated Subsidiaries--(i) In general. A Consolidated
Subsidiary that is treated as selling its assets in a Taxable Transfer
under paragraph (b) of this section is treated as engaging immediately
thereafter in a complete liquidation to which section 332 applies. The
consolidated group of which the Consolidated Subsidiary is a member
does not take into account gain or loss on the sale, exchange, or
cancellation of stock of the Consolidated Subsidiary in connection with
the Taxable Transfer.
(ii) Certain minority shareholders. Shareholders of the
Consolidated Subsidiary that are not members of the consolidated group
that includes the Institution do not recognize gain or loss with
respect to shares of Consolidated Subsidiary stock retained by the
shareholder. The shareholder's basis for that stock is not affected by
the Taxable Transfer.
(3) Bridge Banks and Residual Entities--(i) In general. A Bridge
Bank or Residual Entity's sale of assets to a New Entity under
paragraph (b) of this section is treated as made by a single entity
under Sec. 1.597-4(e). The New Entity deemed to acquire the assets of a
Residual Entity under paragraph (b) of this section is not treated as a
single entity with the Bridge Bank (or with the New Entity acquiring
the Bridge Bank's assets) and must obtain a new TIN.
(ii) Treatment of consolidated groups. At the time of a Taxable
Transfer described in paragraph (a)(1)(ii) of this section, treatment
of a Bridge Bank as a subsidiary member of a consolidated group under
Sec. 1.597-4(f)(1) ceases. However, the New Entity deemed to acquire
the assets of a Residual Entity is a member of the selling consolidated
group after the deemed sale. The group's basis or excess loss account
in the stock of the New Entity that is deemed to acquire the assets of
the Residual Entity is the group's basis or excess loss account in the
stock of the Bridge Bank immediately before the deemed sale, as
adjusted for the results of the sale.
(4) Certain returns. If an Old Entity without Continuing Equity is
not a subsidiary of a consolidated group at the time of the Taxable
Transfer, the controlling Agency must file all income tax returns for
the Old Entity for periods ending on or prior to the date of the deemed
sale described in paragraph (b) of this section that are not filed as
of that date.
(5) Basis limited to fair market value. If all of the stock of the
corporation is not acquired on the date of the Taxable Transfer, the
Commissioner may make appropriate adjustments under paragraphs (c) and
(d) of this section to the extent using a grossed-up basis of the stock
of a corporation results in an aggregate amount realized for, or basis
in, the assets other than the aggregate fair market value of the
assets.
(f) Examples. The following examples illustrate the provisions of
this section:
Example 1. Branch sale resulting in Taxable Transfer. (i)
Institution M is a calendar year taxpayer in Agency receivership. M
is not a member of a consolidated group. On January 1, 1997, M has
$200 million of liabilities (including deposit liabilities) and
assets with an adjusted basis of $100 million. M has no income or
loss for 1997 and, except as described below, receives no FFA. On
September 30, 1997, Agency causes M to transfer six branches (with
assets having an adjusted basis of $1 million) together with $120
million of deposit liabilities to N. In connection with the
transfer, Agency provides $121 million in cash to N.
(ii) The transaction is a Taxable Transfer in which M receives
$121 million of Net Worth Assistance. Section 1.597-5(a)(1). (M is
treated as directly receiving the $121 million of Net Worth
Assistance immediately before the Taxable Transfer. Section 1.597-
5(c)(1).) M transfers branches having a basis of $1 million and is
treated as transferring $121 million in cash (the Net Worth
Assistance) to N in exchange for N's assumption of $120 million of
liabilities. Thus, M realizes a loss of $2 million on the transfer.
The amount of the FFA M must include in its income in 1997 is
limited by Sec. 1.597-2(c) to $102 million, which is the sum of the
$100 million excess of M's liabilities ($200 million) over the total
adjusted basis of its assets ($100 million) at the beginning of
1997, plus the $2 million excess for the taxable year, which results
from the Taxable Transfer, of M's deductions (other than carryovers)
over its gross income other than FFA. M must establish a deferred
FFA account for the remaining $19 million of FFA. Section 1.597-
2(c)(4).
(iii) N, as Acquiring, must allocate its $120 million purchase
price for the assets acquired from M among those assets. Cash is a
Class I asset. The branch assets are in Classes III and IV. N's
adjusted basis in the cash is its amount, i.e., $121 million.
Section 1.597-5(d)(2). Because this amount exceeds N's purchase
price for all of the acquired assets by $1 million, N allocates no
basis to the other acquired assets and, under Sec. 1.597-5(d)(2),
must recapture the $1 million excess at an annual rate of $166,667
in the six consecutive taxable years beginning with
[[Page 66103]]
1997 (subject to acceleration for certain events).
Example 2. Stock issuance by Bridge Bank causing Taxable
Transfer. (i) On April 1, 1996, Institution P is placed in
receivership and caused to transfer assets and liabilities to Bridge
Bank PB. On August 31, 1996, the assets of PB consist of $20 million
in cash, loans outstanding with an adjusted basis of $50 million and
a fair market value of $40 million, and other non-financial assets
(primarily branch assets and equipment) with an adjusted basis of $5
million. PB has deposit liabilities of $95 million and other
liabilities of $5 million. P, the Residual Entity, holds real estate
with an adjusted basis of $10 million and claims in litigation
having a zero basis. P retains no deposit liabilities and has no
other liabilities (except its liability to Agency for having caused
its deposit liabilities to be satisfied).
(ii) On September 1, 1996, Agency causes PB to issue 100 percent
of its common stock for $2 million cash to X. On the same day,
Agency issues a $25 million note to PB. The note bears a fixed rate
of interest in excess of the applicable federal rate in effect for
September 1, 1996. Agency provides Loss Guarantees guaranteeing PB a
value of $50 million for PB's loans outstanding.
(iii) The stock issuance is a Taxable Transfer in which PB is
treated as selling all of its assets to a new corporation, New PB.
Section 1.597-5(b)(1). PB is treated as directly receiving $25
million of Net Worth Assistance (the issue price of the Agency
Obligation) immediately before the Taxable Transfer. Section 1.597-
3(c)(2); Sec. 1.597- 5(c)(1). The amount of FFA PB must include in
income is determined under Sec. 1.597-2(a) and (c). PB in turn is
deemed to transfer the note to New PB in the Taxable Transfer,
together with $20 million of cash, all its loans outstanding (with a
basis of $50 million) and its other non-financial assets (with a
basis of $5 million). The amount realized by PB from the sale is
$100 million, the amount of PB's liabilities deemed to be assumed by
New PB. This amount realized equals PB's basis in its assets and
thus, PB realizes no gain or loss on the transfer to New PB.
(iv) Residual Entity P also is treated as selling all its assets
(consisting of real estate and claims in litigation) for $0 (the
amount of consideration received by P) to a new corporation (New P)
in a Taxable Transfer. Section 1.597-5(b)(3). (P's only liability is
to Agency and a liability to Agency is not treated as a debt under
Sec. 1.597-3(b).) Thus, P realizes a $10 million loss on the
transfer to New P. The combined return filed by PB and P for 1996
will reflect a total loss on the Taxable Transfer of $10 million ($0
for PB and $10 million for P). Section 1.597-5(e)(3). That return
also will reflect FFA income from the Net Worth Assistance,
determined under Sec. 1.597-2 (a) and (c).
(v) New PB is treated as having acquired the assets it acquired
from PB for $100 million, the amount of liabilities assumed. In
allocating basis among these assets, New PB treats the Agency note
and the loans outstanding (which are covered by Loss Guarantees) as
Class II assets. For the purpose of allocating basis, the fair
market value of the Agency note is deemed to equal its adjusted
issue price immediately before the transfer, $25 million. The fair
market value of the loans is deemed not to be less than the
guaranteed value of $50 million.
(vi) New P is treated as having acquired its assets for no
consideration. Thus its basis in its assets immediately after the
transfer is zero. New PB and New P are not treated as a single
entity. Section 1.597-5(e)(3).
Example 3. Taxable Transfer of previously disaffiliated
Institution. (i) Corporation X, the common parent of a consolidated
group, owns all the stock of Institution M, an insolvent Institution
with no Consolidated Subsidiaries. On April 30, 1996, M has $4
million of deposit liabilities, $1 million of other liabilities, and
assets with an adjusted basis of $4 million and a fair market value
of $3 million. On May 1, 1996, Agency places M in receivership. X
elects under Sec. 1.597-4(g) to disaffiliate M. Accordingly, as of
May 1, 1996, new corporation M is not a member of the X consolidated
group. On May 1, 1996, Agency causes M to transfer all of its assets
and liabilities to Bridge Bank MB. Under Sec. 1.597-4(e), MB and M
are thereafter treated as a single entity which has $5 million of
liabilities, an account receivable for future FFA with a basis of $1
million, and other assets with a basis of $4 million. Section 1.597-
4(g)(4).
(ii) During May 1996, MB earns $25,000 of interest income and
accrues $20,000 of interest expense on depositor accounts and there
is no net change in deposits other than the additional $20,000 of
interest expense accrued on depositor accounts. MB pays $5,000 of
wage expenses and has no other items of income or expense.
(iii) On June 1, 1996, Agency causes MB to issue 100 percent of
its stock to corporation Y. In connection with the stock issuance,
Agency provides an Agency Obligation for $2 million and no other
FFA.
(iv) The stock issuance results in a Taxable Transfer. Section
1.597-5(b). MB is treated as receiving the Agency Obligation
immediately prior to the Taxable Transfer. Section 1.597-5(c)(1). MB
has $1 million of basis in its account receivable for FFA. This
receivable is treated as satisfied, offsetting $1 million of the $2
million of FFA provided by Agency in connection with the Taxable
Transfer. The status of the remaining $1 million of FFA as
includible income is determined as of the end of the taxable year
under Sec. 1.597-2(c). However, under Sec. 1.597-2(b), MB obtains a
$2 million basis in the Agency Obligation received as FFA.
(v) Under Sec. 1.597-5(c)(2), in the Taxable Transfer, Old
Entity MB is treated as selling, to New Entity MB, all of Old Entity
MB's assets, having a basis of $6,020,000 (the original $4 million
of asset basis as of April 30, 1996, plus $20,000 net cash from May
1996 activities, plus $2 million in the Agency Obligation received
as FFA), for $5,020,000, the amount of Old Entity MB's liabilities
assumed by New Entity MB pursuant to the Taxable Transfer.
Therefore, Old Entity MB recognizes, in the aggregate, a loss of $1
million from the Taxable Transfer.
(vi) Because this $1 million loss causes Old Entity MB's
deductions to exceed its gross income (determined without regard to
FFA) by $1 million, Old Entity MB must include in its income the $1
million of FFA not offset by the FFA receivable. Section 1.597-2(c).
(As of May 1, 1996, Old Entity MB's liabilities ($5,000,000) did not
exceed MB's $5 million adjusted basis of its assets. For the taxable
year, MB's deductions of $1,025,000 ($1,000,000 loss from the
Taxable Transfer, $20,000 interest expense and $5,000 of wage
expense) exceeded its gross income (disregarding FFA) of $25,000
(interest income) by $1,000,000. Thus, under Sec. 1.597-2(c), MB
includes in income the entire $1,000,000 of FFA not offset by the
FFA receivable.)
(vii) Therefore, Old Entity MB's taxable income for the taxable
year ending on the date of the Taxable Transfer is $0.
(viii) Residual Entity M is also deemed to engage in a deemed
sale of its assets to New Entity M under Sec. 1.597-5(b)(3), but
there are no tax consequences as M has no assets or liabilities at
the time of the deemed sale.
(ix) Under Sec. 1.597-5(d)(1), New Entity MB is treated as
purchasing Old Entity MB's assets for $5,020,000, the amount of New
Entity MB's liabilities. Of this, $2,000,000 is allocated to the $2
million Agency Obligation, and $3,020,000 is allocated to the other
assets New Entity MB is treated as purchasing in the Taxable
Transfer.
Example 4. Loss Sharing. Institution N acquires assets and
assumes liabilities of another Institution in a Taxable Transfer.
Among the assets transferred are three parcels of real estate. In
the hands of the transferring Institution, these assets had book
values of $100,000 each. In connection with the Taxable Transfer,
Agency agrees to reimburse Institution N for 80 percent of any loss
(based on the original book value) realized on the disposition or
charge-off of the three properties. This arrangement constitutes a
Loss Guarantee. Thus, in allocating basis, Institution N treats the
three parcels as Class II assets. By virtue of the arrangement with
the Agency, Institution N is assured that the parcels will not be
worth less to it than $80,000 each, because even if the properties
are worthless, Agency will reimburse 80 percent of the loss.
Although Institution could obtain payments under the Loss Guarantee
if the properties are worth more, it is not guaranteed that it will
realize more than $80,000. Accordingly, $80,000 is the highest
guaranteed value of the three parcels. Institution N will allocate
basis to the Class II assets up to their fair market value. For this
purpose, the fair market value of the three parcels is not less than
$80,000 each. Section 1.597-5(d)(2)(ii); Sec. 1.597-5(c)(3)(ii).
Sec. 1.597-6 Limitation on collection of income tax.
(a) Limitation on collection where tax is borne by Agency. If an
Institution without Continuing Equity (or any of its Consolidated
Subsidiaries) is liable for income tax that is attributable to the
inclusion in income of FFA or gain from a Taxable Transfer, the tax
will not be collected if it would be borne by Agency. The final
determination of whether the tax would be borne by
[[Page 66104]]
Agency is within the sole discretion of the Commissioner. In
determining whether tax would be borne by Agency, the Commissioner will
disregard indemnity, tax-sharing, or similar obligations of Agency, an
Institution, or its Consolidated Subsidiaries. Collection of the
several income tax liability under Sec. 1.1502-6 from members of an
Institution's consolidated group other than the Institution or its
Consolidated Subsidiaries is not affected by this section. Income tax
will continue to be subject to collection except as specifically
limited in this section. This section does not apply to taxes other
than income taxes.
(b) Amount of tax attributable to FFA or gain on a Taxable
Transfer. For purposes of paragraph (a) of this section, the amount of
income tax in a taxable year attributable to the inclusion of FFA or
gain from a Taxable Transfer in the income of an Institution (or a
Consolidated Subsidiary) is the excess of the actual income tax
liability of the Institution (or the consolidated group in which the
Institution is a member); over the income tax liability of the
Institution (or the consolidated group in which the Institution is a
member) determined without regard to FFA or gain or loss on the Taxable
Transfer.
(c) Reporting of uncollected tax. A taxpayer must specify on the
front page of Form 1120 (U.S. Corporate Income Tax Return), to the left
of the space provided for ``Total Tax,'' the amount of income tax for
the taxable year that is potentially not subject to collection under
this section. If an Institution is a subsidiary member of a
consolidated group, the amount specified as not subject to collection
is zero.
(d) Assessments of tax to offset refunds. Income tax that is not
collected under this section will be assessed and, thus, used to offset
any claim for refund made by or on behalf of the Institution, the
Consolidated Subsidiary or any other corporation with several liability
for the tax.
(e) Collection of taxes from Acquiring or a New Entity--(1)
Acquiring. No income tax liability (including the several liability for
taxes under Sec. 1.1502-6) of a transferor in a Taxable Transfer will
be collected from Acquiring.
(2) New Entity. Income tax liability (including the several
liability for taxes under Sec. 1.1502-6) of a transferor in a Taxable
Transfer will be collected from a New Entity only if stock that was
outstanding in the Old Entity remains outstanding as stock in the New
Entity or is reacquired or exchanged for consideration.
(f) Effect on section 7507. This section supersedes the application
of section 7507, and the regulations thereunder, for the assessment and
collection of income tax attributable to FFA.
Sec. 1.597-7 Effective date.
(a) FIRREA effective date. Section 597, as amended by section 1401
of the Financial Institutions Reform, Recovery, and Enforcement Act of
1989 (FIRREA), Public Law 101-73, is generally effective for any FFA
received or accrued by an Institution on or after May 10, 1989, and for
any transaction in connection with which such FFA is provided, unless
the FFA is provided in connection with an acquisition occurring prior
to May 10, 1989. See Sec. 1.597-8 for rules regarding FFA received or
accrued on or after May 10, 1989, that relates to an acquisition that
occurred before May 10, 1989.
(b) Effective date of regulations. Except as otherwise provided in
this section, Secs. 1.597-1 through 1.597-6 apply to taxable years
ending on or after April 22, 1992. However, the provisions of
Secs. 1.597-1 through 1.597-6 do not apply to FFA received or accrued
for taxable years ending on or after April 22, 1992, in connection with
an Agency assisted acquisition within the meaning of Notice 89-102
(1989-2 C.B. 436; see Sec. 601.601(d)(2)) (which does not include a
transfer to a Bridge Bank), that occurs before April 22, 1992.
Taxpayers not subject to Secs. 1.597-1 through 1.597-6 must comply with
an interpretation of the statute that is reasonable in light of the
legislative history and applicable administrative pronouncements. For
this purpose, the rules contained in Notice 89-102 apply to the extent
provided in the Notice.
(c) Elective application to prior years and transactions--(1) In
general. Except as limited in this paragraph (c), an election is
available to apply Secs. 1.597-1 through 1.597-6 to taxable years prior
to the general effective date of these regulations. A consolidated
group may elect to apply Secs. 1.597-1 through 1.597-6 for all members
of the group in all taxable years to which section 597, as amended by
FIRREA, applies. The common parent makes the election for the group. An
entity that is not a member of a consolidated group may elect to apply
Secs. 1.597-1 through 1.597-6 to all taxable years to which section
597, as amended by FIRREA, applies for which it is not a member of a
consolidated group. The election is irrevocable.
(2) Election unavailable in certain cases--(i) Statute of
limitations closed. The election cannot be made if the period for
assessment and collection of tax has expired under the rules of section
6501 for any taxable year in which Secs. 1.597-1 through 1.597-6 would
affect the determination of the electing entity's or group's income,
deductions, gain, loss, basis, or other items.
(ii) No section 338 election under Notice 89-102. The election
cannot be made with respect to an Institution if, under Notice 89-102,
it was a Target with respect to which a qualified stock purchase was
made, a timely election under section 338 was not made, and on April
22, 1992, a timely election under section 338 could not be made.
(iii) Inconsistent treatment of Institution that would be New
Entity. If, under Sec. 1.597-5(b), an Institution would become a New
Entity before April 22, 1992, the election cannot be made with respect
to that Institution unless elections are made by all relevant persons
such that Secs. 1.597-1 through 1.597-6 apply both before and after the
deemed sale under Sec. 1.597-5. However, this requirement does not
apply if, under Secs. 1.597-1 through 1.597-6, the Institution would
not have Continuing Equity prior to the deemed sale.
(3) Expense reimbursements. Notice 89-102, 1989-2 C.B. 436,
provides that reimbursements paid or accrued pursuant to an expense
reimbursement or indemnity arrangement are not included in income but
the taxpayer may not deduct, or otherwise take into account, the item
of cost or expense to which the reimbursement or indemnity payment
relates. With respect to an Agency assisted acquisition within the
meaning of Notice 89-102 that occurs before April 22, 1992, a taxpayer
that elects to apply these regulations retroactively under this
paragraph (c) may continue to account for these items under the rules
of Notice 89-102.
(4) Procedural rules--(i) Manner of making election. An Institution
or consolidated group makes the election provided by this paragraph (c)
by attaching a written statement to, and including it as a part of, the
taxpayer's or consolidated group's first annual income tax return filed
on or after March 15, 1996. The statement must contain the following
legend at the top of the page: ``THIS IS AN ELECTION UNDER Sec. 1.597-
7(c),'' and must contain the name, address and employer identification
number of the taxpayer or common parent making the election. The
statement must include a declaration that ``TAXPAYER AGREES TO EXTEND
THE STATUTE OF LIMITATIONS ON ASSESSMENT FOR THREE YEARS FROM THE DATE
OF THE FILING OF THIS ELECTION UNDER Sec. 1.597-7(c), IF THE
[[Page 66105]]
LIMITATIONS PERIOD WOULD EXPIRE EARLIER WITHOUT SUCH EXTENSION, FOR ANY
ITEMS AFFECTED IN ANY TAXABLE YEAR BY THE FILING OF THIS ELECTION,''
and a declaration that either ``AMENDED RETURNS WILL BE FILED FOR ALL
TAXABLE YEARS AFFECTED BY THE FILING OF THIS ELECTION WITHIN 180 DAYS
OF MAKING THIS STATEMENT, UNLESS SUCH REQUIREMENT IS WAIVED IN WRITING
BY THE DISTRICT DIRECTOR OR HIS DELEGATE'' or ``ALL RETURNS PREVIOUSLY
FILED ARE CONSISTENT WITH THE PROVISIONS OF Secs. 1.597-1 THROUGH
1.597-6,'' and be signed by an individual who is authorized to make the
election under this paragraph (c) on behalf of the taxpayer. An
election with respect to a consolidated group must be made by the
common parent of the group, not Agency, and applies to all members of
the group.
(ii) Effect of elective disaffiliation. To make the affirmative
election described in Sec. 1.597-4(g)(5) for an Institution placed in
Agency receivership in a taxable year ending before April 22, 1992, the
consolidated group must send the affected Institution the statement
described in Sec. 1.597-4(g)(5) on or before May 31, 1996.
Notwithstanding the requirements of paragraph (c)(4)(i) of this
section, a consolidated group sending such a statement is deemed to
make the election described in, and to agree to the conditions
contained in, this paragraph (c). The consolidated group must
nevertheless attach the statement described in paragraph (c)(4)(i) of
this section to its first annual income tax return filed on or after
March 15, 1996.
(d) Reliance on prior guidance--(1) Notice 89-102. Taxpayers may
rely on Notice 89-102, 1989-2 C.B. 436, to the extent they acted in
reliance on that Notice prior to April 22, 1992. Such reliance must be
reasonable and transactions with respect to which taxpayers rely must
be consistent with the overriding policies of section 597, as expressed
in the legislative history.
(2) Notice FI-46-89--(i) In general. Notice FI-46-89 was published
in the Federal Register on April 23, 1992 (57 FR 14804). Taxpayers may
rely on the provisions of Secs. 1.597-1 through 1.597-6 of that notice
to the extent they acted in reliance on those provisions prior to
December 21, 1995. Such reliance must be reasonable and transactions
with respect to which taxpayers rely must be consistent with the
overriding policies of section 597, as expressed in the legislative
history, as well as the overriding policies of notice FI-46-89.
(ii) Taxable Transfers. Any taxpayer described in this paragraph
(d) that, under notice FI-46-89, would be a New Entity or Acquiring
with respect to a Taxable Transfer on or after April 22, 1992, and
before December 21, 1995, may apply the rules of that notice with
respect to such transaction.
PART 301--PROCEDURE AND ADMINISTRATION
Par. 3. The authority citation for part 301 is amended by adding
entries in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 301.7507-1 also issued under 26 U.S.C. 597.
Section 301.7507-9 also issued under 26 U.S.C. 597. * * *
Par. 4. Section 301.7507-1 is amended by adding paragraph (b)(4) to
read as follows:
Sec. 301.7507-1 Banks and trust companies covered.
* * * * *
(b) * * *
(4) The term ceased to do business means the bank no longer accepts
deposits or makes loans and discounts, and is winding up its affairs
and is in the process of liquidating its assets to pay depositors. A
bank will not be considered to have ceased to do business on account of
a transaction in which the bank--
(i) Transfers assets and liabilities to a Bridge Bank in a transfer
described in Sec. 1.597-4 of this chapter;
(ii) Transfers assets and liabilities to any person in a
transaction to which section 381(a) applies or in which the transferee
receives property with a transferred basis;
(iii) Transfers assets or liabilities to any person in a
transaction in which Federal Financial Assistance (as defined in
section 597) is provided to any party to the transaction, unless all
the Federal Financial Assistance is deposit insurance under
Sec. 301.7507-9(d); or
(iv) Transfers assets or liabilities to any person in a transaction
similar to any transaction described in paragraphs (b)(4) (i) through
(iii) of this section. This paragraph (b)(4) applies to taxable years
ending on or after April 22, 1992.
Par. 5. Section 301.7507-9 is amended by adding a sentence to the
end of paragraph (d) to read as follows:
Sec. 301.7507-9 Termination of immunity.
* * * * *
(d) * * * For taxable years ending on or after April 22, 1992,
deposit insurance does not include Federal Financial Assistance (as
defined in section 597) and other payments described in section 597(a)
prior to its amendment by the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989 and, therefore, such payments must be taken
into account to determine whether a bank's assets are sufficient to
meet claims of depositors.
* * * * *
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Par. 6. The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
Par. 7. In Sec. 602.101, paragraph (c) is amended by adding entries
in numerical order to the table to read as follows:
Sec. 602.101 OMB Control numbers.
* * * * *
(c) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described control No.
------------------------------------------------------------------------
* * * * *
1.597-2.................................................... 1545-1300
1.597-4.................................................... 1545-1300
1.597-6.................................................... 1545-1300
1.597-7.................................................... 1545-1300
* * * * *
------------------------------------------------------------------------
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved: December 4, 1995.
Cynthia G. Beerbower,
Assistant Secretary of the Treasury
[FR Doc. 95-30827 Filed 12-20-95; 8:45 am]
BILLING CODE 4830-01-U
Complete official Federal Register PDF
FR Doc. 95-30733 Backup Withholding, Statement Mailing Requirements, and Due Diligence
[Federal Register Volume 60, Number 245 (Thursday, December 21, 1995)]
[Rules and Regulations]
[Pages 66105-66134]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30733]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
26 CFR Parts 1, 31, 35a, 301, and 602
[TD 8637]
RIN 1545-AT76
Backup Withholding, Statement Mailing Requirements, and Due
Diligence
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final and temporary regulations.
-----------------------------------------------------------------------
SUMMARY: This document provides final rules on backup withholding under
sections 3406(a)(1) (A), (C), and (D) of the Internal Revenue Code of
1986 (Code) when a payee fails to provide a taxpayer identification
number in the required manner to a person required to make an
information return, when a payee is subject to notified payee
[[Page 66106]]
underreporting, or when a payee fails to certify, under penalties of
perjury, that the payee is not subject to backup withholding due to
notified payee underreporting.
This document also provides final rules on the manner for providing
a statement to a payee under sections 6042(c), 6044(e), 6049(c), and
6050N(b) of the Code.
This document also contains temporary regulations on the effective
date of Secs. 35a.9999-1 through 35a.9999-5, Temporary Employment Tax
Regulations under the Interest and Dividend Tax Compliance Act of 1983.
The text of these temporary regulations also serves as the text of the
proposed regulations set forth in the notice of proposed rulemaking on
this subject in the Proposed Rules section of this issue of the Federal
Register.
DATES: These regulations are effective December 21, 1995. These
regulations are applicable to transactions occurring after December 31,
1996.
FOR FURTHER INFORMATION CONTACT: Renay France of the Office of
Assistant Chief Counsel (Income Tax and Accounting) with respect to
domestic transactions, 202-622-4910 (not a toll-free number); and
Teresa Burridge Hughes of the Office of Assistant Chief Counsel
(International) with respect to international transactions, 202-622-
3880 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in this final regulation
has been reviewed and approved by the Office of Management and Budget
in accordance with the requirements of the Paperwork Reduction Act (44
U.S.C. 3507) under control number 1545-0112. Responses to this
collection of information are mandatory.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid control number.
The estimated annual burden per respondent/recordkeeper is
approximately 1 hour, depending on individual circumstances.
Comments concerning the accuracy of this burden estimate and
suggestions for reducing this burden should be directed to the Internal
Revenue Service, Attn: IRS Reports Clearance Officer, PC:FP,
Washington, DC 20224, and to the Office of Management and Budget,
Attention: Desk Officer for the Department of the Treasury, Office of
Information and Regulatory Affairs, Washington, DC 20503.
Books or records relating to this 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 26 U.S.C. 6103.
Background
On October 4, 1983, the Federal Register published Temporary
Employment Tax Regulations under the Interest and Dividend Tax
Compliance Act of 1983 (26 CFR part 35a) under sections 3406 and
6676(b) of the Internal Revenue Code of 1954 (26 CFR part 35a.9999-1;
TD 7916 (48 FR 45362), as amended on November 25, 1983, by TD 7922 (48
FR 53111), on November 23, 1987, by TD 8163 (52 FR 44861), and on April
11, 1989, by TD 8248 (54 FR 14341). Additional temporary regulations
were published in the Federal Register on November 25, 1983 (26 CFR
part 35a.9999-2; TD 7922 (48 FR 53106), as amended on December 20,
1983, by TD 7929 (48 FR 56342), on March 13, 1984, by TD 7922 (49 FR
9417), on November 23, 1987, by TD 8163, and on April 11, 1989, by TD
8248 (54 FR 14341)), on December 20, 1983 (26 CFR part 35a.9999-3; TD
7929 (48 FR 56332), as amended on January 3, 1984, by TD 7933 (49 FR
63), on August 22, 1984, by TD 7966 (49 FR 33236), on November 23,
1987, by TD 8163 (52 FR 44861), and on April 11, 1989, by TD 8248 (54
FR 14341)), on February 28, 1984 (26 CFR part 35a.9999-3A; TD 7946 (49
FR 7227)), on August 22, 1984 (26 CFR part 35a.9999-4T, TD 7966 (49 FR
33237), as amended on August 29, 1984, by TD 7972 (49 FR 34340); and 26
CFR part 35a.9999-5, TD 7967 (49 FR 33240), as amended on September 19,
1984, by TD 7973 (49 FR 36645), on August 20, 1985, by TD 8046 (50 FR
33526), on April 3, 1986, by TD 8046 (51 FR 11447), on December 19,
1986, by TD 8110 (51 FR 45453), and on May 19, 1988, by TD 8202 (53 FR
17927)), on April 23, 1987 (26 CFR part 35a.3406-2; TD 8137 (52 FR
13430)), and on November 23, 1987 (26 CFR part 35a.3406-1; TD 8163 (52
FR 44861), as amended on April 11, 1989, by TD 8248 (54 FR 14341)).
Those regulations were published primarily to provide guidance under
the Interest and Dividend Tax Compliance Act of 1983.
Proposed regulations on backup withholding, the statement mailing
requirements, and due diligence were published in the Federal Register
on September 27, 1990, 55 FR 39427. Those regulations were proposed
under regulations file number IA-224-82 and RIN 1545-AE20, which
numbers were closed in error. These final regulations are issued under
regulations file number IA-31-95 and RIN 1545-AT76.
A public hearing on the proposed regulations was held on March 4,
1991. The public submitted written comments on the proposed
regulations. After consideration of those comments, the proposed
regulations are adopted as revised by this Treasury decision.
Explanation of Provisions
I. Overview
The proposed regulations contain rules on the requirement to backup
withhold, which section 3406 imposes in four situations. First, backup
withholding under section 3406(a)(1)(A) applies if a payee fails to
provide a taxpayer identification number (TIN) in the required manner
(the A trigger or certification). Second, backup withholding under
section 3406(a)(1)(B) applies if the Service or a broker notifies a
payor that a payee provided an incorrect TIN (the B trigger). Third,
backup withholding under section 3406(a)(1)(C) applies if the Service
or a broker notifies a payor that a payee is subject to notified payee
underreporting, i.e., the payee has failed to report and pay tax on
reportable interest and dividends (the C trigger). Fourth, backup
withholding under section 3406(a)(1)(D) applies if a payee fails to
certify, when required, that the payee is not subject to backup
withholding under section 3406(a)(1)(C) (the D trigger).
Because the IRS published final regulations on the B trigger as a
separate project (TD 8409) in 1992, the final regulations in this
document address only the other three triggers, sections 3406(a)(1)
(A), (C), and (D). The final regulations on these triggers considerably
shorten as well as simplify the proposed regulations. In addition, the
final regulations contain several modifications to the proposed
regulations relating to grantor trusts, S corporations, reportable
payments, and certain foreign provisions.
II. Changes Regarding Grantor Trusts, S Corporations, Reportable
Payments, and Certain Foreign Provisions
A. Grantor trusts--proposed Sec. 31.3406(a)-2. The proposed
regulations provide that a grantor trust with ten or fewer grantors is
not a payor under section 3406 and, as a result, has no obligation to
withhold under section 3406 on reportable payments flowing through the
trust and includible in the gross income of its grantors. However, a
grantor trust with eleven or more grantors is a payor and must withhold
[[Page 66107]]
under section 3406 on reportable payments to its grantors who are
subject to such withholding.
Recently, the IRS issued proposed regulations under section 671 on
the methods of reporting by grantor trusts. These proposed regulations
provide two regimes for reporting, one for a grantor trust that is
owned (or treated as owned) by one grantor and another for a grantor
trust that is owned by two or more grantors. To avoid confusion and
thereby promote simplification, the final backup withholding
regulations are conformed to these regimes. Accordingly, under these
final regulations a grantor trust with two or more grantors is
considered a payor and must withhold on payments to its grantors who
are subject to backup withholding. For purposes of determining the
number of grantors, a husband and wife filing a joint return are
considered one grantor. See Sec. 31.3406(a)-2(b)(4).
B. S corporations--proposed Sec. 31.3406(a)-2(c)(3). Under an
exception in the proposed regulations defining payors, a partnership
making a payment of a distributive share to a partner is not considered
a payor. The exception does not include S corporations. Because the tax
treatment of both entities is similar, the final regulations provide
that an S corporation making a similar distribution is not a payor
under section 3406. See Sec. 31.3406(a)-2(c)(3).
C. Transferred short-term obligations--proposed Sec. 31.3406(b)(2)-
2. The proposed regulations provide that a subsequent holder of a
short-term obligation with original issue discount may establish the
purchase price at which the subsequent holder purchased the obligation.
That purchase price is then treated as the original issue price for
purposes of computing the amount of original issue discount subject to
backup withholding. To reduce the paperwork of issuers and payors of
these obligations, the final regulations provide that a payor may
disregard the subsequent holder's purchase price if the payor's
computer or recordkeeping system is not able to accept that price
without substantial manual intervention. See Sec. 31.3406(b)(2)-
2(c)(1)(ii).
D. Foreign provisions. The proposed regulations contained several
provisions on international transactions that are not included in the
final regulations. For those international provisions relating to
section 3406, the temporary regulations under Sec. 35a.9999 remain in
effect.
III. The C Trigger (Payee Underreporting)
A. Identifying the account subject to the C trigger--proposed
Sec. 31.3406(c)-1(b)(3) (i) and (iv). The proposed regulations provide
that a payor must withhold under section 3406(a)(1)(C) on reportable
interest or dividend payments to all existing accounts of a payee that
the payor can identify exercising reasonable care. Commentators
suggested several modifications to or clarifications of the reasonable
care standard. For example, some commentators suggested that the
procedures for locating and identifying an account of a payee subject
to the C trigger should more closely resemble the procedures for
identifying an account subject to the B trigger. In response to this
comment, the final regulations modify the procedures for identifying
accounts subject to the C trigger, and thus require a payor to identify
those accounts by identifying accounts with the same TIN as the one
provided in the notice from the IRS to the payor that advises the payor
to commence withholding on accounts of a payee.
Commentators also informed the IRS that some computer systems use a
universal account number that retrieves all accounts of a payee with
that payor. In light of this information, the final regulations require
payors with such systems to identify all accounts that can be so
retrieved.
Some commentators also addressed the requirement under the proposed
regulations that a payor search for accounts of a payee on the computer
or other recordkeeping system for the region, division, or branch that
serves the geographic area in which the payee's mailing address is
located. These commentators questioned whether payors must search every
such computer or record system. The final regulations clarify that a
payor need not search a computer or other recordkeeping system if it is
highly unlikely that the system contains an account of the payee that
should be identified as one subject to the C trigger. See
Sec. 31.3406(c)-1(c)(3)(ii).
B. Newly opened accounts--proposed Sec. 31.3406(c)-1(b)(3)(ii).
Under the proposed regulations, if a payee subject to the C trigger has
one account with a payor and subsequently opens another account, the
payor may not rely on the subsequent Form W-9 on which the payee
certifies that the payee is not subject to the C trigger, but only if
the payor discovers while processing the Form W-9 or administering the
account that the Form W-9 is false because the IRS previously notified
the payor to withhold on the payee under the C trigger. Commentators
argued that this discovery standard was unclear and potentially
burdensome. As a result, the final regulations clarify when a payor may
not rely on a Form W-9 provided by the payee.
Under the final regulations, a payor has knowledge that a payee
opening a new account with the payor is subject to withholding under
section 3406(a)(1)(C), and thus must commence backup withholding on
reportable interest and dividend payments to the new account, only if
(1) the employee or individual agent of the payor receiving the Form W-
9 knows at the time the payee opens the account that the payee's
statement under section 3406(a)(1)(D) is not true; (2) at the time the
payor processes the Form W-9 or in administering the account to which
it relates, the payor discovers that the payee is currently subject to
withholding under section 3406(a)(1)(C) on a pre-existing account with
the payor; (3) the payor uses a single Form W-9 for multiple accounts
of the payee; or (4) the payor uses a universal identifier to associate
all of the payee's accounts with the payor and other accounts under
that universal identifier have been identified as subject to
withholding under section 3406(a)(1)(C). See Sec. 31.3406(c)-
1(c)(3)(iii).
C. Including certain dates in the notice that the payor must send
to a payee--proposed Sec. 31.3406(c)-1(c)(2) (ii) and (iii). A
commentator objected to the proposed rule requiring a payor to include
the following dates in the notice informing a payee that backup
withholding for the C trigger has begun or will begin: (1) the last
date before the payor must commence backup withholding, and (2) the
date the payor received the notice from the IRS. The significant date
for the payee is the date backup withholding begins on the payee's
account. Therefore, to ease payors' administrative costs, the final
regulations require the payor to include only the date the payor
started (or plans to start) backup withholding in the notice to the
payee. See Sec. 31.3406(c)-1(d)(2)(iii).
D. Monitoring accounts subject to withholding--proposed
Sec. 31.3406(c)-1(e). Commentators asked the IRS to address how long a
payor must monitor an account identified as one subject to the C
trigger, if that account later becomes dormant. The final regulations
provide that a payor is not required to backup withhold on dormant
accounts. In this connection, backup withholding terminates no later
than the close of the third calendar year ending after the later
[[Page 66108]]
of (1) the date that the payor pays the last reportable payment to that
account, or (2) the date that the payor received a notice from the IRS
to impose the C trigger on that account. See Sec. 31.3406(c)-1(e)(3).
IV. Special Rules for Acquiring Accounts (Including a Readily Tradable
Instrument) or Selling a Readily Tradable Instrument
A. By electronic transmission--proposed Sec. 31.3406(d)-3. A payee
can acquire by electronic transmission an account or an instrument that
earns reportable interest or dividends. Under the proposed regulations
the payor, at its option, may permit a payee to furnish the
certifications relating to the A and D triggers within 30 days after
the establishment or acquisition of the account or the instrument (30-
day period) by electronic transmission, provided that the payee
furnishes the payee's TIN at the time of the establishment or the
acquisition. However, if the payee makes any withdrawal within the 30-
day period and before the payor receives the payee's certifications,
the payor must withhold to the extent of any reportable interest or
dividends paid to the payee during the 30-day period and at the time of
withdrawal.
The proposed regulations provide comparable rules for the sale of a
readily tradable instrument by electronic transmission. In this
context, the payee is permitted to withdraw (or reinvest) up to 69
percent of the gross proceeds from the sale during the relevant 30-day
period.
Commentators requested that backup withholding be applied in the
same manner whether the electronic transmission involves the
establishment or acquisition of an account or a readily tradable
instrument or the sale of a readily tradable instrument. In response to
this comment, the final regulations provide that backup withholding
applies if the payee withdraws more than 69 percent of the reportable
interest or dividends paid to the payee during the relevant 30-day
period and at the time of withdrawal, but only if the payor has not
received the payee's certifications relating to the A and D triggers at
the time of the withdrawal. See Sec. 31.3406(d)-3(a).
B. By mail--proposed Sec. 31.3406(d)-3(a)(1). The proposed
regulations provide that a payee may provide the certifications
relating to the A and D triggers within 30 days after a payee
establishes or acquires a readily tradable instrument by mail before
January 1, 1985, provided the payee furnishes the payee's TIN upon the
establishment or acquisition. The proposed regulations do not provide a
similar rule for the sale of a readily tradable instrument by mail.
To simplify the procedures for entering into investments which do
not occur in person, the final regulations provide a 30-day rule for
the establishment or acquisition of an account or readily tradable
instrument by mail and extend the 30-day rule to the sale of a readily
tradable instrument by mail. Under the final regulations, if the payee
furnishes the payee's TIN before the transaction, backup withholding
applies during the 30-day period only if the payee withdraws more than
69 percent of the reportable payment and if the payor has not received
the payee's certifications relating to the A or D triggers, whichever
applies, at the time of the withdrawal. See Sec. 31.3406(d)-3(a).
V. Section 3406 Confidentiality Issues--Proposed Sec. 31.3406(f)-1(a)
Section 3406(f) provides that a payor may not use information
obtained under section 3406 except for meeting a requirement of that
section. Commentators requested clarification on what actions a payor
or broker may take, consistent with section 3406(f), in response to a
payee's failure to provide the payee's TIN under section 3406(a)(1)(A).
The final regulations provide that a payor who closes an account at or
before the end of a calendar year in which the payee opens the account
without providing the payee's TIN or documentation of foreign status,
as required, during that year will not, in the absence of evidence to
the contrary, be deemed in violation of section 3406(f).
Another commentator inquired whether prohibiting a payee from
withdrawing funds from the payee's account is a violation of section
3406(f). The final regulations clarify that refusing to allow a payee
to withdraw funds from the payee's account solely because the payee has
not furnished a TIN violates section 3406(f). See Sec. 31.3406(f)-
1(b)(1).
VI. Exemptions From Backup Withholding.
A. Interaction of information reporting and backup withholding
exemptions--proposed Sec. 31.3406(g)-1(a). Several commentators
questioned the interaction between the rules exempting payees from
information reporting and those exempting payees from backup
withholding. The class of recipients exempt from information reporting
is larger than the class exempt from backup withholding. The final
regulations clarify that the list of the payees that are specifically
exempt from backup withholding is not exclusive and that other payees
that are exempt from information reporting also are exempt from backup
withholding. See Sec. 31.3406(g)-1(a)(2).
B. Interest on certain life-insurance contracts--proposed
Sec. 31.3406(g)-1(a)(4). Commentators requested that the temporary
exemption from backup withholding for interest payments made before
January 1, 1992, on ``advance premiums'', ``prepaid premiums'', or
``premium deposit funds'', on certain insurance policies be made
permanent. The final regulations provide an extension through December
31, 1996.
C. Payments reportable under section 6047--proposed
Sec. 31.3406(g)-2(c)(1) and (2). Commentators noted that, contrary to
the position set forth in the proposed regulations, backup withholding
does not apply to designated distributions paid after December 31,
1984. The final regulations clarify that backup withholding does not
apply to those payments. See Sec. 31.3406(g)-2(d).
D. Awaiting-TIN certificate--proposed Sec. 31.3406(g)-3.
Commentators requested simplification of the backup withholding rules
applicable to accounts for which a payor has received an awaiting-TIN
certification. One suggestion was that backup withholding should not
apply during the period (up to 60 days) that the payee is waiting for
the payee's TIN if no more than 69 percent of the reportable payment is
withdrawn during the 60-day period. The final regulations adopt this
suggestion. Therefore, backup withholding is deferred during the 60-day
period unless the payee makes a withdrawal (of more than $500 in one
transaction) during that time or has failed to provide the
certification relating to the D trigger. If the payee makes a
withdrawal of more than $500 in one transaction during the 60-day
period, backup withholding applies to the extent of any reportable
interest or dividends made to the account during the 60-day period and
at the time of withdrawal unless the payee reserves 31 percent of all
reportable payments made to the account during that period. Payors may
elect, however, to impose withholding during the 60-day period. See
Sec. 31.3406(g)-3(a)(2) and (3).
Commentators requested clarification of the interaction of the
awaiting-TIN rules for post-1983 accounts or instruments and the
obligation of the payee to provide the certification relating to the D
trigger that the payee is not subject to backup withholding due to the
C trigger. The final regulations clarify that in spite of the
[[Page 66109]]
awaiting-TIN certification, backup withholding applies under section
3406(a)(1)(D) during the 60-day period if the payee has not provided
this certification to the payor. See Sec. 31.3406(g)-3(a)(1).
A commentator asked whether the 60-day period refers to calendar or
business days. Accordingly, the final regulations clarify that the term
``day'' means a calendar day. See Secs. 31.3406(g)-3 and 31.3406(h)-
1(e).
VII. Other Changes
A. Identifying the person listed on a joint account as the one
subject to withholding--proposed Sec. 31.3406(h)-2(a). Under the
proposed regulations, a payor of a reportable payment to a joint
account may treat the first person listed on the account (or on the
instrument) as the payee subject to information reporting and backup
withholding. The final regulations provide that the relevant payee is
the one whose name and TIN combination the payor uses for information
reporting purposes, whether or not that account or instrument
registration lists that payee first. See Sec. 31.3406(h)-2(a)(1).
B. Backup withholding on payments made in property--proposed
Sec. 31.3406(h)-2(b). Under the proposed regulations, a payor making a
reportable payment in property subject to backup withholding must
withhold on an amount equal to the fair market value of the property.
The obligation to withhold occurs at the time the property is paid to
the payee. Consequently, the payor must find an alternative source,
such as another account of the payee, from which the payor can satisfy
its backup withholding liability. Otherwise, the payor must continue to
look for accounts of the payee to satisfy the payor's backup
withholding liability. A commentator suggested that the final
regulations add an ending date after which a payor no longer has to
search for alternative sources from which to satisfy a backup
withholding obligation arising from a payment in property. According to
this commentator, the obligation should extinguish after a reasonable
period of time. In response to this comment, the final regulations
provide that a payor's obligation to backup withhold on property
terminates on the earlier of the date sufficient cash is deposited to
the account to fully satisfy the obligation or the close of the fourth
calendar year after the obligation arose. See Sec. 31.3406(h)-
2(b)(2)(ii).
C. Gross-up of payments by middlemen--proposed Sec. 31.3406(h)-
2(d). Under the proposed regulations, a middleman is required to remit
the full amount due a payee unless one of the requirements for imposing
backup withholding exists at the time of payment. Thus, the middleman
is required to remit the full amount even though an upstream payor
erroneously withheld on that payment to the middleman. In that event,
the middleman may recover the difference between the amount received
and the amount paid to the payee, i.e., 31 percent, by seeking a refund
from the upstream payor or by taking an equivalent credit against the
next required deposit of employment taxes. One commentator noted that
the middleman payor incurs a loss in the time value of money measured
from the time it pays the full amount due to the payee to the time the
payor receives a refund or credit. Because of this, the commentator
suggested that the regulations allow the middleman to remit only the
net amount due its payee. This suggestion presents several problems.
First, it requires a new reconciliation process to correlate the backup
withholding reflected on the upstream payor's Form 945 with the backup
withholding shown as withheld tax on the payee's income tax return.
Second, the suggestion produces an anomalous result, namely,
withholding occurs even though none of the statutory conditions
requiring withholding exist. For these reasons the final regulations do
not adopt this suggestion.
D. Refund of amount erroneously subject to backup withholding--
proposed Sec. 31.6413(a)-3. Under the proposed regulations, a payor
must refund an amount previously withheld under the C trigger if the
IRS instructs the payor to do so. This provision is also set forth in
Sec. 35a.9999-3 Q/A-38 of the Temporary Employment Tax Regulations
issued under the Interest and Dividend Tax Compliance Act of 1983, as
amended by TD 8248 (54 FR 18713) on May 2, 1989. One commentator
suggested eliminating this refund provision. This rule was needed
initially to allow refunds in certain cases where payees had interest
or dividend income subject to backup withholding under the C trigger
but had no income tax liability on this income. The IRS has
subsequently enhanced its C withholding program to eliminate C notices
to payors in such cases. Thus, the final regulations adopt the
suggestion and delete the proposed rule. See Sec. 31.6413(a)-3.
E. Effective date. The final regulations are effective for
reportable payments made and transactions occurring after December 31,
1996, and, optionally, for reportable payments made and transactions
occurring on or after December 21, 1995. See Sec. 31.3406(i)-1.
F. Coordination with the temporary regulations--Secs. 35a.9999-1
through 35a.9999-5. The temporary regulations issued under 26 CFR Part
35a are not effective for noninternational transactions occurring on
and after the effective date of the final regulations. The temporary
regulations, however, remain effective for the due diligence safe
harbor and for international transactions, including transactions
involving a foreign payee, a foreign payor, or a payment from sources
without the United States.
G. Statement mailing requirement--proposed Secs. 1.6042-5, 1.6044-
6, 1.6049-6, and 1.6050N-1. These final regulations set forth rules on
the manner in which a payor who is required to file an information
return for dividends and corporate earnings and profits, patronage
dividends, interest, and royalties under sections 6042(c), 6044(e),
6049(c), and 6050N(b), respectively, must provide a copy of that
information return to the payee, i.e., payee statement mailing.
The proposed regulations limit the permissible nontax enclosures
includible in a statement mailing. Several commentators requested that
the inclusion of additional nontax enclosures be permitted. This
suggestion was not adopted because the relevant legislative history
indicates that Congress wanted to substantially restrict the nontax
enclosures in a statement mailing.
H. Correct identifying number for estates--proposed Sec. 301.6109-
1. The final regulations clarify that the taxpayer identification
number to be used to identify estates of decedents is the employer
identification number (rather than a social security number).
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in E.O. 12866. Therefore, a
regulatory assessment is not required. It has also been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to
these regulations, and therefore, a Regulatory Flexibility Analysis is
not required. Pursuant to section 7805(f) of the Internal Revenue Code,
the notice of proposed rulemaking preceding these regulations was
submitted to the Small Business Administration for comment on its
impact on small business.
[[Page 66110]]
Drafting Information
The principal author of these regulations is Renay France of the
Office of Assistant Chief Counsel (Income Tax and Accounting), IRS.
However, other personnel from the IRS and Treasury Department
participated in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 31
Employment taxes, Income taxes, Penalties, Pensions, Railroad
retirement, Reporting and recordkeeping requirements, Social security,
Unemployment compensation.
26 CFR Part 35a
Employment taxes, Income taxes, Reporting and recordkeeping
requirements.
26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
The amendments to 26 CFR parts 1, 31, 35a, 301, and 602 read as
follows:
PART 1--INCOME TAXES
Paragraph 1. The authority for part 1 continues to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.6049-6 also issued under 6049(a), (b), and (d). * * *
Par. 2. Section 1.6042-4 is revised as follows:
Sec. 1.6042-4 Statements to recipients of dividend payments.
(a) Requirement. A person required to make an information return
under section 6042(a)(1) and Sec. 1.6042-2 must furnish a statement to
each recipient whose identifying number is required to be shown on the
related information return for dividend payments.
(b) Form of the statement. The statement required by paragraph (a)
of this section must be either the official Form 1099 prescribed by the
Internal Revenue Service for the respective calendar year or an
acceptable substitute statement that contains provisions that are
substantially similar to those of the official Form 1099 for the
respective calendar year. For further guidance on how to prepare an
acceptable substitute statement, see Rev. Proc. 95-30 (1995-27 I.R.B.
9) (or its successor), republished as ``Rules and Specifications for
Private Printing of Substitute Forms 1096, 1098, 1099 Series, 5498, and
W-2G.'' See Sec. 601.601(d)(2) of this chapter.
(c) Aggregation of payments. A payor may aggregate on one Form 1099
all payments made to a recipient with respect to each separate account
during a calendar year.
(d) Manner of providing statements to recipients--(1) In general.
The Form 1099, or acceptable substitute statement, must be provided to
the recipient either in person or by first-class mail to the
recipient's last known address in a statement mailing.
(2) Statement mailing requirement. The mailing required under
section 6042(c) of a Form 1099 to a payee-recipient must qualify as a
statement mailing. A statement mailing must contain the required Form
1099 or acceptable substitute statement (written statement) and must
comply with enclosure and envelope restrictions.
(i) Enclosure restrictions. To qualify as a statement mailing, the
mailing cannot contain any enclosures except those listed in this
paragraph (d)(2)(i). Moreover, no promotional or advertising material
is permitted in the mailing of the written statement. Even a de minimis
amount of promotional or advertising material violates the statement
mailing requirement. However, a logo on the envelope containing the
written statement and on nontax enclosures described in paragraph
(d)(2)(i) (A) through (D) of this section does not violate the written
statement requirement. The written statement required under section
6042(c) and paragraph (a) of this section may be perforated to a check
or to a statement of the recipient-payee's specific account with the
payor described in paragraph (d)(2)(i) (A) or (C) of this section. The
enclosure to which the written statement is perforated must contain, in
a bold and conspicuous type, the legend: ``Important Tax Return
Document Attached.'' The enclosures permitted in a mailing are limited
to--
(A) A check with respect to the account reported on the written
statement;
(B) A letter explaining why a check with respect to such account is
not enclosed with the written statement (for example, because a
dividend has not been declared payable);
(C) A statement of the taxpayer-recipient's specific account with
the payor if payments on such account are reflected on the written
statement;
(D) A letter limited to an explanation of the tax consequences of
the information set forth on the enclosed written statement;
(E) Payee statements related to other Forms 1099, Form 1098, and
Form 5498 (or the account balance on a Form 5498), Forms W-2 and W-2G;
and
(F) Any document concerning the solicitation of the Form W-9 or
Form W-8.
(ii) Envelope and delivery restrictions--(A) Envelope restrictions.
The outside of the envelope in which the written statement is mailed
and each nontax enclosure enclosed in the envelope must contain, in a
bold and conspicuous type, the legend: ``Important Tax Return Document
Enclosed.'' For purposes of this paragraph (d)(2)(ii), a nontax
enclosure is any item listed in paragraphs (d)(2)(i)(A) through (C) of
this section. However, a payor is not required to include the legend on
the outside of an envelope containing only the enclosures in paragraph
(d)(2)(i)(D) through (F) of this section.
(B) Delivery restrictions. The requirement to provide the written
statement in person or by first-class mail may be satisfied by sending
the written statement and any enclosures described in paragraph
(d)(2)(i) of this section by intra-office mail, provided that intra-
office mail is used by the payor in sending account activity, balance
information, and other correspondence to the payee. If a payor does not
personally deliver the written statement (i.e., the Form 1099 or its
acceptable substitute) to the recipient or mail it to the recipient in
a statement mailing as described in this paragraph (d), the payor is
considered to have failed to mail the statement required under section
6042(c) and will be subject to the penalty under section 6722.
(e) Time for furnishing statements--(1) In general. Each statement
required by section 6042(c) and this section to be furnished to any
person for a calendar year must be furnished to such person after
November 30 of the year and on or before January 31 (February 10 in the
case of a nominee filing under Sec. 1.6042-2(a)(1)(iii)) of the
following year, but no statement may be furnished before the final
dividend for the calendar year has been paid. However, the statement
may be furnished at any time after April 30 if it is furnished with the
final dividend for the calendar year.
(2) Extensions of time. For good cause upon written application of
the person required to furnish statements under
[[Page 66111]]
this section, the Director, Martinsburg Computing Center, may grant an
extension of time not exceeding 30 days in which to furnish such
statements. The application must be addressed to the Director,
Martinsburg Computing Center, and must contain a full recital of the
reasons for requesting the extension to aid the Director in determining
the period of the extension, if any, that will be granted. Such a
request in the form of a letter to the Director, Martinsburg Computing
Center, signed by the applicant will suffice as an application. The
application must be filed on or before the date prescribed in paragraph
(e)(1) of this section.
(3) Last day for furnishing statement. For provisions relating to
the time for performance of an act when the last day prescribed for
performance falls on Saturday, Sunday, or a legal holiday, see section
7503 and Sec. 301.7503-1 of this chapter (Regulations on Procedure and
Administration). (f) Penalty. For provisions relating to the penalty
for the failure to furnish a statement under this section, see section
6722.
(g) Effective date. This section is effective for payee statements
due after December 31, 1995, without regard to extensions. For the
substantially similar statement mailing requirements that apply with
respect to forms required to be filed after October 22, 1986, and
before January 1, 1996, see Rev. Proc. 84-70 (1984-2 C.B. 716) (or
successor revenue procedures). See Sec. 601.601(d)(2) of this chapter.
Par. 3. Section 1.6044-5 is revised as follows:
Sec. 1.6044-5 Statements to recipients of patronage dividends.
(a) Requirement. A person required to make an information return
under section 6044(a)(1) and Sec. 1.6044-2 must furnish a statement to
each recipient whose identifying number is required to be shown on the
related information return for patronage dividends paid.
(b) Form, manner, and time for providing statements to recipients.
The statement required by paragraph (a) of this section must be either
the official Form 1099 prescribed by the Internal Revenue Service for
the respective calendar year or an acceptable substitute statement. The
rules under Sec. 1.6042-4 (relating to statements with respect to
dividends) apply comparably in determining the form of an acceptable
substitute statement permitted by this section. Those rules also apply
for purposes of determining the manner of and time for providing the
Form 1099 or its acceptable substitute to a recipient under this
section. However, each Form 1099 or acceptable substitute statement
required by this section must be furnished on or before January 31 of
the following year, but no statement may be furnished before the final
payment has been made for the calendar year.
(c) Penalty. For provisions relating to the penalty for the failure
to furnish a statement under this section, see section 6722.
(d) Effective date. This section is effective for payee statements
due after December 31, 1995, without regard to extensions. For the
substantially similar statement mailing requirements that apply with
respect to forms required to be filed after October 22, 1986, and
before January 1, 1996, see Rev. Proc. 84-70 (1984-2 C.B. 716) (or
successor revenue procedures). See Sec. 601.601(d)(2) of this chapter.
Par. 4. Section 1.6049-6 is amended by:
1. Revising the section heading.
2. Removing the language ``section 3451'' and adding ``section
3406'' in each of the following locations:
a. Paragraph (a), second sentence.
b. Paragraph (a), third sentence.
c. Paragraph (a), fourth sentence.
3. Removing the language ``section 3451'' and adding ``section
3406'' in each of the following locations:
a. Paragraph (b)(1)(ii).
b. Paragraph (b)(2)(ii).
4. Adding paragraph (e).
5. Removing the authority citation at the end of the section.
The revision and additions read as follows:
Sec. 1.6049-6 Statements to recipients of interest payments and
holders of obligations for attributed original issue discount.
* * * * *
(e) Statements to recipients--(1) Requirement. A person required to
make an information return under section 6049(a) and Sec. 1.6049-4 must
furnish a statement to each recipient whose identifying number is
required to be shown on the related information return for interest or
original issue discount paid or accrued.
(2) Form, manner, and time for providing statements to recipients.
The statement required by paragraph (e)(1) of this section must be
either the official Form 1099 prescribed by the Internal Revenue
Service for the respective calendar year or an acceptable substitute
statement. The rules under Sec. 1.6042-4 (relating to statements with
respect to dividends) apply comparably in determining the form of an
acceptable substitute statement permitted by this paragraph (e). Those
rules also apply for purposes of determining the manner of and time for
providing the Form 1099 or its acceptable substitute to a recipient
under paragraph (e)(1) of this section. However, with respect to
original issue discount, the Form 1099 or acceptable substitute
statement required by paragraph (e)(1) of this section must show the
aggregate amount of original issue discount includible in the gross
income by the recipient for the calendar year with respect to the
obligation (determined by applying the rules of Sec. 1.6049-4(b)(2)),
and the amount, serial number, or other identifying number of each
obligation with respect to which a return is being made. With respect
to interest or original issue discount, the Form 1099 or acceptable
substitute statement required by paragraph (e)(1) of this section must
be furnished to the recipient on or before January 31 of the year
following the calendar year for which the return under section
6049(a)(1) was required to be made.
(3) Penalty. For provisions relating to the penalty for the failure
to furnish a statement under this section, see section 6722.
(4) Effective date. This paragraph (e) is effective for payee
statements due after December 31, 1995, without regard to extensions.
For the substantially similar statement mailing requirements that apply
with respect to forms required to be filed after October 22, 1986, and
before January 1, 1996, see Rev. Proc. 84-70 (1984-2 C.B. 716) (or
successor revenue procedures). See Sec. 601.601(d)(2) of this chapter.
Par. 5. Section 1.6050N-1 is added to read as follows:
Sec. 1.6050N-1 Statements to recipients of royalties.
(a) Requirement. A person required to make an information return
under section 6050N(a) must furnish a statement to each recipient whose
name is required to be shown on the related information return for
royalties paid.
(b) Form, manner, and time for providing statements to recipients.
The statement required by paragraph (a) of this section must be either
the official Form 1099 prescribed by the Internal Revenue Service for
the respective calendar year or an acceptable substitute statement. The
rules under Sec. 1.6042-4 (relating to statements with respect to
dividends) apply comparably in determining the form of the acceptable
substitute statement permitted by this section. Those rules also apply
for purposes of determining the manner of and time for providing the
Form 1099 or its acceptable substitute statement to a recipient under
this section.
(c) Penalty. For provisions relating to the penalty for failure to
furnish a
[[Page 66112]]
statement under this section, see section 6722.
(d) Effective date. This section is effective for payee statements
due after December 31, 1995, without regard to extensions. For the
substantially similar statement mailing requirements that apply with
respect to forms required to be filed after October 22, 1986, and
before January 1, 1996, see Rev. Proc. 84-70 (1984-2 C.B. 716) (or
successor revenue procedures). See Sec. 601.601(d)(2) of this chapter.
PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE
Par. 6. The authority for Part 31 is amended by removing the entry
for Sec. 31.3406(d)-5 and by adding an entry in numerical order to read
as follows:
Authority: 26 U.S.C. 7805. * * *
Sections 31.3406(a)-1 through 31.3406(i)-1 also issued under 26
U.S.C. 3406(i).
Par. 7. Section 31.3406-0 is revised to read as follows:
Sec. 31.3406-0 Outline of the backup withholding regulations.
This section lists paragraphs contained in Secs. 31.3406(a)-1
through 31.3406(i)-1.
Sec. 31.3406(a)-1 Backup withholding requirement on reportable
payments.
(a) Overview.
(b) Conditions that invoke the backup withholding requirement.
(1) Conditions applicable to all reportable payments.
(2) Conditions applicable only to reportable interest or
dividend payments.
(c) Exceptions.
(d) Cross references.
Sec. 31.3406(a)-2 Definition of payors obligated to backup
withhold.
(a) In general.
(b) Middlemen treated as payors.
(c) Persons not treated as payors.
Sec. 31.3406(a)-3 Scope and extent of accounts subject to backup
withholding.
Sec. 31.3406(a)-4 Time when payments are considered to be paid and
subject to backup withholding.
(a) Timing.
(1) In general.
(2) Special rules for dividends.
(b) Amounts reportable under section 6045.
(1) In general.
(2) Special rule for interest accrued on bonds.
(c) Middlemen.
(1) In general.
(2) Special rule for common trust funds.
(3) Special rule for certain grantor trusts.
Sec. 31.3406(b)(2)-1 Reportable interest payment.
(a) Interest subject to backup withholding.
(1) In general.
(2) Special rule for tax-exempt interest.
(b) Amount subject to backup withholding.
(1) In general.
(2) Special rule to adjust for premature withdrawal penalty.
Sec. 31.3406(b)(2)-2 Original issue discount.
(a) Original issue discount subject to backup withholding.
(b) Amount subject to backup withholding and time when backup
withholding is imposed with respect to short-term obligations.
(c) Transferred short-term obligations.
(1) Subsequent holder may establish purchase price.
(2) Subsequent holder unable (or not permitted) to establish
purchase price.
(3) Transferred obligation.
(d) Amount subject to backup withholding and time when backup
withholding is imposed with respect to long-term obligations.
(1) No cash payments prior to maturity.
(2) Registered long-term obligations with cash payments prior to
maturity.
(3) Transferred registered long-term obligations with payments
prior to maturity.
(e) Bearer long-term obligations.
(1) Payments prior to maturity.
(2) Payments at maturity.
Sec. 31.3406(b)(2)-3 Window transactions.
(a) Requirement to backup withhold.
(b) Window transaction defined.
(c) Manner of furnishing taxpayer identification number in the
case of a window transaction.
Sec. 31.3406(b)(2)-4 Reportable dividend payment.
(a) Dividends subject to backup withholding.
(b) Dividends not subject to backup withholding.
(c) Amount subject to backup withholding.
(1) In general.
(2) Reasonable estimate of amount of dividend subject to backup
withholding.
(3) Reinvested dividends.
Sec. 31.3406(b)(2)-5 Reportable patronage dividend payment.
(a) Patronage dividends subject to backup withholding.
(b) Amount subject to backup withholding.
(1) Failure to provide taxpayer identification number or
notification of incorrect taxpayer identification number.
(2) Notified payee underreporting or payee certification
failure.
Sec. 31.3406(b)(3)-1 Reportable payments of rents, commissions,
nonemployee compensation, etc.
(a) Section 6041 and 6041A(a) payments subject to backup
withholding.
(b) Amount subject to backup withholding.
(1) In general.
(2) Net commissions.
(3) Payments aggregating $600 or more for the calendar year.
Sec. 31.3406(b)(3)-2 Reportable barter exchanges and gross
proceeds of sales of securities or commodities by brokers.
(a) Transactions subject to backup withholding.
(b) Amount subject to backup withholding.
(1) In general.
(2) Forward contracts, including foreign currency contracts, and
regulated futures contracts.
(3) Security sales made through a margin account.
(4) Security short sales.
(5) Fractional shares.
Sec. 31.3406(b)(3)-3 Reportable payments by certain fishing boat
operators.
(a) Payments subject to backup withholding.
(b) Amount subject to backup withholding.
Sec. 31.3406(b)(3)-4 Reportable payments of royalties.
(a) Royalty payments subject to backup withholding.
(b) Amount subject to backup withholding.
Sec. 31.3406(b)(4)-1 Exemption for certain minimal payments.
(a) In general.
(b) Manner of making the election.
(c) How to annualize.
(1) In general.
(2) Special aggregation rule for reportable interest and
dividends.
(d) Exception for window transactions and original issue
discount.
Sec. 31.3406(c)-1 Notified payee underreporting of reportable
interest or dividend payments.
(a) Overview.
(b) Definitions.
(1) Notified payee underreporting.
(2) Payee underreporting.
(c) Notice to payors regarding backup withholding due to
notified payee underreporting.
(1) In general.
(2) Additional requirements for payors that are also brokers.
(3) Payor identification of accounts of the payee subject to
backup withholding due to notified payee underreporting.
(d) Notice from payors of backup withholding due to notified
payee underreporting.
(1) In general.
(2) Procedures.
(e) Period during which backup withholding is required.
(1) In general.
(2) Stop withholding.
(3) Dormant accounts.
(f) Notice to payees from the Internal Revenue Service.
(1) Notice period.
(2) Payee subject to backup withholding.
(3) Disclosure of names of payors and brokers.
(4) Backup withholding certification.
(g) Determination by the Internal Revenue Service that backup
withholding should not start or should be stopped.
(1) In general.
(2) Date notice to stop backup withholding will be provided.
[[Page 66113]]
(3) Grounds for determination.
(4) No underreporting.
(5) Correcting any payee underreporting.
(6) Undue hardship.
(7) Bona fide dispute.
(h) Payees filing a joint return.
(1) In general.
(2) Exceptions.
(i) [Reserved.]
(j) Penalties.
Sec. 31.3406(d)-1 Manner required for furnishing a taxpayer
identification number.
(a) Requirement to backup withhold.
(b) Reportable interest or dividend account.
(1) Manner required for furnishing a taxpayer identification
number with respect to a pre-1984 account or instrument.
(2) Determination of pre-1984 account or instrument.
(3) Manner required for furnishing a taxpayer identification
number with respect to an account or instrument that is not a pre-
1984 account.
(4) Special rule with respect to the acquisition of a readily
tradable instrument in a transaction between certain parties acting
without the assistance of a broker.
(c) Brokerage account.
(1) Manner required for furnishing a taxpayer identification
number with respect to a brokerage relationship that is not a post-
1983 brokerage account.
(2) Manner required for furnishing a taxpayer identification
number with respect to a post-1983 brokerage account.
(d) Rents, commissions, nonemployee compensation, and certain
fishing boat operators, etc.--Manner required for furnishing a
taxpayer identification number.
Sec. 31.3406(d)-2 Payee certification failure.
(a) Requirement to backup withhold.
(b) Exceptions.
Sec. 31.3406(d)-3 Special 30-day rules for certain reportable
payments.
(a) Accounts or readily tradable instruments acquired directly
from the payor (including a broker who holds an instrument in street
name) by electronic transmission or by mail.
(b) Sale of an instrument for a customer by electronic
transmission or by mail.
(c) Application to foreign payees.
Sec. 31.3406(d)-4 Special rules for readily tradable instruments
acquired through a broker.
(a) Readily tradable instruments acquired through post-1983
brokerage accounts with a broker who is not a payor.
(1) In general.
(2) Additional requirements.
(3) Transactions entered into through a brokerage account that
is not a post-1983 brokerage account.
(4) Payor must notify payee.
(b) Notices.
(1) Form of notice by broker to payor.
(2) Form of notice by payor to payee.
(c) Payor's reliance on information from broker.
(1) In general.
(2) Amount subject to backup withholding.
Sec. 31.3406(d)-5 Backup withholding when the Service or a broker
notifies the payor to withhold because the payee's taxpayer
identification number is incorrect.
(a) Overview.
(b) Definitions and special rules.
(1) Definition of an incorrect name/TIN combination.
(2) Definition of account.
(3) Definition of business day.
(4) Certain exceptions.
(c) Notice regarding an incorrect name/TIN combination.
(1) In general.
(2) Additional requirements for payors that are also brokers.
(3) Payor identification of the account or accounts of the payee
that have the incorrect taxpayer identification number.
(4) Special rule for joint accounts.
(5) Date of receipt.
(d) Notice from payors of backup withholding due to an incorrect
name/TIN combination.
(1) In general.
(2) Procedures.
(e) Period during which backup withholding is required due to
notification of an incorrect name/TIN combination.
(1) In general.
(2) Grace periods.
(3) Dormant accounts.
(f) Manner required for payee to furnish certified taxpayer
identification number.
(g) Receipt of two notices within a 3-year period.
(1) In general.
(2) Notice to payee who has provided two incorrect name/TIN
combinations within 3 calendar years.
(3) Period during which backup withholding is required due to a
second notice of an incorrect name/TIN combination within 3 calendar
years.
(4) Receipt of two notices in one calendar year.
(5) Notification from the Social Security Administration (or the
Internal Revenue Service) validating a name/TIN combination.
(h) Payors must use newly provided certified number.
(i) Effective date.
(j) Examples.
Sec. 31.3406(e)-1 Period during which backup withholding is
required.
(a) In general.
(b) Failure to furnish a taxpayer identification number in the
manner required.
(1) Start withholding.
(2) Stop withholding.
(c) Notification of an incorrect taxpayer identification number.
(d) Notified payee underreporting.
(e) Payee certification failure.
(1) Start withholding.
(2) Stop withholding.
(f) Rule for determining when the payor receives a taxpayer
identification number or certificate from a payee.
Sec. 31.3406(f)-1 Confidentiality of information.
(a) Confidentiality and liability for violation.
(b) Permissible use of information.
(1) In general.
(2) Window transactions.
(c) Specific restrictions on the use of information.
Sec. 31.3406(g)-1 Exception for payments to certain payees and
certain other payments.
(a) Exempt recipients.
(1) In general.
(2) Nonexclusive list.
(b) Determination of whether a person is described in paragraph
(a)(1) of this section.
(c) Prepaid or advance premium life-insurance contracts.
Sec. 31.3406(g)-2 Exception for reportable payments for which
backup withholding is otherwise required.
(a) In general.
(b) Payment of wages.
(c) Distribution from a pension, annuity, or other plan of
deferred compensation.
(d) Gambling winnings.
(1) In general.
(2) Definition of a reportable gambling winning and
determination of amount subject to backup withholding.
(3) Special rules.
(e) Certain real estate transactions.
(f) Certain payments after an acquisition of accounts or
instruments.
(g) Certain gross proceeds.
Sec. 31.3406(g)-3 Exemption while payee is waiting for a taxpayer
identification number.
(a) In general.
(1) Backup withholding not required for 60 days.
(2) Reserve method.
(3) Alternative rule; 7-day grace period.
(b) Special rule for readily tradable instruments.
(c) Exceptions.
(1) In general.
(2) Special rule for amounts subject to reporting under section
6045 other than proceeds of redemptions of bearer obligations.
(d) Awaiting-TIN certificate.
(e) Form for awaiting-TIN certificate.
Sec. 31.3406(h)-1 Definitions.
(a) In general.
(b) Taxpayer identification number.
(1) In general.
(2) Obviously incorrect number.
(c) Broker.
(d) Readily tradable instrument.
(e) Day.
(f) Business day.
Sec. 31.3406(h)-2 Special rules.
(a) Joint accounts.
(1) Relevant name and taxpayer identification number
combination.
(2) Optional rule for accounts subject to backup withholding
under section 3406(a)(1)(B) or (C) where the names are switched.
(3) Joint foreign payees.
(b) Backup withholding from an alternative source.
(1) In general.
(2) Exceptions for payments made in property.
(c) Trusts.
[[Page 66114]]
(d) Adjustment of prior withholding by middleman.
(e) Conversion of amounts paid in foreign currency into United
States dollars.
(1) Convertible foreign currency.
(2) Nonconvertible foreign currency. [Reserved]
(f) Coordination with other sections.
(g) Tax liabilities and penalties.
(h) To whom payor is liable for amount withheld.
Sec. 31.3406(h)-3 Certificates.
(a) Prescribed form to furnish information under penalties of
perjury.
(1) In general.
(2) Use of a single or multiple Forms W-9 for accounts of the
same payee.
(b) Prescribed form to furnish a noncertified taxpayer
identification number.
(c) Forms prepared by payors or brokers.
(1) Substitute forms; in general.
(2) Form for exempt recipient.
(d) Special rule for brokers.
(e) Reasonable reliance on certificate.
(1) In general.
(2) Circumstances establishing reasonable reliance.
(f) Who may sign certificate.
(1) In general.
(2) Notified payee underreporting.
(g) Retention of certificates.
(1) Accounts or instruments that are not pre-1984 accounts and
brokerage relationships that are post-1983 brokerage accounts.
(2) Accounts or instruments that are pre-1984 accounts and
brokerage relationships that are not post-1983 brokerage accounts.
(h) Cross references.
Sec. 31.3406(i)-1 Effective date.
Par. 8. Sections 31.3406(a)-1 through 31.3406(a)-4, 31.3406(b)(2)-1
through 31.3406(b)(2)-5, 31.3406(b)(3)-1 through 31.3406(b)(3)-4,
31.3406(b)(4)-1, 31.3406(c)-1, 31.3406(d)-1 through 31.3406(d)-4,
31.3406(e)-1, 31.3406(f)-1, 31.3406(g)-1 through 31.3406(g)-3,
31.3406(h)-1 through 31.3406(h)-3, and 31.3406(i)-1 are added to read
as follows:
Sec. 31.3406(a)-1 Backup withholding requirement on reportable
payments.
(a) Overview. Under section 3406, a payor must deduct and withhold
31 percent of a reportable payment if a condition for withholding
exists. Reportable payments mean interest and dividend payments (as
defined in section 3406(b)(2)) and other reportable payments (as
defined in section 3406(b)(3)). The conditions described in paragraph
(b)(1) of this section apply to all reportable payments, including
reportable interest and dividend payments. The conditions described in
paragraph (b)(2) of this section apply only to reportable interest and
dividend payments.
(b) Conditions that invoke the backup withholding requirement--(1)
Conditions applicable to all reportable payments. A payor of a
reportable payment must deduct and withhold under section 3406 if--
(i) The payee of the reportable payment does not furnish the
payee's taxpayer identification number to the payor, as required in
section 3406(a)(1)(A) and Sec. 31.3406(d)-1; or
(ii) The Internal Revenue Service or a broker notifies the payor
that the taxpayer identification number furnished by its payee for a
reportable payment is incorrect, as described in section 3406(a)(1)(B)
and Sec. 31.3406(d)-5.
(2) Conditions applicable only to reportable interest or dividend
payments. A payor of a reportable interest or dividend payment must
deduct and withhold under section 3406 if--
(i) The Internal Revenue Service or a broker notifies the payor
that its payee has underreported interest or dividend income, as
described in section 3406(a)(1)(C) and Sec. 31.3406(c)-1; or
(ii) The payee fails to certify to the payor or broker that the
payee is not subject to withholding due to notified payee
underreporting, as described in section 3406(a)(1)(D) and
Sec. 31.3406(d)-2.
(c) Exceptions. The requirement to withhold does not apply to
certain minimal payments as described in Sec. 31.3406(b)(4)-1 or to
payments exempt from withholding under Secs. 31.3406(g)-1 through
31.3406(g)-3.
(d) Cross references. For the definition of payor, see
Sec. 31.3406(a)-2. For the definition of taxpayer identification
number, see Sec. 31.3406(h)-1(b).
Sec. 31.3406(a)-2 Definition of payors obligated to backup withhold.
(a) In general. Payor means any person who is required to make an
information return with respect to any reportable payment (as described
in section 3406(b)) under section 6041, 6041A(a), 6042, 6044, 6045,
6049, 6050A, or 6050N, including any middleman as described in
paragraph (b) of this section.
(b) Middlemen treated as payors. A person who receives or collects
a reportable payment on behalf of or for the account of a payee is a
middleman and is treated as the payor of the payment. These persons
include, but are not limited to--
(1) A custodian of a payee's account, such as a bank, financial
institution, or brokerage firm acting as custodian of an account;
(2) A nominee, including the joint owner of an account or
instrument, except if the joint owners are husband and wife or if the
payment is actually owned by another person whose name is also shown on
the information return filed with respect to the payment;
(3) A broker holding a security (including stock) for a customer in
street name;
(4) A grantor trust established after December 31, 1995, all of
which is owned by two or more grantors, and for this purpose spouses
filing a joint return are considered to be one grantor;
(5) A common trust fund; and
(6) A partnership or an S corporation that makes a reportable
payment.
(c) Persons not treated as payors. The following persons are not
treated as payors for purposes of section 3406 if the person does not
have a reporting obligation under the section on information reporting
to which the payment relates:
(1) An agent of the payor who is acting on behalf of the payor in
making the payment and who has not entered into an agreement with the
payor (for further guidance see Rev. Proc. 84-33 (1984-1 C.B. 502), and
Sec. 601.601(d)(2) of this chapter), such as a bank that acts as a
paying agent in making a payment of dividends on behalf of a
corporation (although payments made by the agent are considered to be
payments made by the payor, and thus are subject to withholding,
reporting, and the depositing requirements pertaining to section 3406
as if they were made by the payor itself, and failure by the agent so
to withhold, report, or deposit is considered to be failure by the
payor);
(2) A trust (other than a grantor trust as described in paragraph
(b)(4) of this section) that files a Form 1041 and furnishes each
beneficiary a Form K-1 containing information required to be shown on
an information return, including amounts withheld under section 3406;
or
(3) A partnership making a payment of a distributive share or an S
corporation making a similar distribution.
Sec. 31.3406(a)-3 Scope and extent of accounts subject to backup
withholding.
A payor who is required to withhold under Sec. 31.3406(a)-1 must
withhold--
(a) On the accounts subject to withholding under Sec. 31.3406(a)-1
(b)(1)(i) or (b)(2)(ii); and
(b) On the accounts subject to withholding under Sec. 31.3406(a)-
1(b)(1)(ii) or (b)(2)(i), as described under Sec. 31.3406(d)-5
(relating to notification of incorrect TIN) or Sec. 31.3406(c)-1
(relating to notified payee underreporting), respectively.
[[Page 66115]]
Sec. 31.3406(a)-4
Time when payments are considered to be paid and subject to backup
withholding.
(a) Timing--(1) In general. If backup withholding is required under
section 3406 on a reportable payment (as defined in section 3406(b)),
the payor must withhold at the time it makes the payment to the payee
or to the payee's account that is subject to withholding. Amounts are
considered paid when they are credited to the account of, or made
available to, the payee. Amounts are not considered paid solely because
they are posted (e.g., an informational notation on the payee's
passbook) if they are not actually credited to the payee's account or
made available to the payee. See paragraph (c) of this section for the
timing of withholding by a middleman.
(2) Special rules for dividends. For purposes of section 3406 and
this section--
(i) Record date earlier than payment date. In the case of stock for
which the record date is earlier than the payment date, the dividends
are considered paid on the payment date.
(ii) Dividends paid in corporate reorganizations. In the case of a
corporate reorganization, if a payee is required to exchange stock held
in the former corporation for stock in the new corporation before the
dividends that have been paid with respect to the stock in the new
corporation will be provided to the payee, the dividend is considered
paid on the date the payee actually exchanges the stock and receives
the dividend.
(b) Amounts reportable under section 6045--(1) In general.
Notwithstanding paragraph (a) of this section, in the case of a
transaction reportable under section 6045 (except in the case of
forward contracts (including foreign currency contracts), regulated
futures contracts, and security short sales), the obligation to
withhold under section 3406 arises on the date the sale is entered on
the books of the broker or the date the exchange occurs as provided in
Sec. 1.6045-1(f)(3) of this chapter. A broker (in its capacity as
payor) is not required, however, to satisfy its withholding liability
until payment is made. See Sec. 31.3406(b)(3)-2(b)(2) for special rules
applicable to forward contracts (including foreign currency contracts),
regulated futures contracts, and security short sales.
(2) Special rule for interest accrued on bonds. For purposes of
determining the time that interest is considered paid and subject to
withholding under section 3406 when bonds are sold between interest
payment dates, the portion of the sales price representing interest
accrued to the date of sale is considered a portion of a reportable
payment of gross proceeds under section 6045 (provided that the accrued
interest is not tax-exempt as described in section 103(a), relating to
certain governmental obligations), and is not considered to be a
payment of interest for purposes of section 6049.
(c) Middlemen--(1) In general. Any middleman (as defined in
Sec. 31.3406(a)-2(b)) must withhold under section 3406 at the time the
reportable payment is received by or credited to the middleman. If the
middleman makes or credits the reportable payment to the payee prior to
the middleman's receipt of the corresponding payment, the middleman may
withhold at the time the reportable payment is made or credited to the
payee.
(2) Special rule for common trust funds. A common trust fund (as
defined in section 584) must withhold either--
(i) At the time the reportable payment is received by or credited
to the common trust fund as provided in paragraph (c)(1) of this
section;
(ii) On the date on which the assets of the common trust fund are
valued; or
(iii) At the time the common trust fund pays or credits the
reportable payment to a participant of the common trust fund.
(3) Special rule for certain grantor trusts. For grantor trusts
described in Sec. 31.3406(a)-2(b)(4), reportable payments made to the
trust are treated as paid by the trust to each grantor, in an amount
equal to the distribution made by the trust to each grantor, on the
date that the reportable payment is paid to the trust (except for gross
proceeds reportable under section 6045). Paragraph (b)(2) of this
section applies to a grantor trust making a payment of gross proceeds
under section 6045 subject to withholding under section 3406. For
purposes of this paragraph (c)(3) a husband and wife filing a joint
return are considered to be one grantor.
Sec. 31.3406(b)(2)-1 Reportable interest payment.
(a) Interest subject to backup withholding--(1) In general. A
payment of a kind, and to a payee, that is required to be reported
under section 6049 (relating to returns regarding interest and original
issue discount) is a reportable payment for purposes of section 3406,
subject to the special rules of Sec. 31.3406(b)(2)-2 (relating to
original issue discount) and Sec. 31.3406(b)(2)-3 (relating to window
transactions). See Sec. 31.6051-4 for the requirement to furnish a
statement to the payee if tax is withheld under section 3406.
(2) Special rule for tax-exempt interest. When an issuer is
required to make an information return under Sec. 1.6049-4(d)(8) of
this chapter because a payee provided a signed written statement on the
envelope or shell incorrectly claiming that the interest was exempt
from taxation under section 103(a) (as described in Sec. 1.6049-
5(b)(1)(ii) of this chapter), the issuer is not required to impose
withholding under section 3406.
(b) Amount subject to backup withholding--(1) In general. The
amount of interest subject to withholding under section 3406 is the
amount subject to reporting under section 6049.
(2) Special rule to adjust for premature withdrawal penalty. Solely
for purposes of computing the amount subject to withholding under
section 3406, the payor may elect not to withhold from the portion of
any interest payment that is not received by the payee because a
penalty is in fact imposed for premature withdrawal of funds deposited
in a time savings account, certificate of deposit, or similar class of
deposit.
Sec. 31.3406(b)(2)-2 Original issue discount.
(a) Original issue discount subject to backup withholding. The
amount of original issue discount, treated as interest, subject to
withholding under section 3406 is the amount subject to reporting under
section 6049, but is limited to the amount of cash paid. In addition,
if an original issue discount obligation, subject to reporting under
section 6045, is sold prior to maturity and with respect to the seller
a condition exists for imposing withholding under section 3406 on the
gross proceeds, then withholding under Sec. 31.3406(b)(3)-2 applies to
the gross proceeds of the sale reportable under section 6045, and not
to the amount of any original issue discount includible in the gross
income of the seller for the calendar year of the sale. See
Sec. 31.6051-4 for the requirement to furnish a statement to the payee
if tax is withheld under section 3406.
(b) Amount subject to backup withholding and time when backup
withholding is imposed with respect to short-term obligations. In the
case of an obligation with a fixed maturity date not exceeding one year
from the date of issue (a short-term obligation), withholding under
section 3406 applies to any payment of original issue discount on the
obligation includible in the gross income of the holder to the extent
of the cash amount of the payment. See Sec. 1.1273-1 of this chapter to
determine the amount of original
[[Page 66116]]
issue discount on a short-term obligation. See Sec. 1.446-2(e)(1) of
this chapter to determine the amount of a payment treated as original
issue discount.
(c) Transferred short-term obligations--(1) Subsequent holder may
establish purchase price--(i) In general. At maturity of a short-term
obligation, a subsequent holder (i.e., any person who purchased or
otherwise obtained the obligation after the obligation was issued to
the original holder) may establish the price of the obligation. The
price established by the subsequent holder must then be treated as the
original issue price for purposes of computing the amount of the
original issue discount subject to withholding under section 3406. The
price of a short-term obligation may be established by confirmation
receipt or other record of a similar type or, if the obligation is
redeemed by or through the person from whom the
FR Doc. 95-30733 Backup Withholding, Statement Mailing Requirements, and Due Diligence
obligation was
purchased or otherwise obtained, by the records of the person from whom
or through whom the obligation was purchased or otherwise obtained. The
subsequent holder is not required to certify under penalties of perjury
that the price determined under this paragraph (c)(1)(i) is correct.
(ii) Exception. A payor may elect to disregard the price at which
the subsequent holder purchased or otherwise obtained the obligation if
the payor's computer or recordkeeping system on which the details of
the obligation are stored is not able to accept that price without
significant manual intervention.
(2) Subsequent holder unable (or not permitted) to establish
purchase price. If a subsequent holder fails (or is unable, pursuant to
paragraph (c)(1)(ii) of this section) to establish the purchase price
of the obligation, then the person redeeming the obligation must
determine the amount subject to withholding under section 3406 as
though the obligation had been purchased by the holder on the date of
issue. If the person redeeming the obligation is the issuer of the
obligation, then the issuer must determine the amount subject to
withholding from its records. If a person other than the issuer of the
obligation redeems the obligation and the obligation is listed in
Internal Revenue Service Publication 1212, List of Original Issue
Discount Obligations, that person must determine the amount subject to
withholding by using the issue price indicated in Publication 1212.
(3) Transferred obligation. If a short-term obligation is
transferred, no part of the purchase price is considered a reportable
interest payment under section 6049. Withholding under section 3406
applies, however, to the gross proceeds of the sale of the obligation
if the transfer is subject to reporting under section 6045 and a
condition exists for imposing withholding. For the rules regarding
withholding for amounts subject to reporting under section 6045, see
Sec. 31.3406(b)(3)-2.
(d) Amount subject to backup withholding and time when backup
withholding is imposed with respect to long-term obligation--(1) No
cash payments prior to maturity. In the case of an obligation with a
fixed maturity date that is more than one year from the date of issue
(a long-term obligation) and with no cash payments prior to maturity,
withholding under section 3406 applies at the maturity of the
obligation to the amount of original issue discount includible in the
gross income of the holder for the calendar year in which the
obligation matures. The amount required to be withheld must not exceed
the amount of the cash payment.
(2) Registered long-term obligations with cash payments prior to
maturity. In the case of a long-term obligation in registered form that
provides for cash payments prior to maturity, withholding under section
3406 applies at the time cash payments are made to the sum of the
amounts of qualified stated interest and original issue discount
includible in the gross income of the holder for the calendar year in
which the cash payments are made. The amount required to be withheld at
the time of any cash payment, however, must not exceed the amount of
the cash payment. If more than one cash payment is made during a
calendar year, the tax that is required to be withheld with respect to
original issue discount must be allocated among all the expected cash
payments in the ratio that each cash payment bears to the total of the
expected cash payments.
(3) Transferred registered long-term obligations with payments
prior to maturity. In the case of a long-term obligation that is
transferred after its issuance from the original holder, the amount
subject to withholding under section 3406 with respect to a subsequent
holder is the amount of original issue discount includible in the gross
income of all holders during the calendar year (without regard to any
amount paid by a subsequent holder at the time of transfer). If the
person redeeming the obligation at maturity is the issuer of the
obligation, the issuer must determine the amount subject to withholding
through its records by treating the holder as if he were the original
holder. If a person redeeming the obligation at maturity is a person
other than the issuer of the obligation, and the obligation is listed
in Internal Revenue Service Publication 1212, List of Original Issue
Discount Obligations, the person must determine the amount subject to
withholding by using the issue price indicated in Publication 1212.
(e) Bearer long-term obligations. In the case of a bearer long-term
obligation with cash payments prior to maturity--
(1) Payments prior to maturity. Withholding under section 3406
applies prior to maturity only to the payment of qualified stated
interest (and not to any amount of original issue discount) includible
in the gross income of the holder for the calendar year.
(2) Payments at maturity. At maturity of the obligation,
withholding applies to the sum of any qualified stated interest payment
made at maturity and the total amount of original issue discount
includible in the gross income of the holder during the calendar year
of maturity. The amount required to be withheld at the time of the cash
payment, however, must not exceed the amount of the cash payment.
Sec. 31.3406(b)(2)-3 Window transactions.
(a) Requirement to backup withhold. Withholding under section 3406
applies to a window transaction (as defined in paragraph (b) of this
section) only if the payee does not furnish a taxpayer identification
number to the payor in the manner required in paragraph (c) of this
section or furnishes an obviously incorrect number as described in
Sec. 31.3406(h)-1(b)(2). Withholding does not apply to a window
transaction even though the Internal Revenue Service notifies the payor
of the payee's incorrect taxpayer identification number under section
3406(a)(1)(B) or of notified payee underreporting under section
3406(a)(1)(C). The payee in a window transaction is not required to
certify under penalties of perjury that the payee is not subject to
withholding due to notified payee underreporting (as described in
Sec. 31.3406(d)-2(b)(2)).
(b) Window transaction defined--Window transaction means a payment
of interest with respect to any of the following obligations:
(1) An interest coupon in bearer form that is subject to taxation
(i.e., other than exempt interest described in Sec. 1.6049-5(b)(1)(ii)
of this chapter);
(2) A United States savings bond; or
(3) A discount obligation having a maturity at issue of one year or
less, including commercial paper and bankers' acceptances that are in
[[Page 66117]]
definitive form (i.e., evidenced by a paper document other than a
confirmation receipt) but not including short-term government
obligations (as defined in section 1271(a)(3)(B)).
(c) Manner of furnishing taxpayer identification number in the case
of a window transaction. A payee must furnish the payee's taxpayer
identification number to the payor with respect to a window transaction
either orally or in writing at the time that the window transaction
occurs. See Sec. 31.3406(g)-3(c)(1)(i), which provides that a payee may
not claim the payee is awaiting receipt of a taxpayer identification
number with respect to a window transaction. The payee is not required
to certify, under penalties of perjury, that the taxpayer
identification number provided is correct.
Sec. 31.3406(b)(2)-4 Reportable dividend payment.
(a) Dividends subject to backup withholding. A payment of a kind,
and to a payee, that is required to be reported under section 6042
(relating to returns regarding payments of dividends and corporate
earnings and profits) is a reportable payment for purposes of section
3406. See paragraph (b) of this section for certain dividends not
subject to withholding under section 3406. See Sec. 31.6051-4 for the
requirement to furnish a statement to the payee if tax is withheld
under section 3406.
(b) Dividends not subject to backup withholding. Except as provided
in Sec. 31.3406(b)(3)-2 (relating to transactions reportable under
section 6045), withholding under section 3406 does not apply to--
(1) Any amount treated as a taxable dividend by reason of section
302 (relating to redemptions of stock), section 304 (relating to
redemptions through the use of related corporations), section 306
(relating to disposition of certain stock), section 356 (relating to
receipt of additional consideration in connection with certain
reorganizations), or section 1081(e)(2) (relating to certain
distributions pursuant to an order of the Securities and Exchange
Commission);
(2) Any exempt-interest dividend, as defined in section
852(b)(5)(A), paid by a regulated investment company; or
(3) Any amount paid or treated as paid during a year by a regulated
investment company, provided that the payor reasonably estimates, as
provided in paragraph (c)(2) of this section, that 95 percent or more
of all dividends paid or treated as paid during the year are exempt-
interest dividends.
(c) Amount subject to backup withholding--(1) In general. The
amount of a dividend subject to withholding under section 3406 is the
amount subject to reporting under section 6042, including any dividend
that is reinvested pursuant to a plan under which a shareholder may
elect to receive stock as a dividend instead of property. Except as
otherwise provided in this paragraph (c), withholding applies to the
entire amount of the distribution.
(2) Reasonable estimate of amount of dividend subject to backup
withholding. Pursuant to section 6042(b)(3) and Sec. 1.6042-3(c) of
this chapter, if the payor is unable to determine the portion of a
distribution that is a dividend, the entire amount of the distribution
must be treated as a dividend for information reporting under section
6042. Hence, withholding applies to the entire amount of the
distribution. If a payor is able reasonably to estimate under section
6042 and Sec. 1.6042-3(c) of this chapter the portion of a distribution
that is not a dividend, however, the payor must not withhold on that
portion (which is not considered a dividend). A payor making a payment,
all or a portion of which may not be a dividend, may use previous
experience to estimate the portion of a distribution that is not a
dividend. The payor's estimate is considered reasonable if--
(i) The estimate does not exceed the proportion of the
distributions made by the payor during the most recent calendar year
for which a Form 1099 was required to be filed that was not reported by
the payor as a dividend; and
(ii) The payor has no reasonable basis to expect that the
proportion of the distribution that is not a dividend will be
substantially different for the current year.
(3) Reinvested dividends. In the case of a dividend paid pursuant
to a dividend reinvestment plan, withholding under section 3406
applies, pursuant to Sec. 31.3406(a)-4(a), at the time and to the
amount made available to the shareholder or credited to the
shareholder's account. At the discretion of the payor, withholding
under section 3406 need not be applied to any excess of the fair market
value of the shares of stock received by the shareholder or credited to
the shareholder's account over the purchase price of the shares
(including shares acquired by the shareholder at a discount in
connection with the dividend distribution) or to any fee that is paid
by the payor in the nature of a broker's fee for purchase of the stock
or service charge for maintenance of the shareholder's account. The
payor must, however, treat any excess amounts and fees on a consistent
basis for each calendar year.
Sec. 31.3406(b)(2)-5 Reportable patronage dividend payment.
(a) Patronage dividends subject to backup withholding. A payment of
a kind, and to a payee, that is required to be reported under section
6044 (relating to returns regarding patronage dividends) is a
reportable payment for purposes of section 3406. See Sec. 31.6051-4 for
the requirement to furnish a statement to the payee if tax is withheld
under section 3406.
(b) Amount subject to backup withholding--(1) Failure to provide
taxpayer identification number or notification of incorrect taxpayer
identification number. For purposes of sections 3406(a)(1) (A) and (B),
the amount of a payment described in paragraph (a) of this section that
is subject to withholding under section 3406 is the amount subject to
reporting under section 6044, but only to the extent the payment is
made in money. For purposes of this paragraph (b), money includes cash
or a qualified check (as defined in section 1388(c)(4)).
(2) Notified payee underreporting or payee certification failure.
For purposes of sections 3406(a)(1) (C) and (D), the amount of a
payment described in paragraph (a) of this section that is subject to
withholding under section 3406 is the amount subject to withholding
under paragraph (b)(1) of this section, but only if 50 percent or more
of that reportable amount is paid in money. Thus, a payor is required
to withhold according to this paragraph (b)(2) on a payment if--
(i) There has been a notified payee underreporting described in
section 3406(a)(1)(C) and Sec. 31.3406(c)-1 or there has been a payee
certification failure described in section 3406(a)(1)(D) and
Sec. 31.3406(d)-2;
(ii) The payor makes a reportable payment subject to reporting
under section 6044 to the payee; and
(iii) Fifty percent or more of the payment is in cash or by
qualified check.
Sec. 31.3406(b)(3)-1 Reportable payments of rents, commissions,
nonemployee compensation, etc.
(a) Section 6041 and 6041A(a) payments subject to backup
withholding. A payment of a kind, and to a payee, that is required to
be reported under section 6041 (relating to information reporting of
rents, commissions, nonemployee compensation, etc.) or a payment that
is required to be reported under section 6041A(a) (relating to
information reporting of payments to nonemployees for services) is a
reportable payment for purposes of section 3406. See paragraph
[[Page 66118]]
(b) of this section for an exception concerning payments aggregating
less than $600. See Sec. 31.6051-4 for the requirement to furnish a
statement to the payee if tax is withheld under section 3406.
(b) Amount subject to backup withholding--(1) In general. The
amount of a payment described in paragraph (a) of this section subject
to withholding under section 3406 is the amount subject to reporting
under section 6041 or section 6041A(a).
(2) Net commissions. Withholding under section 3406 does not apply
to net commissions paid to unincorporated special agents with respect
to insurance policies that are subject to reporting under section 6041,
provided that no cash is actually paid by the payor to the special
agent.
(3) Payments aggregating $600 or more for the calendar year--(i) In
general. A payment is a reportable payment under paragraph (a) of this
section only if the aggregate amount of the current payment and all
previous payments to the payee during the calendar year aggregate $600
or more. The amount subject to withholding is the entire amount of the
payment that causes the total amount paid to the payee to equal $600 or
more and the amount of any subsequent payments made to the payee during
the calendar year. This paragraph (b)(3)(i) does not apply to gambling
winnings (as provided in Sec. 31.3406(g)-2(e)(1)).
(ii) Exceptions--(A) The $600 aggregation rule. The $600
aggregation rule of paragraph (b)(3)(i) of this section does not apply
if the payor was required to make an information return under section
6041 or 6041A(a) for the preceding calendar year with respect to
payments to the payee, or the payor was required to withhold under
section 3406 during the preceding calendar year with respect to
payments to the payee that were reportable under section 6041 or
6041A(a).
(B) Determination of whether payments aggregate $600 or more. In
determining whether payments to a payee aggregate $600 or more during a
calendar year for purposes of withholding under section 3406, the payor
must aggregate only payments of the same kind made to the same payee.
For this purpose, payments are of the same kind if they are of the same
type, regardless of whether they are reportable under the same section.
However, a payor with different paying departments making reportable
payments of the same kind is not required to aggregate payments made by
all those departments unless it is the payor's customary method to
aggregate those payments. A payor may, in its discretion, aggregate--
(1) Payments not of the same kind to the same payee, reportable
under either section 6041 or 6041A(a); and
(2) Payments reportable under section 6041 with payments reportable
under section 6041A(a).
Sec. 31.3406(b)(3)-2 Reportable barter exchanges and gross proceeds of
sales of securities or commodities by brokers.
(a) Transactions subject to backup withholding. A payment of a
kind, and to a payee, that any broker (as defined in section 6045(c)
and Sec. 1.6045-1(a)(1) of this chapter) or any barter exchange (as
defined in section 6045(c) and Sec. 1.6045-1(a)(4) of this chapter) is
required to report under section 6045 is a reportable payment for
purposes of section 3406. See Sec. 31.6051-4 for the requirement to
furnish a statement to the payee if tax is withheld under section 3406.
(b) Amount subject to backup withholding--(1) In general. The
amount subject to withholding under section 3406 is the amount subject
to reporting under section 6045. The amount subject to withholding with
respect to broker reporting is the amount of gross proceeds (as
determined under Sec. 1.6045-1(d)(5) of this chapter). The amount
subject to withholding with respect to barter exchanges is the amount
received by any member or client (as determined under Sec. 1.6045-
1(f)(4) of this chapter).
(2) Forward contracts, including foreign currency contracts, and
regulated futures contracts--(i) In general. If a customer is subject
to withholding under section 3406 with respect to a forward contract
(subject to information reporting under Sec. 1.6045-1(c)(5) of this
chapter), including a foreign currency contract (as defined in section
1256(g)(2)), or a regulated futures contract (as defined in section
1256(g)(1)), or with respect to an account through which those
contracts are disposed of or acquired, the broker must withhold on both
of the following amounts:
(A) All cash or property withdrawn from the account by the customer
during the relevant year; and
(B) The amount of cash in the account available for withdrawal by
the customer at the relevant year-end (including both gross proceeds
and variation margin).
(ii) Rules concerning withdrawals. A withdrawal includes the use of
money (including both gross proceeds and variation margin) or property
in the account to purchase any property other than property acquired in
connection with the closing of a contract. For this purpose, the
acceptance of a warehouse receipt or other taking of delivery to close
a contract is in connection with the closing of a contract only if the
property acquired is disposed of by the close of the seventh trading
day following the trading day that the customer takes delivery under
the contract. In addition, making delivery to close a contract is in
connection with the closing of a contract only if the broker is able to
determine that the property used to close the contract was acquired no
earlier than the seventh trading day prior to the trading day on which
delivery is made. Withdrawals do not include repayments of debt
incurred in connection with making or taking delivery that meets the
requirements of this paragraph (b)(2). Withdrawals also do not include
payments of commissions, fees, transfers of cash from the account to
another futures account that is subject to this paragraph (b)(2) or
cash withdrawals traceable to dispositions of property other than
futures (not including profit on the contract separately reportable
under Sec. 1.6045-1(c)(5)(i)(b) of this chapter).
(iii) Special rule for forward contracts, including foreign
currency contracts, and regulated futures contracts. The determination
of whether the customer is subject to withholding under section 3406
with respect to an account containing forward contracts, including
foreign currency contracts, or regulated futures contracts must be made
at the time of the cash or property withdrawals or the relevant year-
end, whichever is applicable.
(3) Security sales made through a margin account. The amount
described in paragraph (a) of this section that is subject to
withholding under section 3406 in the case of a security sale made
through a margin account (as defined in 12 CFR part 220 (Regulation T))
is the gross proceeds (as defined in Sec. 1.6045-1(d)(5) of this
chapter) of the sale. The amount required to be withheld with respect
to the sale, however, is limited to the amount of cash available for
withdrawal by the customer immediately after the settlement of the
sale. For this purpose, the amount available for withdrawal by the
customer does not include amounts required to satisfy margin
maintenance under Regulation T, rules and regulations of the National
Association of Securities Dealers and national securities exchanges,
and generally applicable self-imposed rules of the margin account
carrier.
(4) Security short sales--(i) Amount subject to backup withholding.
The amount subject to withholding under
[[Page 66119]]
section 3406 with respect to a short sale of securities is the gross
proceeds (as defined in Sec. 1.6045-1(d)(5) of this chapter) of the
short sale. At the option of the broker, however, the amount subject to
withholding may be the gain upon the closing of the short sale (if
any); consequently, the obligation to withhold under section 3406 would
be deferred until the closing transaction. A broker may use this
alternative method of determining the amount subject to withholding
under section 3406 with respect to a short sale only if at the time the
short sale is initiated, the broker expects that the amount of gain
realized upon the closing of the short sale will be determinable from
the broker's records. If, due to events unforeseen at the time the
short sale was initiated, the broker is unable to determine the basis
of the property used to close the short sale, the property must be
assumed for this purpose to have a basis of zero.
(ii) Time of backup withholding. The determination of whether a
short seller is subject to withholding under section 3406 must be made
on the date of the initiation or closing, as the case may be, or on the
date that the initiation or closing, as the case may be, is entered on
the broker's books and records.
(5) Fractional shares. A broker is not required to withhold under
section 3406 with respect to a sale of a fractional share of stock
resulting in less than $20 of gross proceeds (as described in
Sec. 5f.6045-1(c)(3)(ix) of this chapter).
Sec. 31.3406(b)(3)-3 Reportable payments by certain fishing boat
operators.
(a) Payments subject to backup withholding. A payment of a kind,
and to a payee, that is required to be reported under section 6050A
(relating to information reporting by certain fishing boat operators)
is a reportable payment for purposes of section 3406. See Sec. 31.6051-
4 for the requirement to furnish a statement to the payee if tax is
withheld under section 3406.
(b) Amount subject to backup withholding. The amount described in
paragraph (a) of this section subject to withholding under section 3406
is the amount subject to reporting under section 6050A, but only to the
extent the amount is paid in money and represents a share of the
proceeds of the catch.
Sec. 31.3406(b)(3)-4 Reportable payments of royalties.
(a) Royalty payments subject to backup withholding. A payment of a
kind, and to a payee, that is required to be reported under section
6050N (relating to information reporting of payments of royalties) is a
reportable payment for purposes of section 3406. See Sec. 31.6051-4 for
the requirement to furnish a statement to the payee if tax is withheld
under section 3406.
(b) Amount subject to backup withholding. In general, the amount
described in paragraph (a) of this section that is subject to
withholding under section 3406 is the amount subject to reporting under
section 6050N. However, if the reportable payment is for an oil or gas
interest, the amount subject to withholding is the net amount the payee
receives (i.e., the gross proceeds less production-related taxes such
as state severance taxes).
Sec. 31.3406(b)(4)-1 Exemption for certain minimal payments.
(a) In general. A payor of reportable interest or dividends (as
described in section 3406(b)(2)) or of royalties (as described in
section 3406(b)(3)(E)) may elect not to withhold from a payment that
does not exceed $10 and that on an annualized basis does not exceed $10
(see paragraph (c) of this section). A broker or barter exchange may
elect not to withhold on gross proceeds of $10 or less without regard
to the annualization requirement. See Sec. 31.6051-4 for the
requirement to furnish a statement to the payee if tax is withheld
under section 3406.
(b) Manner of making the election. The election not to withhold
from payments that do not exceed $10 can be made only for payments
described in paragraph (a) of this section. The election may be made on
a payment-by-payment basis.
(c) How to annualize--(1) In general. To annualize a reportable
interest payment, dividend payment, or royalty payment, a payor must
calculate what the amount of the payment would be if it were paid for a
1-year period (instead of the period for which it actually is paid).
The annualized amount is determined by dividing the amount of the
payment by the number of days in the period for which it is being paid
and then multiplying that result by the number of days in the year. If
the annualized amount is $10 or less, the payor may elect not to
withhold on that payment regardless of whether more than $10 may be or
has been paid to the payee in other reportable payments during the
calendar year. Conversely, if the annualized amount is more than $10,
withholding applies even if $10 or less is actually paid to the payee
during the calendar year. For purposes of computing the annualized
amount, the payor may assume that February always consists of 28 days
and that the year always consists of 360 days. For amounts that are
deposited with a payor in a new account or certificate between the
dates on which the payor customarily pays or credits interest, the
payor may assume that the period for which the interest is paid is the
payor's customary period for paying or crediting interest.
(2) Special aggregation rule for reportable interest and dividends.
If a payor maintains records that reflect multiple holdings of one
payee and the payor makes an aggregate payment of reportable interest
or dividends (as defined in section 3406(b)(2)) with respect to those
multiple holdings (such as a dividend check that reflects payment on
all stock owned by the payee), the payor must annualize the aggregate
payment.
(d) Exception for window transactions and original issue discount.
A payor is not required to annualize payments made in window
transactions (as defined in Sec. 31.3406(b)(2)-3(b)) or payments of
original issue discount. With respect to a window transaction, however,
the payor is required to aggregate all payments made in the same
transaction (e.g., payments made with respect to coupons or obligations
presented for payment at the same time as described in Sec. 1.6049-
4(e)(4) of this chapter).
Sec. 31.3406(c)-1 Notified payee underreporting of reportable interest
or dividend payments.
(a) Overview. Withholding under section 3406(a)(1)(C) applies to
any reportable interest or dividend payment (as defined in section
3406(b)(2)) made with respect to an account of a payee if the Internal
Revenue Service or a broker notifies a payor under paragraph (c) (1) or
(2) of this section that the payee is subject to withholding due to
notified payee underreporting (as defined in paragraph (b)(1) of this
section), and the payor is required under paragraph (c)(3) of this
section to identify that account. After receiving the notice and
identifying accounts, the payor must notify the payee, in accordance
with paragraph (d) of this section, that withholding due to notified
payee underreporting has started. Paragraph (e) of this section
describes the period for which withholding due to notified payee
underreporting is required. Paragraph (f) of this section provides
rules concerning notices that the Internal Revenue Service will send to
a payee before notifying a payor that the payee is subject to
withholding due to notified payee underreporting. Paragraph (g) of this
section provides rules that a payee can use to prevent withholding due
to notified payee underreporting from starting or to stop it once it
has started. Paragraph (h) of
[[Page 66120]]
this section provides special rules for joint accounts of payees who
have filed a joint return. See section 6682 for the penalties that may
apply to a payee subject to withholding under section 3406(a)(1)(C).
(b) Definitions--(1) Notified payee underreporting. Notified payee
underreporting means that the Internal Revenue Service has--
(i) Determined that there was a payee underreporting (as defined in
paragraph (b)(2) of this section);
(ii) Mailed at least four notices under paragraph (f)(1) of this
section to the payee (over a period of at least 120 days) with respect
to the underreporting; and
(iii) Assessed any deficiency attributable to the underreporting in
the case of any payee who has filed a return.
(2) Payee underreporting--(i) In general. Payee underreporting
means that the Internal Revenue Service has determined, for a taxable
year, that--
(A) A payee failed to include in the payee's return of tax under
chapter 1 of the Internal Revenue Code for that year any portion of a
reportable interest or dividend payment required to be shown on that
tax return; or
(B) A payee may be required to file a return for that year and to
include a reportable interest or dividend payment in the return, but
failed to file the return.
(ii) Payments included in making payee underreporting
determination. The determination of whether there is payee
underreporting is made by treating as reportable interest or dividend
payments, all payments of dividends reported under section 6042, all
patronage dividends reported under section 6044, and all interest and
original issue discount reported under section 6049, regardless of
whether withholding due to notified payee underreporting applies to
those payments.
(c) Notice to payors regarding backup withholding due to notified
payee underreporting--(1) In general. If the Internal Revenue Service
or a broker notifies a payor that a payee is subject to withholding due
to notified payee underreporting, the payor must--
(i) Identify any accounts of the payee under the rules of paragraph
(c)(3) of this section; and
(ii) Notify the payee and withhold under section 3406 on reportable
interest or dividend payments made with respect to any identified
account under the rules of paragraphs (d) and (e) of this section.
(2) Additional requirements for payors that are also brokers--(i)
In general. A broker must notify the payor of a readily tradable
instrument that the payee of the instrument is subject to withholding
due to notified payee underreporting if--
(A) The broker (in its capacity as a payor) receives a notice from
the Internal Revenue Service under paragraph (c)(1) of this section
that a payee is subject to withholding due to notified payee
underreporting and the broker is required to identify an account of the
payee under paragraph (c)(3) of this section;
(B) The payee subsequently acquires the instrument from the broker
through the same account; and
(C) The acquisition of the instrument occurs after the close of the
30th business day after the date that the broker receives the notice
(or on any earlier date that the broker may begin applying this
paragraph (c)(2) after receipt of the notice described in paragraph
(c)(1) of this section).
(ii) Transfer out of street name. For purposes of this paragraph
(c)(2), an acquisition includes a transfer of an instrument out of
street name into the name of the registered owner (i.e., the payee).
(iii) Method of providing notice. A broker must provide the notice
required under this paragraph (c)(2) to the payor of the instrument
with the transfer instructions for the acquisition. See
Sec. 31.3406(d)-4(a)(2).
(iv) Termination of obligation to provide information. The
obligation of a broker to provide notice to payors under this paragraph
(c)(2) terminates simultaneously with the termination of the broker's
obligation to withhold (in its capacity as payor) due to notified payee
underreporting on reportable interest or dividends made with respect to
the account.
(3) Payor identification of accounts of the payee subject to backup
withholding due to notified payee underreporting--(i) In general--(A)
Notice from the Internal Revenue Service. If a payor receives a notice
from the Internal Revenue Service under paragraph (c)(1) of this
section, the payor must identify, exercising reasonable care, all
accounts using the same taxpayer identification number for information
reporting purposes as the one provided in the notice. The notice may
provide, however, that the payor need only identify the account or
accounts corresponding to any account number or designation and related
taxpayer identification number used for information reporting purposes
as that listed on the notice.
(B) Notice from a broker. If a payor receives a notice from a
broker under paragraphs (c) (1) and (2) of this section, the payor is
not required to identify any account other than the account identified
in the notice.
(ii) Exercise of reasonable care. If an account identified pursuant
to paragraph (c)(3)(i)(A) of this section contains a customer
identifier that can be used to retrieve systemically any other accounts
that use the same taxpayer identification number for information
reporting purposes, the payor must identify all accounts that can be so
retrieved. Otherwise, a payor is considered to exercise reasonable care
in identifying accounts subject to withholding under section
3406(a)(1)(C) if the payor searches any computer or other recordkeeping
system for the region, division, or branch that serves the geographic
area in which the payee's mailing address is located and that was
established (or is maintained) to reflect reportable interest or
dividend payments.
(iii) Newly opened accounts. (A) In general, a new account is not
subject to withholding under section 3406(a)(1)(C) if the payee
provides to the payor a Form W-9 (or other acceptable substitute) on
which the payor may reasonably rely (within the meaning of
Sec. 31.3406(h)-3(e)(2) without regard to Sec. 31.3406(h)-3(e)(2)(v)),
unless the payor has actual knowledge (within the meaning of paragraph
(c)(3)(iii)(B) of this section) that the statements made on the form
are not true.
(B) For purposes of paragraph (c)(3)(iii)(A) of this section, a
payor is considered to have actual knowledge that a payee's statement
that the payee is not subject to withholding under section
3406(a)(1)(C) is not true if--
(1) The employee or individual agent of the payor who receives the
payee's certification knows that the statement is not true;
(2) In conducting the investigation, if any, required by paragraph
(c)(3)(iii)(C) of this section, the payor identifies any other accounts
of the payee that are already subject to withholding under section
3406(a)(1)(C); or
(3) In the course of processing the certification or in
administering an account to which a certification relates, the payor
discovers that the payor was previously notified by the Internal
Revenue Service that the payee is subject to withholding under section
3406(a)(1)(C) and no notice was received to stop withholding pursuant
to section 3406(c)(3) prior to the time of the discovery.
(C) Except as provided in this paragraph (c)(3)(iii)(C), a payor is
not required to investigate whether the statements made on the Form W-9
described in paragraph (c)(3)(iii)(A) of this section are true. If,
however, in
[[Page 66121]]
opening a new account, the payor relies on the same Form W-9 (or
appropriate substitute) that it relied on previously in opening another
account, the payor must investigate whether any such existing account
is subject to withholding under section 3406(a)(1)(C). Similarly, if
the payor utilizes a universal account system described in the first
sentence of paragraph (c)(3)(ii) of this section, and in opening a new
account the payor searches its records to determine whether the new
account should be identified under an existing identifier (because the
payee has existing accounts with the payor), the payor must investigate
whether any existing accounts identified with the same identifier are
subject to withholding under section 3406(a)(1)(C).
(d) Notice from payors of backup withholding due to notified payee
underreporting--(1) In general. If a payor receives notice from the
Internal Revenue Service or a broker under paragraph (c)(1) of this
section and is required to identify an account under paragraph (c)(3)
of this section as an account of the payee, the payor must notify the
payee in accordance with paragraph (d)(2) of this section that
withholding due to notified payee underreporting has started.
(2) Procedures. The payor must send the notice required by
paragraph (d)(1) of this section to the payee no later than 15 days
after the date that the payor makes the first payment subject to
withholding due to notified payee underreporting. The payor must send
the notice by first-class mail to the payee at the payee's last known
address. The notice to the payee required by paragraph (d)(1) of this
section must state--
(i) That the Internal Revenue Service has given notice that the
payee has underreported reportable interest or dividends;
(ii) That, as a result of the underreporting, the payor is required
under section 3406(a)(1)(C) of the Internal Revenue Code to withhold 31
percent of reportable interest or dividend payments made to the payee;
(iii) The date that the payor started (or plans to start)
withholding due to notified payee underreporting under section
3406(a)(1)(C);
(iv) The account number or numbers that are subject to withholding
due to notified payee underreporting;
(v) That the payee must obtain a determination from the Internal
Revenue Service in order to stop the withholding due to notified payee
underreporting; and
(vi) That while the payee is subject to withholding due to notified
payee underreporting, the payee may not certify to a payor making
reportable interest or dividend payments (or to a broker acquiring a
readily tradable instrument for the payee) that the payee is not
subject to withholding due to notified underreporting.
(e) Period during which backup withholding is required--(1) In
general. If a payor receives notice from the Internal Revenue Service
or a broker under paragraph (c)(1) of this section, the payor must
impose withholding under section 3406(a)(1)(C) on all reportable
interest or dividend payments with respect to any account of the payee
required to be identified under paragraph (c)(3) of this section made
after the close of the 30th business day after the day on which the
payor receives that notice and before the stop date (as described in
paragraph (e)(2) of this section). A payor may choose to start
withholding under this paragraph (e)(1) at any time during the 30-
business-day period described in the preceding sentence.
(2) Stop withholding--(i) When no underreporting exists or undue
hardship exists--(A) Stop date. In the case of a determination under
paragraph (g)(3) (i) or (iii) of this section that no underreporting
exists or that an undue hardship exists, the stop date is the day that
is 30 days after the earlier of--
(1) The date on which the payor receives written notification from
the Internal Revenue Service under paragraph (g) of this section that
withholding is to stop; or
(2) The date on which the payor receives a copy of the written
certification provided to the payee by the Internal Revenue Service
under paragraph (g) of this section that withholding is to stop.
(B) Acceleration of stop date. A payor may choose to stop
withholding at any time during the 30-day period described in paragraph
(e)(2)(i)(A) of this section.
(ii) When underreporting is corrected or bona fide dispute exists.
In the case of a determination under paragraph (g)(3) (ii) or (iv) of
this section that the underreporting has been corrected or that a bona
fide dispute exists, the stop date occurs on the first day of January
(immediately following a period of at least twelve months ending on
October 15 of any calendar year in which the determination has been
made) or if later, the stop date determined under paragraph (e)(2)(i)
of this section.
(3) Dormant accounts. The requirement that a payor withhold under
this paragraph (e) on reportable interest or dividend payments made
with respect to an account terminates no later than the close of the
third calendar year ending after the later of--
(i) The date that the most recent reportable interest or dividend
payment was made with respect to that account; or
(ii) The date that the payor received notice under paragraph (c)(1)
of this section.
(f) Notice to payees from the Internal Revenue Service--(1) Notice
period. After the Internal Revenue Service determines under paragraph
(b)(2) of this section that payee underreporting exists, the Internal
Revenue Service will mail to the payee at least four notices over a
period of at least 120 days (the notice period) before payors will be
notified under paragraph (c)(1) of this section that the payee is
subject to withholding due to notified payee underreporting. The
notices may be accompanied by, or incorporated in, other notices
provided to the payee by the Internal Revenue Service.
(2) Payee subject to backup withholding. After the Internal Revenue
Service provides the notices described in paragraph (f)(1) of this
section, the Internal Revenue Service will send notices to payors under
paragraph (c)(1) of this section unless--
(i) A payee obtains a determination under paragraph (g) of this
section; or
(ii) In the case of a payee who has filed a tax return, the
Internal Revenue Service has not assessed the deficiency attributable
to the underreporting.
(3) Disclosure of names of payors and brokers. Pursuant to section
3406(c)(5) the Internal Revenue Service may require a payee subject to
withholding due to notified payee underreporting to disclose the names
of all the payee's payors of reportable interest or dividend payments
and the names of all of the brokers with whom the payee has accounts
which may involve reportable interest or dividend payments. To the
extent required in the request from the Internal Revenue Service, the
payee must also provide the payee's account numbers and other
information necessary to identify the payee's accounts.
(4) Backup withholding certification. After a payee receives a
final notice from the Internal Revenue Service under paragraph (f)(1)
of this section, the payee is not permitted to certify to any payor or
broker, under penalties of perjury, that the payee is not subject to
withholding under section 3406(a)(1)(C), until the payee receives the
certification from the Internal Revenue Service under paragraph (g) of
this section advising the payee that the payee is no longer subject to
[[Page 66122]]
withholding under section 3406(a)(1)(C). A final notice will contain
the information described in this paragraph (f)(4). See sections 6682
and 7205(b) for civil and criminal penalties for making a false
certification.
(g) Determination by the Internal Revenue Service that backup
withholding should not start or should be stopped--(1) In general. A
payee may prevent withholding due to notified payee underreporting from
starting, or stop the withholding once it has started, by requesting
and receiving a determination from the Internal Revenue Service under
one or more of the provisions of paragraph (g)(3) of this section.
Following its review of a request for a determination under paragraph
(g)(3) of this section, the Internal Revenue Service will either make
the determination or provide the payee with a written report informing
the payee that the request for determination is being denied and the
reasons for the denial. If a determination is made during the notice
period (as defined in paragraph (f)(1) of this section), the payee is
not subject to withholding due to notified payee underreporting with
respect to any taxable year for which a determination was made. If a
determination is made after the notice period, the Internal Revenue
Service will, at the time prescribed in paragraph (g)(2) of this
section, provide written certification to a payee that withholding is
to stop, and will notify payors who were contacted pursuant to
paragraph (c)(1) of this section to stop withholding. A broker who (in
its capacity as payor) under this paragraph (g)(1) receives a notice
from the Internal Revenue Service or a copy of the certification
provided to a payee by the Internal Revenue Service is not required to
provide a corresponding notice to any payors whom the broker has
previously notified under paragraph (c)(2) of this section.
(2) Date notice to stop backup withholding will be provided--(i)
Underreporting corrected or bona fide dispute. If the Internal Revenue
Service makes a determination under paragraph (g)(3) (ii) or (iv) of
this section during the 12-month period ending on October 15 of any
calendar year (as described in paragraph (e)(2)(ii) of this section),
the Internal Revenue Service will provide the certification and the
notices described in paragraph (g)(1) of this section no later than
December 1 of that calendar year.
(ii) No underreporting or undue hardship. If the Internal Revenue
Service makes a determination under paragraph (g)(3)(i) or (iii) of
this section, the Internal Revenue Service will provide the notices
described in paragraph (g)(1) of this section no later than the 45th
day after the day on which the Internal Revenue Service makes its
determination.
(3) Grounds for determination. The Internal Revenue Service will
make a determination that withholding due to notified payee
underreporting should not start or should stop once it has started if
the payee--
(i) Shows that there was no payee underreporting (as provided in
paragraph (g)(4) of this section) for each taxable year with respect to
which the Internal Revenue Service determined under paragraph (b)(2) of
this section that there was payee underreporting;
(ii) Corrects any payee underreporting (as provided in paragraph
(g)(5) of this section) for each taxable year with respect to which the
Internal Revenue Service determined under paragraph (b)(2) of this
section that there was payee underreporting;
(iii) Shows that withholding will cause or is causing an undue
hardship (as defined in paragraph (g)(6) of this section) and that it
is unlikely that the payee will underreport interest or dividend
payments again; or
(iv) Shows that a bona fide dispute exists regarding whether any
underreporting has occurred (as provided in paragraph (g)(7) of this
section) for each taxable year with respect to which the Internal
Revenue Service determined under paragraph (b)(2) of this section that
there was payee underreporting.
(4) No underreporting. A payee may show that no underreporting of
reportable interest or dividends payments exists by presenting--
(i) Receipts or other satisfactory documentation to the Internal
Revenue Service showing that all taxes relating to the payments were
reported; or
(ii) Evidence showing that the payee did not have to file a return
for the taxable year in question (e.g., because the payee did not make
enough income) or that the underreporting determination was based upon
a factual, clerical, or other error.
(5) Correcting any payee underreporting--(i) Before issuance of a
statutory notice of deficiency. Before a statutory notice of deficiency
is issued to a payee pursuant to section 6212, the payee may correct
underreporting--
(A) By filing a return if one was not previously filed and
including the unreported interest and dividends thereon;
(B) By filing an amended return in the event a return was filed and
including the unreported interest and dividends thereon; or
(C) By consenting to the additional assessment according to
applicable notices and forms sent to the payee by the Internal Revenue
Service with respect to the underreporting, and paying taxes,
penalties, and interest due with respect to any underreported interest
or dividend payments.
(ii) After issuance of a statutory notice of deficiency. After a
statutory notice of deficiency is issued to a payee--
(A) The payee may correct underreporting at any time, by filing a
return if one was not previously filed and paying the entire deficiency
and any other taxes including penalties and interest attributable to
any payee underreporting of interest or dividend payments; or
(B) The payee may correct underreporting after the mailing of the
statutory notice of deficiency but before the expiration of the 90-day
or 150-day period described in section 6213(a) or, if a petition is
filed with the United States Tax Court, before the decision of the Tax
Court is final, by making a remittance to the Internal Revenue Service
of the amounts described in paragraph (g)(5)(ii)(A) of this section.
The payee must specifically designate in writing that the remittance is
a deposit in the nature of a cash bond.
(iii) Special rules. For purposes of paragraph (g)(5)(ii) of this
section, the payee will not be deemed to have corrected the payee
underreporting under paragraph (g)(5)(ii)(B) of this section after the
remittance is returned to the payee in the manner described in any
applicable administrative procedure. For further guidance on a deposit
in the nature of a cash bond, see subparagraph 2 of section 4.01 of
Rev. Proc. 84-58 (1984-2 C.B. 501). (See Sec. 601.601(d)(2) of this
chapter.) Once the remittance is returned to the payee, the rules of
this section will apply. If the Internal Revenue Service previously
contacted payors of the payee to start withholding with respect to the
notified payee underreporting, however, the Internal Revenue Service
will recontact those payors to start withholding under paragraph (c)(1)
of this section with respect to the payee underreporting without regard
to paragraph (f) of this section.
(6) Undue hardship--(i) In general. A determination of undue
hardship will be based on the overall impact to the payee of having
reportable interest or dividend payments withheld at a 31 percent rate
under section 3406. In addition, a determination of undue hardship will
be made only if the Internal Revenue Service concludes that it is
unlikely that any payee underreporting will occur again.
[[Page 66123]]
(ii) Factors. Factors that will be considered in determining
whether withholding causes undue hardship include, but are not limited
to, the following--
(A) Whether estimated tax payments, and other credits for current
tax liabilities, or amounts withheld on employee wages or pensions, in
addition to withholding under section 3406, would cause significant
overwithholding;
(B) The payee's health, including the payee's ability to pay
foreseeable medical expenses;
(C) The extent of the payee's reliance on interest and dividend
payments to meet necessary living expenses and the existence, if any,
of other sources of income;
(D) Whether other income of the payee is limited or fixed
(e.g., social security, pension, and unearned income);
(E) The payee's ability to sell or liquidate stocks, bonds, bank
accounts, trust accounts, or other assets, and the consequences of
doing so;
(F) Whether the payee reported and timely paid the most recent
year's tax liability, including interest and dividend income; and
(G) Whether the payee has filed a bankruptcy petition with the
United States Bankruptcy Court.
(7) Bona fide dispute. The Internal Revenue Service may make a
determination under this paragraph (g)(7) if there is a dispute between
the payee and the Internal Revenue Service on a question of fact or law
that is material to a determination under paragraph (g)(3)(i) of this
section and, based upon all the facts and circumstances, the Internal
Revenue Service finds that the dispute is asserted in good faith by the
payee and there is a reasonable basis for the payee's position.
(h) Payees filing a joint return--(1) In general. For purposes of
this section, if payee underreporting is found to exist with respect to
a joint return, then the provisions of this section apply to both
payees (i.e., the husband and wife). As a result, both payees are
subject to withholding on accounts in their individual names as well as
accounts in their joint names. Either or both payees may satisfy the
criteria for a determination that no payee underreporting exists, that
the underreporting has been corrected, or that a bona fide dispute
exists (as provided in paragraph (g)(3) (i), (ii), or (iv) of this
section). Both payees, however, must satisfy the criteria for a
determination that withholding will cause or is causing undue hardship
(as provided in paragraph (g)(3)(iii) of this section).
(2) Exceptions--(i) Innocent spouse. A spouse who files a joint
return may obtain a determination that withholding should stop or not
start with respect to payments made to his or her individual accounts,
if the spouse shows that--
(A) He or she did not underreport income because he or she is a
spouse described in section 6013(e), i.e, innocent spouse; or
(B) There is a bona fide dispute regarding whether he or she is an
innocent spouse and hence did not underreport income.
(ii) Divorced or legally separated payee. A payee who, at the time
of the request for a determination under paragraph (g) of this section,
is divorced or separated under State law may obtain a determination
that undue hardship exists (or would exist) under paragraph (g)(3)(iii)
of this section with respect to reportable interest or dividend
payments made to his or her individual accounts if the divorced or
legally separated payee satisfies the criteria for a determination
under paragraph (g)(6) of this section.
(i) Reserved.
(j) Penalties. For the application of penalties related to this
section, see sections 6682 and 7205(b).
Sec. 31.3406(d)-1 Manner required for furnishing a taxpayer
identification number.
(a) Requirement to backup withhold. Withholding under section
3406(a)(1)(A) applies to a reportable payment (as defined in section
3406(b)) if the payee does not furnish the payee's taxpayer
identification number to the payor in the manner required by this
section. The period for which withholding is required is described in
Sec. 31.3406(e)-1(b). See Sec. 31.3406(d)-3(a) and (b) for special
rules when an account is established directly with, or an instrument is
acquired directly from, the payor by electronic transmission or by
mail, or an instrument is sold through a broker by electronic
transmission or by mail. See Sec. 31.3406(d)-4 for special rules
applicable to readily tradable instruments acquired through a broker.
See Sec. 31.3406(h)-3(e) for the rules on when a payor may rely on a
Form W-9. See also Sec. 31.3406(g)-3 for rules regarding a payee
awaiting receipt of a taxpayer identification number. See the
applicable information reporting sections and section 6109 and the
regulations thereunder to determine whose taxpayer identification
number should be provided.
(b) Reportable interest or dividend account--(1) Manner required
for furnishing a taxpayer identification number with respect to a pre-
1984 account or instrument. A payee must furnish the payee's taxpayer
identification number to the payor with respect to any obligation,
deposit, certificate, share, membership, contract, investment, account,
or other relationship or instrument established or acquired on or
before December 31, 1983 (a pre-1984 account) and with respect to which
the payor makes a reportable interest or dividend payment (as defined
in section 3406(b)(2)). The manner of determining whether an account or
an instrument is a pre-1984 account is described in paragraph (b)(2) of
this section. The payee of a pre-1984 account may furnish the payee's
taxpayer identification number to the payor orally or in writing. The
payee is not required to certify under penalties of perjury that the
taxpayer identification number is correct.
(2) Determination of pre-1984 account or instrument--(i) In
general. An account that is in existence before January 1, 1984, will
be considered a pre-1984 account, regardless of whether additional
deposits are made to the account on or after January 1, 1984. An
account established as an expansion of a credit union prime account in
existence prior to January 1, 1984, constitutes a pre-1984 account. If
funds taken from one account in existence prior to January 1, 1984, are
used to create a new account on or after that date, however, the new
account does not constitute a pre-1984 account except as provided in
the preceding sentence. An instrument acquired prior to January 1,
1984, is a pre-1984 account. Regardless of when an instrument was
acquired, if it is negotiated in a window transaction as defined in
Sec. 31.3406(b)(2)-3(b), it is treated as an instrument acquired after
December 31, 1983. An obligation in bearer form and subject to
reporting under section 6045, whenever acquired, is not a pre-1984
account. Any instrument, whenever acquired, that is held in a brokerage
account is considered a pre-1984 account if the brokerage account is
not a post-1983 brokerage account (as described in paragraph (c)(1)(ii)
of this section). If shares of a corporation are held before January 1,
1984 (or considered held before that date by operation of this
paragraph (b)(2)), and additional shares are acquired by the holder,
irrespective of whether the shares are received by reason of a stock
dividend, investing new cash, or otherwise, the new shares, in the
discretion of the payor, may be considered a pre-1984 account. In the
[[Page 66124]]
case of a qualified employee trust that distributes instruments in
kind, any instrument distributed from the trust is considered a pre-
1984 account with respect to employees who were participants in the
trust before 1984. Similarly, when a payor offers participants in a
plan the opportunity to purchase stock of the payor after a specified
time, using the money that the payee invested during that period of
time, the stock so purchased after December 31, 1983, is considered a
pre-1984 account with respect to participants in the plan who either
owned shares or invested money in the plan before January 1, 1984.
(ii) Account or instrument automatically acquired on the maturity
or termination of an account. When an account is opened, or an
instrument is acquired, automatically on the maturity or termination of
an account that was in existence or an instrument that was held before
January 1, 1984 (or considered to have been in existence or held before
that date by operation of this paragraph (b)(2)(ii)), without the
participation of the payee, the new account or instrument, in the
discretion of the payor, may be considered a pre-1984 account. For
purposes of the preceding sentence, a payee is not considered to have
participated in the acquisition of the new account or instrument solely
because the payee failed to exercise a right to withdraw funds at the
maturity or termination of the old account or instrument.
(iii) Insurance policies. In the case of insurance policies in
effect on December 31, 1983, the election of a dividend accumulation
option pursuant to which interest is paid (as defined in Sec. 1.6049-
5(a)(4) of this chapter), or the creation of an account in which
proceeds of a policy are held for the policy beneficiary, may, in the
payor's discretion, be treated as a pre-1984 account.
(iv) Acquisitions of accounts and instruments--(A) Pre-1984 or
post-1983 status known. If a payor acquires accounts or instruments of
another payor (including through a tax-free reorganization under
section 368), the acquiring payor must treat the persons specified in
this paragraph (b)(2)(iv)(A) as having the same requirement to furnish
a taxpayer identification number in the manner required under this
paragraph (b) to the acquiring payor for information reporting,
withholding, and related tax provisions as existed with respect to the
payor whose accounts or instruments were acquired. Persons specified in
this paragraph (b)(2)(iv)(A) are persons who held accounts or
instruments in the other payor immediately before the acquisition and
who receive an account or instrument in the acquiring payor immediately
after the acquisition.
(B) Pre-1984 or post-1983 status unknown. If the acquiring payor,
as described in paragraph (b)(2)(iv)(A) of this section, is unable to
identify from the business records of the other payor whether any or
all of the accounts or instruments of the persons specified in
paragraph (b)(2)(iv)(A) of this section are pre-1984 (or post-1983)
accounts or instruments, then the acquiring payor may treat these
unidentified accounts or instruments as pre-1984 accounts or
instruments.
(C) Cross reference. See Sec. 31.3406(g)-2(g) for the limited
exception from withholding under section 3406(a)(1)(A) on accounts or
instruments described in paragraphs (b)(2)(iv) (A) and (B) of this
section for which the payor does not have a taxpayer identification
number.
(3) Manner required for furnishing a taxpayer identification number
with respect to an account or instrument that is not a pre-1984
account. A payee who receives reportable interest or dividend payments
(as defined in section 3406(b)(2)) from a payor must certify under
penalties of perjury that the taxpayer identification number the payee
furnishes to the payor is the payee's correct taxpayer identification
number. The payee must make the certification only with respect to an
account or instrument that is not a pre-1984 account (as described in
paragraph (b)(2) of this section). See Sec. 31.3406(h)-3 for a
description of the certificate on which the certification must be made.
See Sec. 31.3406(d)-2 for the requirement that the payee must certify
under penalties of perjury that the payee is not subject to withholding
due to notified payee underreporting. See Sec. 31.3406(d)-3(a) with
respect to an account established directly with, or an instrument
acquired directly from, the payor by electronic transmission or by
mail. See Sec. 31.3406(d)-4 for the rules applicable to readily
tradable instruments acquired through a broker.
(4) Special rule with respect to the acquisition of a readily
tradable instrument in a transaction between certain parties acting
without the assistance of a broker. If a payee, at any time, acquires a
readily tradable instrument without the assistance of a broker, and no
party to the acquisition is a broker or an agent of the payor, the
payee must furnish the payee's taxpayer identification number to the
payor prior to the time reportable payments are made on the instrument.
The payee is not required to certify under penalties of perjury that
the number is correct. See Sec. 31.3406(d)-2 for the rule that a payee
is not subject to withholding due to notified payee underreporting with
respect to a readily tradable instrument acquired in the manner
described in this paragraph (b)(4). A broker is considered to provide
assistance in the acquisition of an instrument if the person effecting
the acquisition would be required to make an information return under
section 6045 if such person were to sell the instrument. See
Sec. 31.3406(d)-4 for rules relating to an acquisition of a readily
tradable instrument when a broker is involved.
(c) Brokerage account--(1) Manner required for furnishing a
taxpayer identification number with respect to a brokerage relationship
that is not a post-1983 brokerage account--(i) In general. With respect
to any instrument, investment, or deposit made through a brokerage
account that is not a post-1983 brokerage account, a payee must furnish
the payee's taxpayer identification number to the broker either orally
or in writing. The payee is not required to certify under penalties of
perjury that the taxpayer identification number is correct. See
paragraph (b)(2)(i) of this section for the rule that any instrument,
whenever acquired, that is held in a brokerage account that is not a
post-1983 brokerage account, is considered held in an account that is
not a post-1983 brokerage account. For example, in 1983 a payee
established and acquired a readily tradable instrument from a brokerage
account; no activity took place through that account until the payee
purchased a readily tradable instrument in 1995. That readily tradable
instrument is not held in a post-1983 brokerage account; therefore, the
payee need not certify under penalties of perjury that the payee's
taxpayer identification number is correct.
(ii) Definition of a brokerage account that is not a post-1983
brokerage account. A brokerage account that was established by a payee
before January 1, 1984, through which during 1983 the broker either
bought or sold securities for the payee or held securities on behalf of
the payee as a nominee (i.e., in street name), is an account that is
not a post-1983 brokerage account.
(2) Manner required for furnishing a taxpayer identification number
with respect to a post-1983 brokerage account--(i) In general. With
respect to a post-1983 brokerage account, the payee must furnish the
payee's taxpayer identification number to the broker and certify under
penalties of perjury that the taxpayer identification number furnished
is correct, except as provided in Sec. 31.3406(d)-3(b).
[[Page 66125]]
(ii) Definition of a post-1983 brokerage account. A brokerage
account established after December 31, 1983 (or before January 1, 1984,
through which during 1983 the broker neither bought nor sold securities
nor held securities on behalf of the payee as a nominee (i.e., in
street name)), is a post-1983 brokerage account.
(d) Rents, commissions, nonemployee compensation, and certain
fishing boat operators, etc.--Manner required for furnishing a taxpayer
identification number. For accounts, contracts, or relationships
subject to information reporting under section 6041 (relating to
information reporting at source on rents, royalties, salaries, etc.),
section 6041A(a) (relating to information reporting of payments for
nonemployee services), section 6050A (relating to information reporting
by certain fishing boat operators), or section 6050N (relating to
information reporting of payments of royalties), the payee must furnish
the payee's taxpayer identification number to the payor either orally
or in writing. Except as provided in Sec. 31.3406(d)-5, the payee is
not required to certify under penalties of perjury that the taxpayer
identification number is correct regardless of when the account,
contract, or relationship is established.
Sec. 31.3406(d)-2 Payee certification failure.
(a) Requirement to backup withhold. Withholding under section
3406(a)(1)(D) applies to a reportable interest or dividend payment (as
defined in section 3406(b)(2)) if, and only if, the payee fails to
certify to the payor, under penalties of perjury, that the payee is not
subject to withholding due to notified payee underreporting under
section 3406(a)(1)(C). The period for which withholding applies is
described in Sec. 31.3406(e)-1(e). See Sec. 31.3406(d)-3(a) for special
rules when an account is established directly with, or an instrument is
acquired directly from, the payor by electronic transmission or by
mail. See Sec. 31.3406(c)-1(c)(3)(iv) for rules with respect to a
payor's reliance on a payee certification for a new account following
notified payee underreporting. See Sec. 31.3406(d)-4 for special rules
relating to the acquisition of a readily tradable instrument through a
broker. The certificate on which the certification should be made is
described in Sec. 31.3406(h)-3.
(b) Exceptions. Withholding under section 3406(a)(1)(D) and
paragraph (a) of this section does not apply to reportable interest or
dividend payments (as defined in section 3406(b)(2)) made--
(1) With respect to a pre-1984 account (as defined in
Sec. 31.3406(d)-1(b)(1));
(2) In a window transaction (as defined in Sec. 31.3406(b)(2)-
3(b));
(3) With respect to a readily tradable instrument described in
Sec. 31.3406(d)-1(b)(2)(iv) or Sec. 31.3406(d)-4(a)(3); or
(4) During the period and with respect to an account or readily
tradable instrument described in Sec. 31.3406(d)-3.
Sec. 31.3406(d)-3 Special 30-day rules for certain reportable
payments.
(a) Accounts or readily tradable instruments acquired directly from
the payor (including a broker who holds an instrument in street name)
by electronic transmission or by mail. In the case of an account
established directly with, or a readily tradable instrument acquired
directly from, the payor by means of electronic transmission (i.e.,
telephone or wire instruction) or by mail, the payor may permit the
payee to furnish the certifications required in Sec. 31.3406(d)-1(b)(3)
(relating to certification that the payee's taxpayer identification
number is correct) and Sec. 31.3406(d)-2 (relating to certification of
notified payee underreporting) within 30 days after the establishment
or acquisition without subjecting the account to withholding during the
30 days. The preceding sentence applies only if the payee furnishes a
taxpayer identification number to the payor at the time of the
establishment or acquisition, and the payee does not withdraw more than
69 percent of a reportable interest or dividend payment before the
certifications are received within the 30 days. If the payee does not
provide the required certifications within 30 days of the establishment
or acquisition, the payor must withhold 31 percent of any reportable
interest or dividend payments made to the account after its
acquisition. For purposes of this section, an account or instrument is
considered acquired directly from the payor if the instrument was
acquired by the payee without the assistance of a broker or the
instrument was acquired directly from a broker who holds the instrument
as nominee for the payee (i.e., in street name) and who is considered a
payor under Sec. 31.3406(a)-2.
(b) Sale of an instrument for a customer by electronic transmission
or by mail. The special 30-day rules set forth in paragraph (a) of this
section apply comparably with respect to certification of the taxpayer
identification number for the sale of an instrument under section 6045
(as described in Sec. 31.3406(b)(3)-2) through a post-1983 brokerage
account (as described in Sec. 31.3406(d)-1(c)(2)) for a customer by
electronic transmission or by mail. However, these rules apply only if
the payee furnishes the payee's taxpayer identification number before
the sale occurs. For purposes of applying those 30-day rules under this
paragraph (b), a payee's reinvestment of the gross proceeds of the sale
into other instruments constitutes a withdrawal.
(c) Application to foreign payees. The rules of paragraphs (a) and
(b) of this section also apply to a payee from whom the payor is
required to obtain a Form W-8 or a substitute of the form or is to
obtain other evidence of foreign status (pursuant to the relevant
regulations issued under sections 6049 and 6045), provided the payee
represents orally or otherwise, before or at the time of the
acquisition or sale of the instrument or the establishment of the
account, that the payee is not a United States citizen or resident.
Sec. 31.3406(d)-4 Special rules for readily tradable instruments
acquired through a broker.
(a) Readily tradable instruments acquired through post-1983
brokerage accounts with a broker who is not a payor--(1) In general. If
a readily tradable instrument is acquired through a post-1983 brokerage
account (as defined in Sec. 31.3406(d)-1(c)(2)) and the broker is not
the payor of the instrument (as defined in Sec. 31.3406(a)-2(b)(3)),
the broker must--
(i) Obtain once with respect to each account the certifications
described in Sec. 31.3406(d)-2(a) and Sec. 31.3406(d)-1(b)(3) and
(c)(2) from the payee (relating to certification regarding payee
underreporting and taxpayer identification number, respectively);
(ii) Furnish the payee's taxpayer identification number to the
payor; and
(iii) Notify the payor to impose withholding if the payee fails to
make either of the required certifications to the broker or if the
broker has been notified by the Internal Revenue Service before the
acquisition of the instrument that the payee is subject to withholding
due to notified payee underreporting under section 3406(a)(1)(C) or
that
FR Doc. 95-30733 Backup Withholding, Statement Mailing Requirements, and Due Diligence
the payee is subject to withholding because the payee's taxpayer
identification number is incorrect under section 3406(a)(1)(B) (as
described in Sec. 31.3406(d)-5).
(2) Additional requirements. The broker must give the information
required by paragraphs (a)(1) (ii) and (iii) of this section to the
payor with the transfer instructions for the acquisition (including
account registration instructions transmitted by a broker in the case
of acquisitions of shares in a mutual fund). A notice including the
information described in paragraph
[[Page 66126]]
(b)(1) of this section fulfills the broker's requirement to give notice
to the payor. Once the broker transmits the transfer instructions
containing the information required by this section, the broker has no
further responsibility to obtain a missing taxpayer identification
number or missing certification or to provide additional notices to the
payee or payor with respect to the acquisition of the instrument. Upon
receiving the notice from a broker, the payor must impose withholding
on the account pursuant to Sec. 31.3406(a)-1.
(3) Transactions entered into through a brokerage account that is
not a post-1983 brokerage account. If a broker acquires readily
tradable instruments for a payee through an account (with the broker)
that is not a post-1983 brokerage account (as defined in
Sec. 31.3406(d)-1(c)(1)), and the broker is not the payor of the
instruments, the broker must furnish the payee's taxpayer
identification number to the payor. In addition, if the broker has been
notified by the Internal Revenue Service that the payee is subject to
withholding under section 3406 either because of an incorrect taxpayer
identification number or due to notified payee underreporting as
described in sections 3406(a)(1) (B) or (C), respectively, the broker
must notify the payor of the instrument to impose withholding with
respect to that payee and transmit the information in the manner
described in this paragraph (a). After a payor receives a notice from a
broker pursuant to section 3406(d)(2)(B) and this paragraph (a), the
payor must impose withholding on any accounts of the payee paying
reportable interest or dividends as defined in section 3406(b)(2) in
accordance with Sec. 31.3406(a)-1.
(4) Payor must notify payee--(i) Failure to provide certifications.
If a payor is notified by a broker, as required in paragraph (a)(1) of
this section, that a payee is subject to withholding because the payee
failed to provide the certifications, as described in Sec. 31.3406(d)-
2(a) and Sec. 31.3406(d)-(b)(3) and (c)(2), and the payor has not
received the certifications from the payee, then the payor must notify
the payee that withholding has started (or will start) no later than 15
days after the payor makes the first payment to the payee that is
subject to withholding under section 3406. A notice that contains the
information described in paragraph (b)(2) of this section satisfies the
payor's requirement to give notice to the payee. If the broker notifies
the payor that the payee failed to make a required certification and
the payor has received the certification from the payee, the payor may
disregard the notice from the broker.
(ii) Notified payee underreporting and incorrect taxpayer
identification number. The payor must notify the payee under this
section if the Internal Revenue Service or a broker notifies the payor
to withhold either because of an incorrect taxpayer identification
number under section 3406(a)(1)(B) (as described in Sec. 31.3406(d)-5)
or due to notified payee underreporting under section 3406(a)(1)(C) (as
described in Sec. 31.3406(c)-1). If a payor is notified by the Internal
Revenue Service or a broker with respect to a readily tradable
instrument, the payor may not ignore the notice even if the payee
previously provided the payee's taxpayer identification number under
penalties of perjury to the payor and even if the payee certified to
the payor that the payee is not subject to backup withholding due to a
notified payee underreporting. See Sec. 31.3406(d)-5(c) (1) and (2) and
(f)(2) for notice requirements under section 3406(a)(1)(B) due to an
incorrect taxpayer identification number. See Sec. 31.3406(c)-1(c)(2)
for notice requirements under section 3406(a)(1)(C) due to notified
payee underreporting.
(b) Notices--(1) Form of notice by broker to payor. A broker who is
required under paragraphs (a)(1)(iii) and (2) of this section to notify
the payor with respect to a readily tradable instrument may notify the
payor in connection with the transfer instructions by means of magnetic
media, machine readable document, or any other medium, provided that
the notice includes the following information--
(i) The payee's name, address, and taxpayer identification number
(if provided to the broker); and
(ii) A statement that the payee is subject to withholding under
section 3406(a)(1) (A), (B), (C), or (D) of the Internal Revenue Code,
whichever section applies; and
(iii) When applicable, a statement that the broker was notified by
the Internal Revenue Service that the payee is subject to withholding
under sections 3406(a)(1)(B) or (C).
(2) Form of notice by payor to payee. A payor who is required to
notify a payee that the payee is subject to withholding must provide
notice that is substantially similar to the following--
(i) For a notification concerning a failure to provide a taxpayer
identification number in the required manner under section
3406(a)(1)(A) or a failure to make the following certification
described in section 3406(a)(1)(D):
Recently, you purchased (identify security acquired). Because of
the existence of one or more of the following conditions, payments
of interest, dividends, and other reportable amounts that are made
to you will be subject to withholding of tax at a 31 percent rate:
(specify the condition or conditions, described below, that are
applicable)
(1) You failed to provide a taxpayer identification number, or
failed to provide this number under penalties of perjury, in
connection with the purchase of the acquired security. (An
individual's taxpayer identification number is his or her social
security number.)
(2) You failed to certify, under penalties of perjury, that you
are not subject to withholding due to notified payee underreporting
as required under section 3406(a)(1)(D) of the Internal Revenue
Code.
If condition (1) applies, you may stop withholding by providing
your taxpayer identification number on the enclosed Form W-9,
signing the form, and returning it to us. If you do not have a
taxpayer identification number, but have applied (or will soon
apply) for one, you may so indicate on the Form W-9. Withholding may
apply during the 60-day period you are waiting for your taxpayer
identification number. You must provide us with your taxpayer
identification number promptly after you receive it in order to
avoid withholding after the end of the 60-day period or to stop
withholding if it has already begun. Certain persons, described on
the enclosed Form W-9, are exempt from withholding. Follow the
instructions on that form if applicable to you.
If condition (2) applies, you may stop withholding by certifying
on the enclosed Form W-9 that you are not subject to withholding due
to notified payee underreporting, signing the form, and returning it
to us.
If more than one condition applies, you must remove all
applicable conditions to stop withholding.
Please address any questions concerning this notice to: [Insert
payor identifying information].
(Do not address questions to the broker who purchased the
securities for you.)
(ii) For the form of the notice concerning imposition of
withholding due to an incorrect taxpayer identification number, see
Sec. 31.3406(d)-5 (d)(2) and (g)(2).
(iii) For the form of the notice concerning the imposition of
withholding due to notified payee underreporting, see Sec. 31.3406(c)-
1(d)(2).
(c) Payor's reliance on information from broker--(1) In general. A
payor of an instrument acquired by a payee through a broker may rely on
the information that the payor receives from the broker pursuant to
paragraphs (a) and (b) of this section.
(2) Amount subject to backup withholding. The payor is required to
withhold under section 3406 depending
[[Page 66127]]
on the payor's customary method of making payment on an instrument or
instruments owned by a payee. If it is the practice of a payor to
combine in one account all readily tradable instruments of the same
issue owned by a payee and if only certain of those instruments are
subject to withholding, the payor must withhold on the aggregate
payment made with respect to all the instruments in the account.
Otherwise, the payor must withhold on the payment made on the
instrument or instruments with respect to which the payee is subject to
withholding.
Sec. 31.3406(e)-1 Period during which backup withholding is required.
(a) In general. A payor must withhold under section 3406 at a rate
of 31 percent on any reportable payment (as defined in section 3406(b))
made to a payee during the period described in this section
(irrespective of the number of conditions for imposing withholding
under section 3406 that exist with respect to the payee). A payor must
continue to withhold under section 3406 until no condition for imposing
backup withholding exists with respect to the payee.
(b) Failure to furnish a taxpayer identification number in the
manner required--(1) Start withholding. A payor is required to withhold
under section 3406(a)(1)(A) at a rate of 31 percent on any reportable
payment (as defined in section 3406(b)) at the time the payor pays the
reportable payment (as described in Sec. 31.3406(a)-4) to a payee if--
(i) The payor has not received the payee's taxpayer identification
number in the manner required in Sec. 31.3406(d)-1; or
(ii) The payor has received notice from a broker (as required in
Sec. 31.3406(d)-4(a)(1)(iii)) with respect to a readily tradable
instrument that the payee did not furnish a taxpayer identification
number to the broker in the manner required in Sec. 31.3406(d)-1 and
the payor has not received the taxpayer identification number from the
payee in this manner.
(2) Stop withholding. The payor must stop withholding under section
3406(a)(1)(A) within 30 days after the payor receives--
(i) The payee's taxpayer identification number in the manner
required under Sec. 31.3406(d)-1; or
(ii) A statement, in such form and containing such information as
is required under applicable regulations, that the payee is not a
United States person.
(c) Notification of an incorrect taxpayer identification number.
See Sec. 31.3406(d)-5(e) and (g)(3) for the period for which
withholding is required in the case of notification of an incorrect
taxpayer identification number.
(d) Notified payee underreporting. See Sec. 31.3406(c)-1(e) for the
period for which withholding is required in the case of notified payee
underreporting.
(e) Payee certification failure--(1) Start withholding. A payor is
required to withhold under section 3406(a)(1)(D) at a rate of 31
percent on any reportable interest or dividend payment (as defined in
section 3406(b)(2)) at the time the payor pays such reportable interest
or dividend payment (as described in Sec. 31.3406(a)-4) to a payee if--
(i) The payor has not received from the payee the certification
required in Sec. 31.3406(d)-2; or
(ii) The payor has received notice from a broker (as required in
Sec. 31.3406(d)-4(a)(1)(iii)) with respect to a readily tradable
instrument that the payee did not make the required certification and
the payor has not received the required certification from the payee.
(2) Stop withholding. The payor must stop withholding under section
3406(a)(1)(D) on any reportable interest or dividend payment within 30
days after the payor receives the certification from the payee in the
manner required by Sec. 31.3406(d)-2.
(f) Rule for determining when the payor receives a taxpayer
identification number or certificate from a payee. In determining
whether a payee has failed to provide a taxpayer identification number
or any certification to a payor (including a Form W-8 or substitute
form), a payor is required to process the taxpayer identification
number or certification within 30 days after the payor receives the
taxpayer identification number or certification from the payee or in
certain cases, from a broker. Thus, the payor may take up to 30 days to
treat the taxpayer identification number or a certificate as having
been received.
Sec. 31.3406(f)-1 Confidentiality of information.
(a) Confidentiality and liability for violation. Pursuant to
section 3406(f) no person may use any information obtained under
section 3406 for any purpose except for the purpose of complying with
the requirements of section 3406 or for purposes permitted under
section 6103 (subject to the safeguards of section 6103). See section
7431 for civil damages for violating the confidential use of the
information (subject to an exception for good faith).
(b) Permissible use of information--(1) In general. A payor or
broker may transmit information on a Form W-9, Form W-8, or other
acceptable form relating to withholding to the department, institution,
or firm (or to any employee therein) responsible for withholding or
processing of taxpayer identification numbers, certifications described
in Sec. 31.3406(h)-3, or other substitute forms. In addition, a broker
may notify the payor with respect to a readily tradable instrument of
the requirement to withhold and the condition or conditions for
imposing withholding (as described in Sec. 31.3406(d)-4) that exist
with respect to the payee. A payor or broker may, without violating the
Internal Revenue Code, close an account of, refuse to open an account
for, issue an instrument to, or redeem an instrument for, a person
solely because the person fails to furnish the person's taxpayer
identification number or documentation of foreign status in the manner
required in Sec. 31.3406(d)-1 and Sec. 31.3406(g)-1, respectively. A
payor who closes an account of a payee in the calendar year in which
the account was opened and during which no taxpayer identification
number or evidence of foreign status was provided for that account will
be presumed in the absence of evidence to the contrary to have closed
the account without violating section 3406(f) even though the payee is
subject to backup withholding under section 3406(a)(1)(A). A payor,
except as provided in Secs. 31.3406(d)-3 and 31.3406(g)-3, may not
prohibit a payee who fails to furnish the payee's taxpayer
identification number in the manner required in Sec. 31.3406(d)-1 from
withdrawing any funds in the account.
(2) Window transactions. In the case of a window transaction (as
defined in Sec. 31.3406(b)(2)-3(b)), a payor may, without violating the
Internal Revenue Code, refuse to redeem or may refuse to make payment
if the payee fails to provide a taxpayer identification number
regardless of when the obligation was issued or acquired.
(c) Specific restrictions on the use of information. Except as
provided in paragraph (b) of this section, a payor or broker is not
permitted to--
(1) Close an account (or instrument) of a payee solely because that
payee (or the account of a payee) is subject to withholding under
section 3406(a)(1) (A), (B), (C), or (D);
(2) Refuse to open an account or to issue an instrument if the
person fails to certify, under penalties of perjury, that the person is
not subject to withholding under section 3406(a)(1)(C) (relating to
notified payee underreporting);
[[Page 66128]]
(3) Use information obtained under section 3406 (including a
payee's failure or inability to certify that the payee is not subject
to withholding due to notified payee underreporting or the fact that
the account is subject to withholding), surcharge an account (i.e.,
charge an account more than the fee charged a similar account that was
not subject to withholding under section 3406), or use that information
to determine whether to open or close an account, whether to issue or
redeem an instrument, or whether to extend credit to the payee.
Sec. 31.3406(g)-1 Exception for payments to certain payees and certain
other payments.
(a) Exempt recipients--(1) In general. A payor of any reportable
payment (as defined in section 3406(b)) must not withhold under section
3406 if the payee is--
(i) An organization exempt from taxation under section 501(a) or an
individual retirement account;
(ii) The United States or any wholly owned agency or
instrumentality thereof;
(iii) A state, the District of Columbia, a possession of the United
States, any political subdivision of any of the foregoing, or any
wholly owned agency or instrumentality of any one or more of the
foregoing;
(iv) A foreign government, a political subdivision of a foreign
government, or any wholly owned agency or instrumentality of any one or
more of the foregoing (as defined in regulations under section 892); or
(v) An international organization or any wholly owned agency or
instrumentality thereof (as defined in section 7701(a)(18)).
(2) Nonexclusive list. Paragraph (a)(1) of this section does not
prescribe an exclusive list of payees that are exempt from information
reporting and also are exempt from withholding under section 3406.
(b) Determination of whether a person is described in paragraph
(a)(1) of this section. The determination of whether a person is a
payee described in paragraph (a)(1) of this section must be made as
provided in the applicable provisions of section 6049 and the
regulations issued thereunder. A payor, even if permitted to treat a
person as an exempt recipient without requiring a certificate under the
provisions of section 6049, may require a payee, otherwise not required
to file a certificate regarding its exempt status, to file a
certificate and may treat a payee who fails to file the certificate as
a person who is not an exempt recipient. See Sec. 31.3406(h)-3 for a
description of the Form W-9 or a substitute form prescribed under
section 3406 for claiming exempt status.
(c) Prepaid or advance premium life-insurance contracts. A payor of
a reportable payment (as defined in section 3406(b)(1)) may, but is not
required to, withhold under section 3406 on reportable payments made
from January 1, 1984, to December 31, 1996, on prepaid or advance
premium life-insurance contracts to a payee who is the owner for tax
purposes of the prepaid or advance premium life-insurance contract. For
purposes of this exception from backup withholding, a prepaid or
advance premium life-insurance contract is one entered into on or
before June 30, 1984, by the payee and under which the increment in
value of the prepaid or advance premium is used for the payment of
premiums during the period in which the exception from backup
withholding applies.
Sec. 31.3406(g)-2 Exception for reportable payments for which
withholding is otherwise required.
(a) In general. A payor of a reportable payment (as defined in
section 3406(b)) must not withhold under section 3406 if the payment is
subject to withholding under any other provision of the Internal
Revenue Code.
(b) Payment of wages. A payor who is required to make an
information return under section 6041 with respect to a payment of
wages (as defined in section 3401) because, e.g., the employee makes a
certification under section 3402(n) (relating to employees incurring no
income tax liability), must not withhold under section 3406 on those
wages.
(c) Distribution from a pension, annuity, or other plan of deferred
compensation. An amount reportable under section 6047, such as a
designated distribution under section 3405, is not a reportable payment
subject to withholding under section 3406. See section 3406(b).
Designated distributions not subject to withholding under section 3406
include--
(1) Distributions from a pension, annuity, profit-sharing, stock
bonus plan, or other plan deferring the receipt of compensation;
(2) Distributions from an individual retirement account or annuity;
(3) Distributions from an owner-employee plan; and
(4) Certain surrenders of life insurance contracts.
(d) Gambling winnings--(1) In general. A payor of a reportable
gambling winning must not withhold under section 3406 if tax is
required to be withheld from the gambling winning under section 3402(q)
(relating to the extension of withholding to certain gambling
winnings). If the reportable gambling winning is not required to be
withheld upon under section 3402(q), withholding under section 3406
applies to the gambling winning if, and only if, the payee does not
furnish a taxpayer identification number to the payor. Section
31.3406(b)(3)-1(b)(3) does not apply to a reportable gambling winning.
The payor of a reportable gambling winning is not required to aggregate
all such winnings made to a payee during a calendar year, nor is the
payor required to determine whether an information return was required
to be made with respect to the payee for the preceding year.
(2) Definition of a reportable gambling winning and determination
of amount subject to backup withholding. For purposes of withholding
under section 3406, a reportable gambling winning is any gambling
winning subject to information reporting under section 6041. The amount
of a reportable gambling winning is--
(i) The amount paid with respect to the amount of the wager
reduced, at the option of the payor; by
(ii) The amount of the wager.
(3) Special rules. Amounts paid with respect to identical wagers
are treated as paid with respect to a single wager. The determination
of whether wagers are identical is made under Sec. 31.3402(q)-
1(c)(1)(ii). In addition, a gambling winning (other than a winning from
bingo, keno, or slot machines) is a reportable gambling winning only if
the amount paid with respect to the wager is $600 or more and if the
proceeds are at least 300 times as large as the amount wagered. See
Sec. 7.6041-1 of this chapter to determine whether a winning from
bingo, keno, or slot machines is a reportable gambling winning and thus
subject to withholding under section 3406.
(e) Certain real estate transactions. A real estate reporting
person (the so-called broker) as defined in section 6045(e)(2) must not
withhold under section 3406 on a payment made with respect to a real
estate transaction that is subject to reporting under sections 6045 (a)
and (e) and Sec. 1.6045-4 of this chapter.
(f) Certain payments after an acquisition of accounts or
instruments. A payor who acquires pre-1984 accounts or instruments
described in Sec. 31.3406(d)-1(b)(2)(iv) for which the payor does not
have a taxpayer identification number or has an obviously incorrect
taxpayer identification number as defined in Sec. 31.3406(h)-1(b)(2)
must start
[[Page 66129]]
withholding under section 3406(a)(1)(A) and Sec. 31.3406(d)-1 on those
accounts or instruments no later than sixty days following the date of
the payor's acquisition of those accounts or instruments.
(g) Certain gross proceeds. No withholding under section 3406 is
required with respect to any portion of the original issue discount on
an instrument or security that is subject to withholding under section
3406 as reportable gross proceeds of such instrument or security under
section 6045.
Sec. 31.3406(g)-3 Exemption while payee is waiting for a taxpayer
identification number.
(a) In general--(1) Backup withholding not required for 60 days. If
a payor has received an awaiting-TIN certificate from a payee with
respect to an account or instrument receiving reportable interest or
dividends as described in section 3406(b)(2), the payor must exempt the
payee from withholding under section 3406(a)(1)(A) during the 60-day
exemption period to the extent and in the manner described in either
paragraph (a) (2) or (3) of this section. The 60-day exemption period
means the 60-consecutive-day period beginning with the day the payor
receives the awaiting-TIN certificate. The payor must withhold under
section 3406 beginning after the 60-day exemption period if the payor
has not received a taxpayer identification number from the payee in the
manner required in Sec. 31.3406(d)-1. Regardless of whether the payee
provides an awaiting-TIN certificate to a payor, the payor is required
to withhold under section 3406(a)(1)(D) and Sec. 31.3406(d)-2 on
reportable interest or dividend payments as described in
Sec. 31.3406(d)-2 if the payee fails to certify, under penalties of
perjury, that the payee is not subject to withholding due to notified
payee underreporting as required in section 3406(a)(1)(D) and
Sec. 31.3406(d)-2.
(2) Reserve method. A payor must not withhold under section 3406
during the 60-day exemption period unless the payee (or a joint payee
in the case of a joint account) desires to make a withdrawal of more
than $500 of either principal or interest from the account in any
single transaction during the period. If a payee (or a joint payee)
desires to make a withdrawal of more than $500 during the 60-day
exemption period, the payor is required under section 3406 to withhold
31 percent of all reportable payments made during the period and at the
time of withdrawal unless the payee reserves 31 percent of all
reportable payments made to the account during the period.
(3) Alternative rule; 7-day grace period--(i) In general. A payor
who receives an awaiting-TIN certificate may elect, on a payee-by-payee
basis or in general, to exempt reportable interest or dividend payments
to a payee from withholding under section 3406 applying the rules in
paragraph (a)(3) (ii) or (iii) of this section.
(ii) Withholding on withdrawals. Under this paragraph (a)(3)(ii), a
payor must obtain a certified taxpayer identification number from the
payee within 60 days after the date that the payor receives the
awaiting-TIN certification. In addition, the payor must withhold under
section 3406 on any withdrawals made after the close of 7 business days
after the date the awaiting-TIN certification is received and before
the earlier of the date that the payor receives a certified taxpayer
identification number from the payee, the date the account is closed
(in which case the payor must withhold on any reportable payment made
at the time the account or relationship is closed), or the date
withholding under section 3406 starts on all reportable payments made
to the account, instrument, or relationship. All cash withdrawals in an
amount up to the reportable payments made from the day after the date
of receipt of the awaiting-TIN certification to the date of withdrawal
are treated as reportable payments.
(iii) Withholding regardless of withdrawals. Under this paragraph
(a)(3)(iii), a payor must start withholding under section 3406 on the
account not later than 7 business days after the date the payor
receives the awaiting-TIN certification on reportable payments
thereafter made to the account (whether or not the payee makes a cash
withdrawal). The payor must withhold under section 3406 until the
earlier of the date the payor receives a certified taxpayer
identification number from the payee, the date the account is closed,
or the date withholding under section 3406 starts on all reportable
payments made to the account, instrument, or relationship. The payor
must obtain a certified taxpayer identification number from the payee
within 60 days after the date that the payor receives the awaiting-TIN
certificate or undertake a mailing each year soliciting the certified
taxpayer identification number from the payee until the earlier of the
calendar year that the certified taxpayer identification number is
received, or the calendar year in which the account is closed. However,
if the account is closed in December of a calendar year, the mailing
must be made after the account is closed and before January 31 of the
subsequent calendar year.
(b) Special rule for readily tradable instruments. The 60-day
awaiting-TIN exemption described in paragraph (a)(1) of this section
applies to payments made with respect to readily tradable instruments
only if the payee provides an awaiting-TIN certificate directly to the
payor. If a broker acquires a readily tradable instrument through a
post-1983 brokerage account (as described in Sec. 31.3406(d)-1(c)(2))
for a payee who has no taxpayer identification number, the broker must
advise the payor as required in Sec. 31.3406(d)-4(a)(1) that the payee
failed to provide a taxpayer identification number under penalties of
perjury, regardless of whether the payee provides an awaiting-TIN
certificate to the broker. Once a payor is notified by a broker that a
payee failed to provide a taxpayer identification number in the
required manner, or that the payee is subject to withholding under
section 3406(a)(1) (B) or (C), the payor must impose withholding under
section 3406 for the appropriate period described in Sec. 31.3406(e)-1.
(c) Exceptions--(1) In general. The 60-day awaiting-TIN exemption
described in paragraph (a) of this section does not apply to--
(i) Window transactions (as defined in Sec. 31.3406(b)(2)-3(b));
(ii) Redemptions of bearer obligations that are subject to
reporting under section 6045; or
(iii) Other amounts that are subject to reporting under section
6045 (except as described in paragraph (c)(2) of this section).
(2) Special rule for amounts subject to reporting under section
6045 other than proceeds of redemptions of bearer obligations. If a
broker's customer does not provide a taxpayer identification number to
the broker, and the broker effects a sale that is subject to reporting
under section 6045 (other than a redemption of a bearer obligation),
Sec. 31.3406(d)-3(b) applies, whether or not the sale is pursuant to an
instruction by electronic transmission, provided the customer furnishes
an awaiting-TIN certificate to the broker before the sale. For purposes
of this paragraph (c)(2), the 30-day period provided in
Sec. 31.3406(d)-3(b) is a 60-day period.
(d) Awaiting-TIN certificate. A payee qualifies for the 60-day
awaiting-TIN exemption provided in paragraph (a) of this section if the
payee furnishes a written statement to the payor, signed under
penalties of perjury, that the payee has not been issued a taxpayer
identification number, that the payee has applied for a taxpayer
identification number or intends to apply for a
[[Page 66130]]
number in the near future, and that the payee understands that if the
payee does not provide a number to the payor within 60 days, the payor
is required under section 3406 to withhold 31 percent of any reportable
payment thereafter made to the payee until the payor receives a number,
and 31 percent of a withdrawal to the extent of reportable payments
made to the payee during the 60-day period, as described in paragraph
(a) of this section. Language that is substantially similar to the
awaiting-TIN certification on Form W-9 will satisfy the requirements of
this paragraph (d).
(e) Form for awaiting-TIN certificate. A payor may use Form W-9 for
the awaiting-TIN certificate, or a payor may include language that is
substantially similar to the awaiting-TIN certification on Form W-9 in
any other document of the payor. See Sec. 31.3406(h)-3, which provides
that Form W-9 is the prescribed form but permits use of substitute
forms, and specifies the length of time the payor is required to retain
the form. If Form W-9 is used, the payee should write ``Applied For''
in the space reserved for the taxpayer identification number.
Sec. 31.3406(h)-1 Definitions.
(a) In general. For purposes of section 3406 and the regulations
thereunder, the definitions of this section apply.
(b) Taxpayer identification number--(1) In general. Taxpayer
identification number means the identifying number assigned to a person
under section 6109 (relating to identifying numbers, generally a nine-
digit social security number for an individual and a nine-digit
employer identification number for a nonindividual, e.g., a
corporation, partnership, trust, or estate). An obviously incorrect
number is not considered a taxpayer identification number. See
Sec. 31.6011(b)-2 and Sec. 301.6109-1 of this chapter for provisions
relating to obtaining a taxpayer identification number.
(2) Obviously incorrect number. Obviously incorrect number means a
number that does not contain nine digits or a number that includes an
alpha character as one of the nine digits.
(c) Broker.--Broker is defined in section 6045(c)(1) and
Sec. 1.6045-1(a)(1) of this chapter. If there could be more than one
broker with respect to any acquisition, only the broker having the
closest contact (as determined under Sec. 5f.6045-1(c)(3) (ii) and
(iii) of this chapter) with the payee is treated as a broker. In the
case of any instrument, the term broker does not include any person who
is the payor with respect to the instrument as described in
Sec. 31.3406(a)-2.
(d) Readily tradable instrument.--Readily tradable instrument
means--
(l) Any instrument that is part of an issue any portion of which is
traded on an established securities market (within the meaning of
section 453(f)(5)); or
(2) Any instrument that is regularly quoted by brokers or dealers
making a market.
(e) Day.--Day means a calendar day unless specified otherwise under
any section of the regulations under section 3406. For example, see
Secs. 31.3406(d)-5(a) and 31.3406(g)-3(a)(2).
(f) Business day.--Business day means any day other than a
Saturday, Sunday, or legal holiday (within the meaning of section
7503).
Sec. 31.3406(h)-2 Special rules.
(a) Joint accounts--(1) Relevant name and taxpayer identification
number combination. For purposes of identifying the account subject to
withholding under sections 3406(a)(1) (B) and (C), the relevant name
and taxpayer identification number combination is that which is used
for information reporting purposes.
(2) Optional rule for accounts subject to backup withholding under
section 3406(a)(1) (B) or (C) where the names are switched. See
Sec. 31.3406(d)-5(c)(4)(iii) under which a payor may withhold under
section 3406(a)(1)(B) as required even though the names or taxpayer
identification numbers on the account have been switched. The rules
under Sec. 31.3406(d)-5(c)(4)(iii) may be applied comparably by a payor
who is required to withhold under section 3406(a)(1)(C).
(3) Joint foreign payees--(i) In general. If the first payee listed
on an account or instrument provides the penalties of perjury statement
regarding its foreign status, withholding under section 3406 applies
unless--
(A) Every joint payee provides the statement regarding foreign
status (pursuant to the relevant regulations issued under sections 6045
and 6049); or
(B) Any one of the joint payees who has not established foreign
status provides a taxpayer identification number to the payor in the
manner required in Sec. 31.3406(d)-1.
(ii) Information reporting on an account including foreign payees.
If any one of the joint payees who has not established foreign status
provides a taxpayer identification number under paragraph (a)(3)(i)(B)
of this section, that number is the taxpayer identification number that
is required to be furnished for purposes of information reporting and
withholding under section 3406.
(b) Backup withholding from an alternative source--(1) In general.
A payor may not withhold under section 3406 from a source maintained by
the payor other than the source with respect to which there exists a
liability to withhold under section 3406 with respect to the payee. See
section 3403 and Sec. 31.3403-1, which provide that the payor is liable
for the amount required to be withheld regardless of whether the payor
withholds.
(2) Exceptions for payments made in property--(i) Backup
withholding from alternative source. In the case of a payment that is
made in property (other than money), the payor must withhold under
section 3406 31 percent of the fair market value of the property
determined immediately before or on the date of payment. The payor may
withhold under section 3406 from the principal amount being deposited
with the payor or from another source maintained by the payee with the
payor. The source from which the tax is withheld under section 3406
must be payable to at least one of the persons listed on the account
subject to withholding. If the account or source is not payable
exclusively to the same person or persons listed on the account subject
to withholding under section 3406, then the payor must obtain a written
statement from all other persons to whom the account or source is
payable authorizing the payor to withhold under section 3406 from the
alternative account or source. A payor that elects to withhold under
section 3406 from an alternative source may determine the account or
source from which the tax is to be withheld, or may allow the payee to
designate the alternative source. A payee may not, however, require a
payor to withhold under section 3406 from a specific alternative
source. See Sec. 31.3402(q)-1(d), Example 5, for methods of withholding
on prizes, awards, and gambling winnings paid in property other than
cash.
(ii) Deferral of withholding. If the payor cannot locate, using
reasonable care (following procedures substantially similar to those
set forth in Sec. 31.3406(d)-5(c)(3)(ii) (A) and (B)), an alternative
source of cash from which the payor may satisfy its withholding
obligation pursuant to paragraph (b)(2)(i) of this section, the payor
may defer its obligation to withhold under section 3406, except for
reportable payments of property made in connection with prizes, awards,
or gambling winnings, until the earlier of--
(A) The date the payor makes a cash payment to the account subject
to
[[Page 66131]]
withholding under section 3406 or cash is otherwise deposited in the
account in a sufficient amount to satisfy the obligation in full; or
(B) The close of the fourth calendar year after the obligation
arose.
(iii) Barter exchanges. In the case of a barter exchange that
issues scrip to, or credits the account of, a member or client of the
exchange in payment for property or services, the barter exchange may
withhold under section 3406 from--
(A) The scrip or credit, if converted to cash in order to satisfy
the deposit requirements of section 6302 and Sec. 31.6302-4; or
(B) Any other source maintained by the exchange for the member or
client in the manner described in paragraph (b)(2) of this section.
(c) Trusts. Withholding under section 3406 applies to reportable
payments made to a trust if any of the conditions for imposing
withholding under section 3406 apply to the trust. Generally, a trust
is not a payor and will not be required to withhold under section 3406
on reportable payments that it makes to its beneficiary who is subject
to withholding under section 3406. The preceding sentence does not
apply, however, to a grantor trust with two or more grantors described
in Sec. 31.3406(a)-2(b)(4), which is treated as a middleman payor. The
trustee of a trust described in this paragraph (c) may certify that the
trust's taxpayer identification number is correct and that the trust is
not subject to withholding due to notified payee underreporting,
without regard to the status of the beneficiaries of the trust.
(d) Adjustment of prior withholding by middlemen. A middleman payor
(as defined in Sec. 31.3406(a)-2(b)) who receives a payment from which
tax has been erroneously withheld under section 3406 may seek a refund
of the tax withheld by the payor from whom the middleman payor received
the payment (referred to as the ``upstream payor''). Alternatively, the
middleman payor may obtain a refund of the tax by claiming a credit for
the amount of tax withheld by the upstream payor against the deposit of
any tax imposed by this chapter which the middleman payor is required
to withhold and deposit (as described in section 6413 and
Sec. 31.6413(a)-2). In either case, the middleman payor must pay or
credit the gross amount of the payment (including the tax withheld) to
its payee as though it had received the gross amount of the payment
from the upstream payor and must withhold under section 3406 only if
one of the conditions for imposing backup withholding exists with
respect to its payee. If its payee is not subject to withholding under
section 3406, the middleman payor must pay or credit the full amount of
the payment to the payee. See Sec. 31.6413(a)-3 regarding repayment by
a payor of tax erroneously collected from a payee.
(e) Conversion of amounts paid in foreign currency into United
States dollars--(1) Convertible foreign currency. If a payment is made
in a currency other than the United States dollar, the amount subject
to withholding under section 3406 is determined by applying the
statutory rate of backup withholding to the foreign currency payment
and converting the amount withheld into United States dollars on the
date of payment at the spot rate (as defined in Sec. 1.988-1(d)(1) of
this chapter) or pursuant to a reasonable spot rate convention. For
example, a withholding agent may use a month-end spot rate or a monthly
average spot rate. A spot rate convention must be used consistently
with respect to all non-dollar amounts withheld and from year to year.
Such convention cannot be changed without the consent of the
Commissioner.
(2) Nonconvertible foreign currency. [Reserved]
(f) Coordination with other sections. For purposes of section 31,
chapter 24 (other than section 3402(n)) of subtitle C of the Internal
Revenue Code (relating to employment taxes and collection of income tax
at source) and so much of subtitle F (other than section 7205) of the
Internal Revenue Code (relating to procedure and administration) as
relates to this chapter, and the regulations thereunder--
(1) An amount required to be withheld under section 3406 must be
treated as a tax required to be withheld under section 3402;
(2) An amount withheld under section 3406 must be treated as an
amount withheld under section 3402;
(3) An amount withheld under section 3406 must be deposited as
required under Sec. 31.6302-4;
(4) Wages includes the gross amount of any reportable payment (as
defined in section 3406(b)) except for purposes of section 6014
(relating to an election by the taxpayer not to compute the tax on his
annual return);
(5) Employee includes a payee of any reportable payment; and
(6) Employer includes a payor who is required to withhold the tax
under section 3406 (as defined in Sec. 31.3406(a)-2(a)) with respect to
any reportable payment (as defined in section 3406(b)).
(g) Tax liabilities and penalties. A payor is subject to the same
civil and criminal penalties for failing to impose withholding under
section 3406 as an employer who fails to withhold on a payment of
wages. In addition, a broker may be subject to the penalty under
section 6705 (failure of a broker to provide notice to a payor).
(h) To whom payor is liable for amount withheld. A payor is not
liable to any person for any amount withheld under section 3406. A
payor is liable only to the United States for an amount that is
required to be withheld as provided in Sec. 31.3403-1.
Sec. 31.3406(h)-3 Certificates.
(a) Prescribed form to furnish information under penalties of
perjury--(1) In general. Except as provided in paragraph (c) of this
section, the Form W-9 is the form prescribed under section 3406 on
which the payee certifies, under penalties of perjury, that--
(i) The taxpayer identification number furnished to the payor is
correct (as required in Sec. 31.3406(d)-1 and Sec. 31.3406(d)-5);
(ii) The payee is not subject to withholding due to notified payee
underreporting (as required in Sec. 31.3406(d)-2);
(iii) The payee is an exempt recipient (as described in
Sec. 31.3406(g)-1); or
(iv) The payee is awaiting receipt of a taxpayer identification
number (as described in Sec. 31.3406(g)-3).
(2) Use of a single or multiple Forms W-9 for accounts of the same
payee. A valid Form W-9 must include the name and taxpayer
identification number of the payee. Except as provided in paragraph (b)
of this section, the payee must sign under penalties of perjury and
date the Form W-9 in order to satisfy the requirements of this section.
A payor or broker may require a payee to furnish a separate Form W-9
for each obligation, deposit, certificate, share, membership, contract,
or other instrument, or one Form W-9 for all the payee's obligations or
relationships with the payor or broker. In addition, a payee of a
mutual fund that has a common investment advisor or common principal
underwriter with other mutual funds (within the same family of funds)
may be permitted, in the discretion of the mutual fund, to provide one
Form W-9 with respect to shares acquired or owned in any of the funds.
(b) Prescribed form to furnish a noncertified taxpayer
identification number. With respect to accounts or other relationships
where the payee is not required to certify, under penalties of perjury,
that the taxpayer identification number being furnished is correct, the
payor or broker may obtain the taxpayer identification number orally or
may use Form W-9, a
[[Page 66132]]
substitute form, or any other document, but the payee is not required
to sign the form.
(c) Forms prepared by payors or brokers--(1) Substitute forms; in
general. A payor or broker may prepare and use a form that contains
provisions that are substantially similar to those of the official Form
W-9. A payor or broker may use any document relating to the
transaction, such as the signature card for an account, so long as the
certifications are clearly set forth. A payor or broker who uses a
substitute form may furnish orally or in writing the instructions for
the Form W-9 that relate to the account. A payor or broker may refuse
to accept certifications (including the official Form W-9) that are not
made on the form or forms provided by the payor or broker. A payor or
broker may refuse to accept a certification provided by a payee only if
the payor or broker furnishes the payee with an acceptable form
immediately upon receipt of an unacceptable form or within 5 business
days of receipt of an unacceptable form. An acceptable form for this
purpose must contain a notice that the payor or broker has refused to
accept the form submitted by the payee and that the payee must submit
the acceptable form provided by the payor in order for the payee not to
be subject to withholding under section 3406. If the payor or broker
requires the payee to furnish a form for each account of the payee, the
payor or broker is not required to furnish an acceptable form until the
payee furnishes the payor or broker with the payee's account numbers. A
payor or broker may use separate substitute forms to have a payee
certify under penalties of perjury that--
(i) The payee's taxpayer identification number is correct; and
(ii) The payee is not subject to withholding under section 3406 due
to notified payee underreporting.
(2) Form for exempt recipient. A payor or broker may use a
substitute form for the payee to certify, under penalties of perjury,
that the payee is an exempt recipient (described in Sec. 31.3406(g)-1
or described in the respective reporting section), provided the form
contains provisions that are substantially similar to those of the
official Form W-9 relating to exempt recipients. A certificate must be
prepared in accordance with the instructions applicable to exempt
recipients on Form W-9, and must set forth fully and clearly the data
called for therein. If a payor will treat the payee as an exempt
recipient only if the payee files a certificate as to its exempt
status, the certificate is valid only if it contains the payee's
taxpayer identification number. Thus, a payee must include the payee's
taxpayer identification number on a certificate that a payor requires
to be made in order to treat the payee as an exempt recipient.
(d) Special rule for brokers. A broker may act as the payee's agent
for purposes of furnishing a taxpayer identification number or
certification to a payor with respect to any readily tradable
instrument (as defined in Sec. 31.3406(h)-1(d)) provided the payee
provides a taxpayer identification number on Form W-9 or other
acceptable substitute form to the broker. The payor may rely on a
taxpayer identification number provided by the broker unless
certification is required (as described in Sec. 31.3406(d)-4) and the
broker notifies the payor that the number was not certified.
(e) Reasonable reliance on certificate--(1) In general. A payor is
not liable for the tax imposed under section 3406 if the payor's
failure to deduct and withhold the tax is due to reasonable reliance,
as defined in paragraph (e)(2) of this section, on a Form W-9 (or other
acceptable substitute) required by this section.
(2) Circumstances establishing reasonable reliance. For purposes of
paragraph (e)(1) of this section, a payor can reasonably rely on a Form
W-9 (or other acceptable substitute) unless--
(i) The form does not contain the name and taxpayer identification
number of the payee (or does not state, in lieu of a taxpayer
identification number, that the payee is awaiting receipt of a taxpayer
identification number (i.e., an awaiting-TIN certificate));
(ii) The form is not signed and dated by the payee;
(iii) The form does not contain the statement, when required, that
the payee is not subject to withholding due to notified payee
underreporting;
(iv) The payee has deleted the jurat or other similar provisions by
which the payee certifies or affirms the correctness of the statements
contained on the form; or
(v) For purposes of section 3406(a)(1)(C), the payor is required to
subject the account to which the form relates to withholding under
section 3406(a)(1)(C) under the circumstances described in
Sec. 31.3406(c)-1(c)(3)(iii).
(f) Who may sign certificate--(1) In general. A Form W-9 or other
acceptable substitute form may be signed by any person who is
authorized to sign a declaration under penalties of perjury on behalf
of the payee as provided in section 6061 and the regulations thereunder
(relating to who may sign generally for an individual, which includes
certain agents who may sign returns and other documents), section 6062
and the regulations thereunder (relating to who may sign corporate
returns), and section 6063 and the regulations thereunder (relating to
who may sign partnership returns).
(2) Notified payee underreporting. A payee who has not been
notified that he is subject to withholding under section 3406(a)(1)(C)
as a result of notified payee underreporting may make the certification
related to notified payee underreporting. In addition, a payee who was
subject to withholding under section 3406(a)(1)(C) due to notified
payee underreporting may certify that he is not subject to withholding
under section 3406(a)(1)(C) due to notified payee underreporting if the
Internal Revenue Service has provided the payee with written
certification that withholding under section 3406(a)(1)(C) due to
notified payee underreporting has terminated.
(g) Retention of certificates--(1) Accounts or instruments that are
not pre-1984 accounts and brokerage relationships that are post-1983
brokerage accounts. With respect to an account or instrument that is
not a pre-1984 account (as described in Sec. 31.3406(d)-1(b)(3)), or
with respect to a brokerage relationship that is a post-1983 brokerage
account (as described in Sec. 31.3406(d)-1(c)(2)), a payor or broker
who receives a Form W-9 or other acceptable substitute form related to
withholding under section 3406 must retain the form in its records for
3 years from the date the account is opened or the instrument is
purchased. The form may be retained on microfilm or microfiche.
(2) Accounts or instruments that are pre-1984 accounts and
brokerage relationships that are not post-1983 brokerage accounts. With
respect to a pre-1984 account (as described in Sec. 31.3406(d)-1(b)(1))
or with respect to a brokerage relationship that is not a post-1983
brokerage account (as described in Sec. 31.3406(d)-1(c)(1)), a payor or
broker is not required to retain any Form W-9 or other acceptable
substitute form. If, however, the payor or broker requires the payee to
file only one Form W-9 or substitute form for all accounts or
instruments of the payee, the payor or broker must retain the single
form in the manner and for the period of time described in paragraph
(g)(1) of this section if that form relates to any account or
instrument that is not a pre-1984 account or relates to a post-1983
brokerage account. If a payee has certified that the payee is an exempt
recipient described in Sec. 31.3406(g)-1,
[[Page 66133]]
the payor or broker must retain the form unless the payor or broker can
establish the existence of procedures that are reasonably calculated to
ensure that a payee who has so certified is accurately identified in
the payor's or broker's records.
(h) Cross references. For the requirement to file an information
return (and furnish the related statement) with respect to a reportable
payment, particularly if that payment has been subject to withholding
under section 3406, see subtitle F, chapter 61, subparts B and C of the
Internal Revenue Code. See Sec. 31.6302-4 for the requirement to
deposit amounts withheld under section 3406 on either a monthly or
semi-weekly basis. See Sec. 31.6011(a)-4(b) for the requirement to file
Form 945, Annual Return of Withheld Federal Income Tax, to reflect
amounts withheld under section 3406. See Sec. 31.6071(a)-1 for the time
for filing the Form 945.
Sec. 31.3406(i)-1 Effective date.
Sections 31.3406-0 through 31.3406(i)-1 (except Secs. 31.3406(d)-5
and 31.3406(g)-1(c) and except for international transactions) are
effective after December 31, 1996, and, optionally, for reportable
payments made and transactions occurring on or after December 21, 1995.
For the effective date of Sec. 31.3406(d)-5, see Sec. 31.3406(d)-5(i).
Section 31.3406(g)-1(c) is effective before January 1, 1997. See
Secs. 35a.9999-0T through 35a.9999-5 of this chapter for rules that
apply to international transactions after December 31, 1996.
Par. 9. Section 31.6011(a)-5(a) is amended by:
1. Removing the word ``or'' immediately after the language
``941PR,'' in the first and third sentences of paragraph (a)(1).
2. Adding the language ``, or Form 945'' immediately after the
language ``Form 941VI'' in the first and third sentences of paragraph
(a)(1).
3. Adding the language ``(or other person)'' immediately after the
word ``employer'' in the second, third, fourth, and sixth sentences of
paragraph (a)(1).
4. Removing the authority citation at the end of the section.
Par. 10. Section 31.6011(a)-6 is amended by revising the heading
and the first and third sentences of paragraph (a)(1) to read as
follows:
Sec. 31.6011(a)-6 Final returns.
(a) In general--(1) Federal Insurance Contributions Act; income tax
withheld from wages and nonpayroll payments. An employer (or other
person) who is required to make a return on a particular form pursuant
to Sec. 31.6011(a)-1, Sec. 31.6011(a)-4, or Sec. 31.6011(a)-5, and who
in any return period ceases to pay wages or nonpayroll payments in
respect of which he is required to make a return on that form, must
make the return for the period as a final return. * * * Every such
person filing a final return (other than a final return on Form 942 or
Form 943) must furnish information showing the date of the last payment
of wages (as defined in section 3121(a) or section 3401(a)), and, if
appropriate, the date of the last payment of nonpayroll payments
defined in Sec. 31.6011(a)-4(b). * * *
* * * * *
Par. 11. Sections 31.6051-4 and 31.6413(a)-3 are added to read as
follows:
Sec. 31.6051-4 Statement required in case of backup withholding.
(a) Statements required from payor. Every payor of any reportable
payment (as defined in section 3406(b)(1)) who is required to deduct
and withhold tax under section 3406 must furnish to the payee a written
statement containing the information required by paragraph (c) of this
section.
(b) Prescribed form. The prescribed form for the statement required
by this section is Form 1099. In the case of any reportable interest or
dividend payment as defined in section 3406(b)(2), the prescribed form
is the Form 1099 required in Sec. 1.6042-4 of this chapter (relating to
payments of dividends), Sec. 1.6044-5 of this chapter (relating to
payments of patronage dividends), or Sec. 1.6049-6(e) of this chapter
(relating to payments of interest or original issue discount).
Statements required to be furnished by this section will be treated as
statements required by the respective sections with respect to any
reportable payment, except that the statement required under this
section must include the amount of tax withheld under section 3406. In
no event will a statement be required under this section if a statement
with the same information is required to be furnished to the recipient
under another section.
(c) Information required. Each statement on Form 1099 must show the
following:
(1) The name, address, and taxpayer identification number of the
person receiving any reportable payment;
(2) The amount subject to reporting under section 6041, 6041A(a),
6042, 6044, 6045, 6049, 6050A, or 6050N whether or not the amount of
the reportable payment is less than the amount for which an information
return is required. If tax is withheld under section 3406, the
statement must show the amount of the payment withheld upon;
(3) The amount of tax deducted and withheld under section 3406;
(4) The name and address of the person filing the form;
(5) A legend stating that such amount is being reported to the
Internal Revenue Service; and
(6) Such other information as is required by the form.
(d) Time for furnishing statements. The statement must be furnished
to the payee no later than January 31 of the year following the
calendar year in which the payment was made.
(e) Aggregation. The payor or broker may combine the information
required to be shown under this section with information required to be
shown under another section even if they do not relate to the same type
of reportable payment.
Sec. 31.6413(a)-3 Repayment by payor of tax erroneously collected from
payee.
(a) In general--(1) Erroneous withholding under section 3406 of the
Internal Revenue Code. If a payor or broker withholds under section
3406 from a payee in error or withholds more than the proper amount of
the tax under section 3406, the payor or broker may refund the amount
erroneously withheld as provided in section 6413 and this section. A
payor or broker will be considered to have withheld erroneously under
section 3406 only if the amount is withheld because of an error by the
payor or broker (e.g., an error in flagging or identifying an account
that is subject to withholding under section 3406). The payor or broker
may, in its discretion, treat the amount withheld as an amount
erroneously withheld and refund it to the payee if--
(i) The payor or broker requires a payee described in
Sec. 31.3406(g)-1(a) or described in a provision of the Internal
Revenue Code requiring the reporting of a payment subject to
withholding under section 3406 to certify that it is an exempt
recipient, the payee fails to make the required certification, and the
payor or broker subsequently withholds under section 3406 from a
payment to the payee;
(ii) The payor or broker does not require the payee to certify
concerning its exempt status and the payor or broker withholds under
section 3406; or
(iii) The payor or broker withholds under section 3406 from a payee
after the payee provides a taxpayer identification number or required
certification (including the certification relating to foreign status
described in Sec. 1.6049-5(b)(2)(iv) of this chapter or
[[Page 66134]]
Sec. 1.6045-1(g)(1) of this chapter) to the payor, but before the payor
or broker treats the number or required certification as having been
received under Sec. 31.3406(e)-1(b).
(2) Limitation. For purposes of paragraph (a)(1) of this section,
if a payor or broker withholds because the payor or broker has not
received a taxpayer identification number or required certification and
the payee subsequently provides a taxpayer identification number or a
required certification to the payor, the payor or broker may not refund
the amount to the payee.
(b) Refunding amounts erroneously withheld--(1) Time and manner. If
a payor or broker withholds under section 3406 from a payee in error
(including withholding more than the correct amount, as described in
paragraph (a) of this section), the payor or broker may refund the
amount erroneously withheld to the payee if the refund is made prior to
the end of the calendar year and prior to the time the payor or broker
furnishes a Form 1099 to the payee with respect to the payment for
which the erroneous withholding occurred. If the amount of the
erroneous withholding is refunded to the payee, the payor or broker
must--
(i) Keep as part of its records a receipt showing the date and
amount of refund and must provide a copy of the receipt to the payee (a
canceled check or an entry in a statement is sufficient, provided that
the check or statement contains a specific notation that it is a refund
of tax erroneously withheld);
(ii) Not report on a Form 1099 as tax withheld any amount which the
payor or broker has refunded to a payee; and
(iii) Not deposit the amount erroneously withheld if the payor or
broker has not deposited the amount of the tax prior to the time that
the refund is made to the payee.
(2) Adjustment after the deposit of the tax. For purposes of
paragraph (b)(1) of this section, if the amount erroneously withheld
has been deposited prior to the time that the refund is made to the
payee, the payor or broker may adjust any subsequent deposit of the tax
collected under chapter 24 of the Internal Revenue Code that the payor
or broker is required to make in the amount of the tax that has been
refunded to the payee.
PART 35a--TEMPORARY EMPLOYMENT TAX REGULATIONS UNDER THE INTEREST
AND DIVIDEND TAX COMPLIANCE ACT OF 1983
Par. 12. The authority citation for part 35a is amended by removing
the entry for 35a.3406-2 to read, in part, as follows:
Authority: 26 U.S.C. 7805. * * *
Sec. 35a.3406-2 [Removed]
Par. 13. Section 35a.3406-2 is removed.
Par. 14. Section 35a.9999-0T is added to read as follows:
Sec. 35a.9999-0T Effective date (temporary).
In general, the provisions of Secs. 35a.9999-1, 35a.9999-2,
35a.9999-3, 35a.9999-3A, 35a.9999-4T, and 35a.9999-5 are effective
before January 1, 1997. The provisions of those sections remain
effective after December 31, 1996, however, for purposes of
Sec. 301.6724-1(g) of this chapter, relating to due diligence safe
harbor, and for international transactions, including transactions
involving a foreign payee, a foreign payor, a foreign office of a U.S.
bank or broker, or a payment from sources without the United States.
See Secs. 31.3406-0 through 31.3406(i)-1 of this chapter for rules that
apply to other transactions after December 31, 1996.
PART 301--PROCEDURE AND ADMINISTRATION
Par. 15. The authority for part 301 continues to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
Par. 16. Section 301.6109-1 is amended by:
1. Revising the third sentence in paragraph (a)(1).
2. Revising the first sentence in paragraph (h).
The revised sentences read as follows:
Sec. 301.6109-1 Identifying numbers.
(a) In general--(1) Social security numbers and employer
identification numbers. * * * Social security numbers identify
individual persons, while employer identification numbers identify
corporations, partnerships, nonprofit associations, trusts, estates of
decedents, and similar nonindividual persons. * * *
* * * * *
(h) Effective date. The provisions of this section are effective
for information that must be furnished after April 15, 1974, except
that the requirement that an estate obtain an Employer Identification
Number applies on and after January 1, 1984. * * *
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Par 17. The authority for part 602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 18. In Sec. 602.101, paragraph (c) is amended by adding an
entry to the table in numerical order to read as follows:
``Sec. 31.3406(a)-1--Sec. 31.3406(i)-1...1545-0112''.
Dated: November 28, 1995.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved:
Cynthia G. Beerbower,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 95-30733 Filed 12-20-95; 8:45 am]
BILLING CODE 4830-01-U
Complete official Federal Register PDF
FR Doc. 95-30701 Applicant Processing for Family Unity Benefits
[Federal Register Volume 60, Number 245 (Thursday, December 21, 1995)]
[Rules and Regulations]
[Pages 66062-66069]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30701]
=======================================================================
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DEPARTMENT OF JUSTICE
Immigration and Naturalization Service
8 CFR Parts 103, 242, 264, 274a, and 299
[INS No. 1414-91]
RIN 1115-AC39
Applicant Processing for Family Unity Benefits
AGENCY: Immigration and Naturalization Service, Justice.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This final rule adopts with amendments the interim rule which
was published by the Immigration and Naturalization Service on February
25, 1992, implementing the provisions of the Family Unity Program
created by the Immigration Act of 1990 which provides a means by which
certain eligible aliens may obtain permanent resident status. This rule
also provides voluntary departure and work authorization for certain
eligible immigrants.
EFFECTIVE DATE: December 21, 1995.
FOR FURTHER INFORMATION CONTACT: Jack Hartsoch, Office of Service
Center Operations, Immigration and
[[Page 66063]]
Naturalization Service, 425 I Street NW., Room 3040, Washington, DC
20536, telephone (202) 514-3156.
SUPPLEMENTARY INFORMATION: On November 29, 1990, the Immigration Act of
1990, Pub. L. 101-649 (IMMACT 90), was enacted. Section 301 of IMMACT
90 provides for relief from deportation, and the granting of employment
authorization, to an eligible immigrant who is the spouse or unmarried
child of a legalized alien granted temporary or permanent resident
status pursuant to section 210 or 245A of the Immigration and
Nationality Act (the Act), or permanent resident status under section
202 of the Immigration Reform and Control Act of 1986 (Cuban/Haitian
Adjustment). This new program supersedes the administrative Family
Fairness policy which began in November 1987. That policy allowed
district directors to exercise the Attorney General's authority to
defer deportation proceedings of certain family members of legalized
aliens where compelling or humanitarian factors existed. On August 31,
1991, the Immigration and Naturalization Service (Service) published in
the Federal Register at 56 FR 42948 a proposed rule to implement the
provisions of section 301 of IMMACT 90, as it relates to the Family
Unity Program. Subsequently, on February 25, 1992, the Service
published in the Federal Register an interim rule at 57 FR 6457-6472
with request for comments. The interim rule as published on February
25, 1992 is adopted as final with amendments to 8 CFR parts 242 and
274a only. This final rule reflects the amendment to section 206 made
by the Immigration and Nationality Technical Corrections Act of 1994,
Public Law 103-416, Sec. 206, 108 Stat. 4305, 4311-12 (1994). This rule
also provides status under Sec. 242.5 for children born to mothers
granted status under the Family Unity Program who are authorized to
depart and reenter the United States.
Comments
The discussion that follows summarizes the public comments
submitted in response to the interim rule and explains the revisions
adopted in the final rule.
Residency Since May 5, 1988
The interim rule provided that a qualifying family member would be
eligible for Family Unity Program benefits if he or she had been in the
United States on May 5, 1988, and had resided in the United States
since that date. Several commenters asserted that no basis existed for
the continuous residency requirement. They did not believe that this
requirement had any statutory basis and that it was irrelevant whether
an alien actually continued to remain in the United States after May 5,
1988.
Section 301(f) of IMMACT 90 states as follows:
Nothing in this section shall be construed as authorizing an
alien to apply for admission to, or to be admitted to, the United
States in order to obtain benefits under this section.
The statute now requires an applicant to have entered the United
States before May 5, 1988, in the case of a relationship to a legalized
alien described in subsection (b)(2)(B) or (b)(2)(C) of section 301 of
IMMACT 90, or as of December 1, 1988, in the case of a relationship to
a legalized alien described in subsection (b)(2)(A), and also prohibits
the admission of an alien for the purposes of obtaining Family Unity
Program benefits. The Service interprets these two provisions as
requiring an applicant for Family Unity Program benefits to have
continuously resided in the United States since May 5, 1988, in the
case of a relationship to a legalized alien described in subsection
(b)(2)(B) or (b)(2)(C) of section 301 of IMMACT 90, or as of December
1, 1988, in the case of a relationship to a legalized alien described
in subsection (b)(2)(A). Further, the purpose of the Family Unity
Program is to prevent the separation of families, and to provide a
means by which qualifying family members already in the United States
in illegal status can eventually apply for permanent resident status.
The underlying administrative Family Fairness policy supports this
premise. The Service created the Family Fairness policy as a means of
precluding the separation of family members by deferring their
deportation. The purpose of the policy was to allow family members to
reside together in the United States until they could acquire legal
status. Whether relating to the Family Fairness policy or the Family
Unity Program, once a family member no longer resides with the family,
the reason for which the status was granted no longer exists.
Therefore, the Service will retain the continuous residency
requirement. In order to determine if the applicant has maintained a
continuous residence in the United States since May 5, 1988, in the
case of a relationship to a legalized alien described in subsection
(b)(2)(B) or (b)(2)(C) of section 301 of IMMACT 90, or as of December
1, 1988, in the case of a relationship to a legalized alien described
in subsection (b)(2)(A), the Service will consider the factors set
forth in Matter of Huang, 19 I&N 749, 753 (BIA 1988). In Huang, the
Board of Immigration Appeals enumerated several factors which should be
considered in determining whether an alien is returning from a
temporary visit abroad, thereby retaining his continuous residency in
the United States. These factors include the duration of the alien's
absence from the United States; the location of the alien's family
ties, the alien's property holdings, and job; and the intention of the
alien with respect to both the location of his actual home and the
anticipated length of his excursion. Matter of Quijencio, 15 I&N 95, 97
(BIA 1974); Matter of Castro, 14 I&N Dec. 492 (BIA 1973); Matter of
Montero, 14 I&N 399, 400 (BIA 1973).
The Service will not interpret ``continuous residence'' as
requiring ``continuous physical presence.'' A qualifying family member
who meets the requirements of the Family Unity Program will be granted
a 2-year period of voluntary departure. Voluntary departure is a form
of relief from deportation and is available only to persons already in
the United States.
Legalized Aliens/Applications After May 5, 1988
The interim rule provides that an alien who filed a legalization
application on or before May 5, 1988, will be treated as having been a
legalized alien as of May 5, 1988, for purposes of the Family Unity
Program.
Section 301(a) of IMMACT 90 states as follows:
The Attorney General shall provide that in the case of an alien
who is [a qualified immigrant and the spouse or unmarried child of a
legalized alien] as of May 5, 1988 * * *. [Emphasis added]
.Several commenters believe that the statute was never intended to
exclude family members of legalized aliens who filed after May 5, 1988,
from the Family Unity Program. They note that the filing deadline for
the Special Agricultural Worker Program did not occur until November
30, 1988. They believe that an alien who filed a timely application
after May 5, 1988, but before November 30, 1988, should also be treated
as a legalized alien for purposes of the Family Unity Program.
Congress has acted to resolve this issue. Section 206(a) of the
Immigration and Nationality Technical Corrections Act of 1994, Pub. L.
103-416, 108 Stat. at 4311, amends section 301 of IMMACT 90 to
distinguish the legalization program under section 245A of the Act and
the Cuban-Haitian adjustment provision in section 202 of
[[Page 66064]]
IRCA from the SAW program under section 210 of the Act. The Family
Unity Program eligibility date for relatives of aliens legalized under
the SAW program is now December 1, 1988, to correspond to the filing
deadline for that program. This amendment is reflected in this final
rule.
Children Born After May 5, 1988
The Service recognizes that the situation may arise where a child
may be born abroad to an alien granted voluntary departure status and
advance authorization to travel under the Family Unity Program.
Although there is no provision in the statute to provide status to the
child, it is also true that the intent of the statute was to enable
specific family members to reside together in the United States.
Therefore, although the child cannot qualify for benefits under the
Family Unity Program, the Service will provide for the granting of
voluntary departure under 8 CFR 242.5, to a child of a legalized alien
residing in the United States, who was born during an authorized
absence of the mother who is currently either a legalized alien or a
beneficiary of the Family Unity Program. This provision will also
include children born to aliens residing in the United States, who were
denied status in the Family Unity Program and granted voluntary
departure status under 8 CFR 242.5, where the other parent is a
legalized alien residing in the United States.
Waivers
Several commenters sought clarification regarding the availability
of existing waivers of deportability for applicants for the Family
Unity Program. The interim regulation reflects the statute in making
aliens who are deportable under certain grounds ineligible for the
Family Unity Program benefits. However, an alien who has been granted
any available waiver is not deportable and is not ineligible for the
Family Unity Program. The final rule is modified to clarify that
existing waivers are applicable to applicants for the Family Unity
Program.
Response to Notice of Intent To Deny
One commenter suggested that the Service should allow an applicant
for Family Unity Program benefits to submit a good faith request for an
extension of time to submit a response to a notice of intent to deny.
An applicant may request more time to respond to a notice to deny.
However, the Service's decision whether or not to grant the request is
discretionary. To ensure consistency with application procedures in
other Service programs, the provisions in this rule are consistent with
the general requirements and procedures for applications and petitions
in 8 CFR part 103.
Denied Cases
The Service initially proposed an administrative appeal procedure.
However, upon further review, this procedure was eliminated in the
interim rule. One commenter believed that the Service should not have
eliminated the administrative appeal process.
The Service set forth its reasons for eliminating the proposed
administrative appeal process in the Supplementary Information to the
interim rule published at 57 FR 6459-6460. The Service adheres to that
reasoning and will not adopt an administrative appeal procedure.
Issuance of Orders To Show Cause (OSC)
A commenter was concerned that the Service would issue an OSC (Form
I-221) while a Family Unity Program application is pending. The Service
will not issue an OSC during the pending adjudication of an Application
for Voluntary Departure Under the Family Unity Program (Form I-817),
unless the OSC is based on a paragraph in section 241(a) of the Act
which would render the applicant ineligible for the Family Unity
Program.
Several commenters believed that having applicants placed in
deportation proceedings as a result of a failure to meet basic
eligibility requirements, such as residence by the required date, is a
severely disproportionate consequence and a waste of Service resources,
as the denied applicants are likely to be eligible for a second
preference visa petition and will eventually be allowed to immigrate to
the United States. The commenters recommended that the Service continue
the policy under the administrative Family Fairness policy of not
issuing OSCs in denied cases, except in egregious cases such as a
serious criminal conviction.
However, as was discussed in the Supplementary Information to the
interim rule, the Service must fulfill its enforcement responsibility
under the Act. Therefore, this provision will remain as it is in the
interim rule.
Several commenters proposed that the issuance of an OSC be delayed
for 90 days after a second denial. They pointed out that the only way
an alien may appeal a denial of Family Unity Program benefits would be
to file a complaint against the Service in district court alleging
abuse of discretion. Further, the commenters allege that the Service is
making it difficult for the alien to bring these charges when it will
only delay issuance of the OSC for the first denial. The commenters
conclude that, in order to balance the removal of the proposed
administrative appeals process, the Service should allow applicants
more time after a second denial to seek judicial review.
The Service believes that granting a 90-day grace period after
every denial before issuing an OSC might simply encourage a person to
file repeated applications with the sole intent to protract the
adjudication process and delay the issuance of an OSC. The Service
believes that ample safeguards exist in the current procedure to enable
an applicant to perfect an application and/or appeal a denial of
benefits. Denied applicants will have at least 90 days from the first
denial to refile a second application before the Service will issue an
OSC. If the application is denied again, the applicant may still seek
judicial review before the district court. Therefore, the final rule
will not be amended to allow for a delayed issuance of an OSC after a
second denial.
Release From Detention/Administrative Closure/Automatic Stay of
Deportation
Several commenters suggested that the regulations provide that a
demonstration of prima facie eligibility for Family Unity Program
benefits should result in:
(1) The alien's release from detention on his or her own
recognizance;
(2) Administrative closure of the deportation proceedings, provided
a final administrative order of deportation has not been issued; and
(3) An automatic stay of deportation for a person with a final
deportation order.
These commenters asserted that this would promote an efficient use
of the budgets of the Service and the Executive Office for Immigration
Review (EOIR) to be faithful to Congress' intent and would promote
uniformity in national enforcement practice.
The Service may currently consider the requests of release from
detention and stays of deportation on a case-by-case basis for Family
Unity Program applicants under sections 242 and 243 of the Act. The
Service is without authority to consider a request for administrative
closure of a deportation proceeding.
Concurrent Jurisdiction of EOIR
Several commenters believe it would be helpful to have a provision
stating that EOIR has concurrent jurisdiction with the Service in cases
where an
[[Page 66065]]
applicant has been denied Family Unity Program benefits and is in
deportation proceedings. The commenters suggest that the reference to
judicial review in the interim rule includes the possibility of seeking
review before an immigration judge.
The statute does not provide for administrative review of the
Service's denial of Family Unity Program benefits. If an alien's
application for Family Unity Program benefits is denied, he or she may
still request relief from deportation in the form of voluntary
departure in a deportation hearing before an immigration judge. Such a
request would be made pursuant to section 244 of the Act and would be a
separate determination from that made by the Service pursuant to
section 301 of the Immigration Act of 1990. An immigration judge's
denial of voluntary departure in deportation proceedings could then be
appealed to the Board of Immigration Appeals and the Federal circuit
court of appeals.
Employment Authorization
Several commenters proposed that the Service apply the same
practice to the Family Unity Program as was applied to the Legalization
Program and the administrative Family Fairness policy regarding
employment authorization, for example, granting interim employment
authorization for the time period between the granting of the
application and the issuance of the employment authorization document
(EAD) at a local Service office. Several commenters suggested that such
interim work authorization should be stamped directly onto the receipt
notice, with the period of validity to coincide with the EAD
appointment date plus 90 days.
The Service's position regarding the issue of providing interim
work authorization to Family Unity Program applicants remains
unchanged. The Service has determined that a uniform procedure for
issuance of EADs is necessary. Further, interim work authorization is
less secure and presents enforcement problems. For the above reasons
and those set forth in the interim rule, the Service will not authorize
interim employment for the period between the granting of an
application for Family Unity Program benefits and the issuance of an
EAD. Instead, the applicant may apply on Form I-765 for issuance of an
EAD, concurrently with Form I-817. To file Form I-765 at a Service
Center, the applicant must include two (2) ADIT-style photographs.
Identify Document for Employment Authorization
The interim rule, at 8 CFR 242.6(e)(5), contained the language,
``issued by legitimate agency of the United States or a foreign
government,'' when referring to an identity document the alien must
present at the time of filing for an application for an EAD. Some
commenters expressed concern that the language could be construed too
narrowly to preclude State or local government-issued identification
documents (whether domestic or foreign), and recommended that the final
language of the rule clarify that identification documents will be
accepted if they have been issued by smaller scale government sources,
provided they are legitimate.
The intent of this requirement is to ensure that a person appearing
at the local district office to obtain an EAD establish that he or she
is the person granted Family Unity Program benefits before being given
the EAD. The final rule clarifies this point.
Reference on Forms I-688B and I-551
One commenter requested that the Employment Authorization Card,
Form I-688B, and the Alien Registration Receipt Card, Form I-551,
include a reference to section 301 of IMMACT 90 to assist in
identifying participants in this program.
The Form I-688B does have a reference to the Family Unity Program.
Section 274a.12(a)(13) is used exclusively for the Family Unity
Program. The Form I-551 reflects the section of law under which the
alien immigrated but does not directly indicate the alien's previous
participation in the Family Unity Program.
Continuing Relationship Requirement
One commenter requested a clarification regarding the continuing
relationship requirement, specifically the definitions of ``child'' and
``spouse.''
The definition of ``child'' is the same as is defined in section
101(b)(1) of the Act, with the exception that the alien will not lose
eligibility for the Family Unity Program by virtue of having attained
the age of 21 after May 5, 1988, in the case of a relationship to a
legalized alien described in subsection (b)(2)(B) or (b)(2)(C) of
section 301 IMMACT 90, or as of December 1, 1988, in the case of a
relationship to a legalized alien described in subsection (b)(2)(A).
The definition of ``spouse'' includes the term as described in section
101(a)(35) of the Act. The term ``spouse'' is also described in
decisions relating to the petitioning process for sections 201(b) and
203(a)(2) of the Act. There is no special definition of spouse
associated with this rule.
In the interim rule, at Sec. 242.6(c)(1)(ii), an eligible immigrant
is required to also be eligible for family-sponsored second preference
immigrant status under section 203(a)(2) of the Act based on the same
relationship. One commenter believed that the ``based on the same
relationship'' phrase should not be included in the promulgation of
final regulations and that marital status on May 5, 1988, and not any
time thereafter, be the relevant determination of eligibility. The
commenter concluded that the disqualification is inconsistent with the
purposes of the Family Unity Program.
Pursuant to section 301 paragraphs (a) and (b)(1) of the
Immigration Act of 1990, the required relationship to a legalized alien
must have existed on May 5, 1988, in the case of a relationship to a
legalized alien described in subsection (b)(2)(B) or (b)(2)(C) of
section 301 IMMACT 90, or as of December 1, 1988, in the case of a
relationship to a legalized alien described in subsection (b)(2)(A).
The issue is whether that relationship must continue in order for
eligibility to continue, or whether the alien granted benefits under
the Family Unity Program should be allowed to retain those benefits
even if the required relationship changes.
The purpose of the Family Unity Program is to provide a transition
for specific family members of legalized aliens to family-sponsored
second preference immigrant status. If benefits under the Family Unity
Program were retained even after a required relationship ended by
marriage, divorce, or death, and the person became ineligible for
family-sponsored second preference classification, the alien could
potentially remain in the Family Unity Program without a means to
become a permanent resident. This would go far beyond Congress' intent
for the program and would be inconsistent with section 205 of the Act.
In essence, this regulation applies the same rules to the Family
Unity Program which are applicable to persons with approved family-
sponsored immigrant petitions in similar circumstances. If a marriage
to a petitioner ends, or the unmarried son or daughter of a lawful
permanent resident petitioner marries, approval of an immigrant
petition based upon that relationship is automatically revoked, and
that petition may no longer be used as a basis for immigration.
[[Page 66066]]
Therefore, if the legalized alien's child marries, or if the
legalized alien's marriage to the spouse ends through divorce or death,
neither the child nor the spouse can retain benefits under the Family
Unity Program because of the termination of the relationship by which
he or she qualified.
Petition/Extension Application
In order to obtain an extension of voluntary departure, section
242.6(e)(7) of the interim rule requires that a petition for family-
sponsored immigrant status be filed on behalf of the applicant during
the initial period of voluntary departure. Several commenters asserted
that this requirement is unnecessary.
The Service recognizes that the statute does not specifically
require that an immigrant petition be filed in order to obtain an
extension of voluntary departure; however, since the intent of the
program is to provide a bridge to permanent residence, it is reasonable
to require the family member to at least file the second-preference
petition. Further, this regulation will assist the Service in moving
toward closure of the need for the Family Unity Program, and provide
lawful permanent resident status for the participants of the Family
Unity Program. The requirement continued from the interim rule is being
modified so as to relate only to those applicants whose petitioning
family member is a lawful permanent resident and thereby eligible to
file the petition.
Extension/Demonstration of Continued Eligibility
Several other commenters suggested that the rule be modified to
require a person seeking Family Unity Program benefits to demonstrate
continued eligibility only from the date of execution of the prior
Family Unity Program application. The commenters conclude that this
would streamline the extension process and save time and resources for
both the Service and the applicants. Several commenters also suggested
that such simplification should result in a reduced fee.
The final rule will be amended to reflect that the applicant for an
extension will not be required to submit evidence already submitted.
However, the applicant will be required to submit evidence of
continuing eligibility since the first application for the Family Unity
Program was submitted. The applicant will also be required to notify
the Service of any changes relating to the first application.
Two commenters suggested that an applicant for voluntary departure
under the Family Unity Program only be required to submit a simple
half-page extension form or a Form I-817 by itself, along with a
reduced fee. Since activities such as mail distribution, fee
receipting, data entry, records verification, adjudication, and
notification are associated with the processing of any form, the fee
will remain the same.
The Service is committed to charging a fee that accurately reflects
costs. The Service will continue to use the form created for this
program, Form I-817, Application for Voluntary Departure Under the
Family Unity Program. The fee is consistent with 31 U.S.C. 9701 and the
guidelines of the Office of Management and Budget in OMB Circular A-25,
for an application for an initial grant of family unity benefits and
for an application to extend family unity benefits.
Condition/Status
In the interim rule, an alien who is granted advance authorization
to travel outside the United States and who returns to the United
States in accordance with such authorization, and who is found not to
be excludable under section 301(a)(1) of IMMACT 90, shall be inspected
and admitted in the same immigration condition the alien had at the
time of departure for the remainder of the 2-year voluntary departure
previously authorized under the Family Unity Program. One commenter was
troubled about the use of the term ``condition'' instead of ``status''
for persons who depart and return on advance parole.
To avoid an appearance that the Service is not following the
statute, the word ``status'' will be used in the final rule. If the
person was in status at the time of departure, the alien will be placed
in status upon return to the United States. Conversely, if the person
was out of status upon departure, the alien will be out of status upon
his or her return. Thus, existing sections of the Act, such as section
245, are unaffected by section 301 of IMMACT 90. If an alien was
ineligible to adjust status upon departure, the alien will be
ineligible to adjust status upon return.
Visa Processing
One commenter requested clarification regarding the processing of
immigrant petitions. Section 301 of IMMACT 90 is not affected by
procedures relating to immigrant petitions.
Confidentiality
One commenter suggested that the Service adopt a relation providing
for confidentiality for the Family Unity Program application,
prohibiting the use of information gathered for the Family Unity
program in establishing deportability.
The Immigration Reform and Control Act required confidentiality in
clear statutory language. No such provision was made in the enabling
statute for the Family Unity Program.
Regulatory Flexibility Act
The Commissioner of the Immigration and Naturalization Service, in
accordance with the Regulatory Flexibility Act (5 U.S.C 605(b)), has
reviewed this regulation and, by approving it, certifies that the rule
will not have significant economic impact on a substantial number of
small entities because the rule relates solely to individual
immigration benefits.
Executive Order 12866
This rule is not considered by the Department of Justice,
Immigration and Naturalization Service, to be a ``significant
regulatory action'' under Executive Order 12866, Sec. 3(f), Regulatory
Planning and Review, and the Office of Management and Budget has waived
its review process under section 6(a)(3)(A).
Executive Order 12612
The regulations adopted herein will not have substantial direct
effects on the States, on the relationship between the National
Government and the States, or on the distribution of power and
responsibilities among the various levels of government. Therefore, in
accordance with Executive Order 12612, it is determined that this rule
does not have sufficient Federalism implications to warrant the
preparation of a Federalism Assessment.
Executive Order 12606
The Commissioner of the Immigration and Naturalization Service
certifies that she has assessed this rule in light of the criteria in
Executive Order 12606 and has determined that this regulation will
enhance family well-being by providing for family unity of eligible
persons.
The information collection requirements contained in this rule have
been cleared by the Office of Management and Budget under the
provisions of the Paperwork Reduction Act. Clearance numbers are
contained in 8 CFR 299.5, Display of Control Numbers.
List of Subjects
8 CFR Part 103
Administrative practice and procedure, Authority delegations
[Government agencies], Freedom of Information, Privacy, Reporting and
[[Page 66067]]
recordkeeping requirements, Surety bonds.
8 CFR Part 242
Administrative practice and procedure, Aliens, Crime.
8 CFR Part 264
Aliens, Reporting and recordkeeping requirements.
8 CFR Part 274a
Administrative practice and procedure, Aliens, Employment
penalties, Report and recordkeeping requirements.
8 CFR Part 299
Immigration, Reporting and recordkeeping requirements.
Accordingly, the interim rule amending 8 CFR parts 103, 242, 264,
274a and 299 which was published at 57 FR 6457-6462 on February 25,
1992, is adopted as a final rule with the following changes:
PART 242--PROCEEDINGS TO DETERMINE DEPORTABILITY OF ALIENS IN THE
UNITED STATES: APPREHENSION, CUSTODY, HEARING, AND APPEAL
1. The authority citation for part 242 continues to read as
follows:
Authority: 8 U.S.C. 1103, 1182, 1186a, 1251, 1252, 1252 note,
1252b, 1254, 1362; 8 CFR part 2.
2. In Sec. 242.5, paragraph (a) is amended by:
a. Removing ``or'' before paragraph (a)(2)(viii);
b. Removing the ``.'' at the end of the paragraph and replacing it
with a ``; or'';
c. Adding paragraph (a)(2)(ix); and
d. Revising paragraph (a)(3) to read as follows:
Sec. 242.5 Voluntary departure prior to commencement of hearing.
* * * * *
(a) * * *
(2) * * *
(ix) who is the child of a legalized alien currently residing in
the United States, born during an authorized absence from the United
States of the mother who is:
(A) A legalized alien; or
(B) An alien currently residing in the United States under
voluntary departure pursuant to the Family Unity Program.
(3) Periods of time/employment. (i) Except for paragraphs (a)(2)
(v) through (ix) of this section, any grant of voluntary departure
shall contain a time limitation of usually not more than 30 days, and
an extension of the original voluntary departure time shall not be
authorized except under meritorious circumstances, as determined on a
case-by-case basis. Upon failure to depart, deportation proceedings
will be initiated. As an exception to the 30-day voluntary departure
period, an eligible alien under:
(A) Paragraph (a)(2)(v) of this section may be granted voluntary
departure in increments of 1 year conditioned upon the F-1 or J-1 alien
maintaining a full course of study at an approved institution of
learning, or upon abiding by the terms and conditions of the exchange
program within the limitations imposed by 22 CFR 514.23; or
(B) Paragraphs (a)(2)(vi) (A), (B), and (C) of this section may be
granted voluntary departure until the American Consul issues an
immigrant visa and, at the discretion of the district director,
issuance may be in increments of 30 days, conditioned upon continuing
availability of an immigrant visa as shown in the latest Visa Office
Bulletin and upon the alien's diligent pursuit of efforts to obtain the
visa; or
(C) Paragraphs (a)(2)(vi) (D) and (E) of this section may be
granted voluntary departure, conditioned upon the continued validity of
the approved third- or sixth-preference petition, as appropriate, and
the alien's retention of the status established in the petition for an
indefinite period until an immigrant visa is available; or
(D) Paragraphs (a)(2) (vii) and (viii) of this section may be
granted voluntary departure in increments of time, not to exceed 1
year, as determined by the district director to be appropriate in the
case; or
(E) Paragraph (a)(2)(ix) of this section may be granted voluntary
departure in increments of time, not to exceed 2 years.
(ii) An alien eligible for voluntary departure in paragraphs (a)(2)
(v) through (viii) of this section may apply for employment
authorization under the appropriate citation in Sec. 274a.12 of this
chapter.
* * * * *
3. Section 242.6 is revised to read as follows:
Sec. 242.6 Family Unity Program.
(a) General. Except as otherwise specifically provided in paragraph
(b) of this section, the definitions contained in Title 8 of the Code
of Federal Regulations shall apply to the administration of this
section.
(b) Definitions. As used in this section:
Eligible immigrant means a qualified immigrant who is the spouse or
unmarried child of a legalized alien.
Legalized alien means an alien who:
(i) Is a temporary or permanent resident under section 210 or 245A
of the Act; or
(ii) Is a permanent resident under section 202 of the Immigration
Reform and Control Act of 1986 (Cuban/Haitian Adjustment).
(c) Eligibility--(1) General. An alien who is not a lawful
permanent resident is eligible to apply for benefits under the Family
Unity Program if he or she establishes:
(i) That he or she entered the United States before May 5, 1988 (in
the case of a relationship to a legalized alien described in subsection
(b)(2)(B) or (b)(2)(C) of section 301 of IMMACT 90)), or as of December
1, 1988 (in the case of a relationship to a legalized alien described
in subsection (b)(2)(A) of section 301 of IMMACT 90), and has been
continuously residing in the United States since that date; and
(ii) That on May 5, 1988 (in the case of a relationship to a
legalized alien described in subsection (b)(2)(B) or (b)(2)(C) of
section 301 of IMMACT 90), or as of December 1, 1988 (in the case of a
relationship to a legalized alien described in subsection (b)(2)(A) of
section 301 of IMMACT 90), he or she was the spouse of unmarried child
of a legalized alien, and that he or she has been eligible continuously
since that time for family-sponsored second preference immigrant status
under section 203(a)(2) of the Act based on the same relationship.
(2) Legalization application pending as of May 5, 1988 or December
1, 1988. An alien whose legalization application was filed on or before
May 5, 1988 (in the case of a relationship to a legalized alien
described in subsection (b)(2)(B) or (b)(2)(C) of section 301 of IMMACT
90), or as of December 1, 1988 (in the case of a relationship to a
legalized alien described in subsection (b)(2)(A) of section 301 of
IMMACT 90), but not approved until after that date will be treated as
having been a legalized alien as of May 5, 1988 (in the case of a
relationship to a legalized alien described in subsection (b)(2)(B) or
(b)(2)(C) of section 301 of IMMACT 90), or as of December 1, 1988 (in
the case of a relationship to a legalized alien described in subsection
(b)(2)(A) of section 301 of IMMACT 90), for purposes of the Family
Unity Program.
(d) Ineligible aliens. The following categories of aliens are
ineligible for benefits under the Family Unity Program:
(1) An alien who is deportable under any paragraph in section
241(a) of the Act, except paragraphs (1)(A), (1)(B), (1)(C), and
(3)(A); provided that an alien
[[Page 66068]]
who is deportable under paragraph (1)(A) of such Act is also ineligible
for benefits under the Family Unity Program if deportability is based
upon an exclusion ground described in section 212(a) (2) or (3) of the
Act;
(2) An alien who has been convicted of a felony or three or more
misdemeanors in the United States; or
(3) An alien described in section 243(h)(2) of the Act.
(e) Filing--(1) General. An application for voluntary departure
under the Family Unity Program must be filed at the Service Center
having jurisdiction over the alien's place of residence. A Form I-817
(Application for Voluntary Departure under the Family Unity Program)
must be filed with the correct fee required in Sec. 103.7(b)(1) of this
chapter and the required supporting documentation. A separate
application with appropriate fee and documentation must be filed for
each person claiming eligibility.
(2) Decision. The Service Center director has sole jurisdiction to
adjudicate an application for benefits under the Family Unity Program.
The director will provide the applicant with specific reasons for any
decision to deny an application. Denial of an application may not be
appealed. An applicant who believes that the grounds for denial have
been overcome may submit another application with the appropriate fee
and documentation.
(3) Referral of denied cases for consideration of issuance of Order
to Show Cause. If an application is denied, the case will be referred
to the district director with jurisdiction over the alien's place of
residence for consideration of whether to issue an Order to Show Cause
(OSC). After an initial denial, an applicant's case will not be
referred for issuance of an OSC until 90 days from the date of the
initial denial, to allow the alien the opportunity to file a new Form
I-817 application in order to attempt to overcome the basis of the
denial. However, if the applicant is found not to be eligible for
benefits under paragraph (d)(2) of this section, the Service reserves
the right to issue an Order to Show Cause at any time after the initial
denial.
(4) Voluntary departure under Sec. 242.5 and eligibility for
employment under Sec. 274a.12(c)(12). Children of legalized aliens
residing in the United States, who were born during an authorized
absence from the United States of mothers who are currently residing in
the United States under voluntary departure pursuant to the Family
Unity Program may be granted voluntary departure under
Sec. 242.5(a)(2)(ix) for a period of 2 years.
(5) Duration of voluntary departure under Sec. 242.6. An alien
whose application for benefits under the Family Unity Program is
approved will receive a 2-year period of voluntary departure. The 2-
year period will begin on the date the Services approves the
application.
(6) Employment authorization. An alien granted benefits under the
Family Unity Program is authorized to be employed in the United States
and may apply for an employment authorization document on Form I-765
(Application for Employment Authorization). The application may be
filed concurrently with Form I-817. The application must be accompanied
by the correct fee required by Sec. 103.7(b)(1) of this chapter. The
validity period of the employment authorization will coincide with the
period of voluntary departure.
(7) Travel outside the United States. An alien granted Family Unity
Program benefits who intends to travel outside the United States
temporarily must apply for advance authorization using Form I-131
(Application for Travel Document). The authority to grant an
application for advance authorization for an alien granted Family Unity
Program benefits rests solely with the district director. An alien who
is granted advance authorization and returns to the United States in
accordance with such authorization, and who is found not to be
excludable under section 212(a) (2) or (3) of the Act, shall be
inspected and admitted in the same immigration status the alien had at
the time of departure, and provided the remainder of the 2-year
voluntary departure previously granted under the Family Unity Program.
(8) Extension of voluntary departure. An application for an
extension of voluntary departure under the Family Unity Program must be
filed by the alien on Form I-817 along with the correct fee required in
Sec. 103.7(b)(1) of this chapter and the required supporting
documentation. The submission of a copy of the previous approval notice
will assist in shortening the processing time. An extension may be
granted if the alien continues to be eligible for benefits under the
Family Unity Program. However, an extension may not be approved if the
legalized alien is a lawful permanent resident, and a petition for
family-sponsored immigrant status has not been filed in behalf of the
applicant. In such case the Service will notify the alien of the reason
for the denial and afford him or her the opportunity to file another
Form I-817 once the petition, Form I-130, has been filed in behalf of
him or her. No charging document will be issued for a period of 90
days.
(9) Supporting documentation for extension application. Supporting
documentation need not include documentation provided with the previous
application(s). The extension application need only include changes to
previous applications and evidence of continuing eligibility since the
date of the prior approval.
(f) Eligibility for Federal financial assistance programs. An alien
granted Family Unity Program benefits based on a relationship to a
legalized alien as defined in paragraph (b) of this section is
ineligible for public welfare assistance in the same manner and for the
same period as the legalized alien is ineligible for such assistance
under sections 245A(h) or 210(f) of the Act, respectively.
(g) Termination of Family Unity Program benefits.
(1) Grounds for termination. The Service may terminate benefits
under the Family Unity Program whenever the necessity for the
termination comes to the attention of the Service. Such grounds will
exist in situations including, but not limited to, those in which:
(i) A determination is made that Family Unity Program benefits were
acquired as the result of fraud or willful misrepresentation of a
material fact;
(ii) The beneficiary commits an act or acts which render him or her
inadmissible as an immigrant or ineligible for benefits under the
Family Unity Program;
(iii) The legalized alien upon whose status benefits under the
Family Unity Program were based loses his or her legalized status;
(iv) The beneficiary is the subject of a final order of exclusion
or deportation issued subsequent to the grant of benefits on any ground
of deportability or excludability that would have rendered the alien
ineligible for benefits under Sec. 242.6(d)(1) of this chapter,
regardless of whether the facts giving rise to such ground occurred
before or after the benefits were granted; or
(v) A qualifying relationship to a legalized alien no longer
exists.
(2) Notice procedure. Notice of intent to terminate and of the
grounds thereof shall be served pursuant to the provisions of
Sec. 103.5a of this chapter. The alien shall be given 30 days to
respond to the notice and may submit to the Service additional evidence
in rebuttal. Any final decision of termination shall also be served
pursuant to the provisions of Sec. 103.5a of the chapter. Nothing in
this section
[[Page 66069]]
shall preclude the Service from commencing exclusion or deportation
proceedings prior to termination of Family Unity Program benefits.
(3) Effect of termination. Termination of benefits under the Family
Unity Program, other than as a result of a final order of deportation
or exclusion, shall render the alien amendable to exclusion or
deportation proceedings under sections 236 or 242 of the Act, as
appropriate.
PART 274a--CONTROL OF EMPLOYMENT OF ALIENS
4. The authority citation for part 274a continues to read as
follows:
Authority: 8 U.S.C. 1101, 1103, 1324a; 8 CFR part 2.
5. Section 274a.12 is amended by revising paragraph (c)(12) to read
as follows:
Sec. 274a.12 Classes of aliens authorized to accept employment.
* * * * *
(c) * * *
(12) A deportable alien granted voluntary departure, either prior
to or after a hearing, for reasons set forth in Sec. 242.5(a)(2) (v),
(vi), (viii), or (ix) of this chapter, may be granted permission to be
employed for that period of time prior to the date set for voluntary
departure including any extension granted beyond such date, if the
alien establishes an economic need to work. Factors which may be
considered in adjudicating the application for employment authorization
of such an alien granted voluntary departure include, but are not
limited to, the following:
(i) The length of voluntary departure granted;
(ii) The existence of a dependent spouse and/or children in the
United States who rely on the alien for support;
(iii) Whether there is a reasonable chance that legal status may
ensure in the near future; and
(iv) Whether there is a reasonable basis for consideration of
discretionary relief.
* * * * *
Dated: December 13, 1995.
Doris Meissner,
Commissioner.
[FR Doc. 95-30701 Filed 12-20-95; 8:45 am]
BILLING CODE 4410-10-M
Complete official Federal Register PDF
FR Doc. 95-30685 Time for Furnishing Wage Statements on Termination of Employer's Operations
[Federal Register Volume 60, Number 245 (Thursday, December 21, 1995)]
[Rules and Regulations]
[Pages 66139-66142]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30685]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
26 CFR Parts 31 and 301
[TD 8636]
RIN 1545-AN57
Time for Furnishing Wage Statements on Termination of Employer's
Operations
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final regulations concerning the time
for furnishing wage statements to employees and for filing wage
statements with the Social Security Administration upon the termination
of an employer's operations. These regulations will affect employers
and their employees in the year the employer ceases to pay wages. These
regulations are intended to improve the wage reconciliation process
between the Social Security Administration and the IRS.
EFFECTIVE DATE: These regulations are effective January 1, 1997.
ADDRESSES: Send submissions to: CC:DOM:CORP:T:R (EE-83-89), room 5228,
Internal Revenue Service, POB 7604, Ben Franklin Station, Washington,
DC 20044. In the alternative, submissions may be hand delivered between
the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:T:R (EE-83-89),
Courier's Desk. Internal Revenue Service, 1111 Constitution Avenue NW,
Washington, DC.
FOR FURTHER INFORMATION CONTACT: Jean M. Casey, (202) 622-6040 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Background
On December 22, 1994, the Federal Register (59 FR 65982) published
a notice of proposed rulemaking which required an employer to furnish
Forms W-2 to employees and to file Forms W-2 and W-3 with the Social
Security Administration (SSA) at the same time that the employer is
required to file the final Form 941 with the IRS.
Written comments responding to the notice of proposed rulemaking
were received. A public hearing was held on May 8, 1995, pursuant to a
notice published in the Federal Register on March 24, 1995 (60 FR
15526). After consideration of the comments that were received in
response to the notice of proposed rulemaking and at the hearing, the
IRS and Treasury adopt the proposed regulations, as amended and revised
by this Treasury decision.
Explanation of Revisions and Summary of Comments
Availability of Forms W-2
The regulations, as proposed, would have required an employer who
ceases paying wages to furnish Form W-2 to employees and file Forms W-2
and W-3 with SSA on or before the date on which the final Form 941 is
required to be filed with the IRS. Form 941 is generally due quarterly,
on or before the last day of the first calendar month following the
period for which it is made (i.e., April 30, July 31, October 31, and
January 31). Consequently, if an employer ceased paying wages in the
first quarter of the calendar year, the Forms 941, W-2 and W-3 would be
due by April 30. Some commentators expressed concern that Forms W-2 and
W-3 are not available in the first quarter of the calendar year.
Commentators questioned whether using prior year Forms W-2 was an
acceptable alternative if current year forms were unavailable.
Under the Internal Revenue Code and the existing regulations, an
employee may request the Form W-2 at any time during the year if the
employee is terminated and there is no reasonable expectation on the
part of the employer or the employee of further employment during the
calendar year. Therefore, Forms W-2 are available from the IRS, either
through the mail or at the district offices, in January of each year.
Specifications for the private printing of substitute Forms W-2,
however, are not always available during the first quarter of the
calendar year. Thus, during this period, employers may be limited to
using the Forms W-2 printed by the IRS. Neither prior year Forms W-2
nor the prior year specifications for the private printing of
substitute Forms W-2 should be used for filing Forms W-2 on an
expedited basis for the current year because such procedures could
result in significant processing errors.
Availability of Magnetic Media Specifications
Commentators questioned whether magnetic media specifications would
be available in the first quarter of the calendar year for employers
who are required to file on an expedited basis under the proposed
regulations. Regulation section 301.6011-2 and Notice 90-15, 1990-1
C.B. 326, generally require an employer to file Forms W-2 with SSA on
magnetic media if the employer is required to file 250 or more Forms W-
2 in a calendar year. Employers who do not meet the 250 return
threshold may also file their Forms W-2 with SSA on magnetic media.
It is not certain that magnetic media specifications, which are
issued by SSA, will be available in the first quarter of the calendar
year for employers who are required to file on an expedited basis. The
Commissioner has the authority to provide for reasonable extensions of
time, upon written application, for an employer to furnish Forms W-2 to
employees and file Forms W-2 and W-3 with SSA. To assure that filers
need not shift from magnetic media to paper filings in order to comply
with the expedited filing requirements, the final regulations affirm
that the Commissioner may adopt automatic extension procedures where
appropriate.
It is anticipated that the Commissioner will establish automatic
extension procedures to the extent necessary to permit employers that
terminate operations a reasonable period of time, after the issuance of
specifications, to make their filings on magnetic media.
It is further anticipated that these procedures will include
appropriate automatic extensions of time to file
[[Page 66140]]
expedited Forms W-2 both for employers required to file on magnetic
media and for employers who have filed on magnetic media in the past
whether or not required to do so. Even though Forms W-2 are furnished
to employees on paper, the automatic extension procedures are
anticipated to apply to the employee copy of the Form W-2 as well as
the SSA copy in order to avoid the complexities and potential errors
that could arise from processing these forms at significantly different
times.
It is also anticipated that the published procedure will provide
for an automatic extension to a specified date which permits employers
a reasonable period of time after the issuance of specifications to
make their filings on magnetic media. This date will be communicated to
filers sufficiently early in the year to permit adequate systems
planning. In providing for these procedures, it is necessary to balance
the practical issues of compliance with the concern for timely
submission of information to SSA. Thus, if prior to a future year, it
is anticipated that specifications will be issued sufficiently early in
the year to permit a reasonable period of time for filing, while still
complying with the due dates otherwise required in this regulation, the
Commissioner may suspend the automatic extension procedures for that
year. Discretionary extensions would continue to be considered on a
case-by-case basis.
Comments are requested on the automatic extension procedures and
their implementation.
Regulation section 301.6011-2(c)(4) provides that the Commissioner
may, upon application, waive the requirement to file on magnetic media
in the case of hardship. The final regulations clarify that the
unavailability of the specifications for magnetic media filing of Form
W-2 will be treated as creating a hardship. Therefore, an employer has
the option of applying for a waiver from the requirement to file Forms
W-2 on magnetic media and may instead file the Forms W-2 on paper. The
employer must apply for a waiver within 45 days of the due date of the
return.
Employers may also contact their local SSA Magnetic Media
Coordinator for guidance on how to report on magnetic media. The
Coordinators are listed in the annual Technical Instructions Bulletin
(TIB-4) published by SSA.
Extension Procedures
Regulation section 31.6051-1(d)(2) provides procedures for an
employer to request an extension of time to furnish Forms W-2 to
employees. Regulation section 31.6081(a)-1 provides similar procedures
for employers to request an extension of time to file Forms W-2 and W-3
with SSA. These procedures apply to employers who are required to
furnish Forms W-2 to employees or file Forms W-2 and W-3 with SSA on an
expedited basis. Thus, an employer who, under the final regulations, is
required to furnish and file the Forms W-2 on an expedited basis may
request an extension of time if necessary.
Additional month to provide Forms W-2 and W-3 to SSA
Under existing regulations Forms W-2 and W-3 are due to SSA one
month after they are due to the employees. This provides employers an
opportunity to correct any errors found by employees before filing the
Forms W-2 with SSA. Some commentators noted that providing the Forms W-
2 to SSA at the same time the forms are provided to the employees
eliminates the opportunity for corrections currently provided by the
regulations. To minimize the need for employers to file corrected Forms
W-2 (Form W-2c, Statement of Corrected Income and Tax Amounts), the
final regulations include a suggested one month additional period for
providing the Forms W-2 to SSA. Thus, Forms W-2 would be due to
employees at the same time as the final Form 941 (generally one month
after the end of the quarter). Forms W-2 and W-3 would be due to SSA
two months after the final Form 941 is due.
Modification of Revenue Procedure 84-77
In Revenue Procedure 84-77, 1984-2 C.B. 753, the IRS provided
procedures for preparing and filing certain forms, including Form 941,
Form W-2 and Form W-3, when a successor employer acquires substantially
all of the property (1) used in a trade or business of a predecessor
employer, or (2) used in a separate unit of a trade or business of a
predecessor, and in connection with, or immediately after the
acquisition (but during the same calendar year) the successor employs
individuals who were employed in the trade or business of the
predecessor immediately prior to the acquisition. Under the standard
procedure described in Rev. Proc. 84-77, both the predecessor and
successor employer report the wages they paid employees on Form W-2.
Under the alternate procedure, the predecessor is relieved from
furnishing Form W-2 to any employee who is employed by the successor
employer and from filing such Forms W-2 with SSA. Instead, the
successor employer assumes the predecessor's reporting obligation for
those employees. The preamble to the proposed regulation stated that,
other than modifying the time frame for the standard procedure, the
proposed regulation would not affect the validity of Rev. Proc. 84-77.
One commentator questioned whether the proposed regulation
expedited the filing requirements for the predecessor employer with
regard to individuals who are not employed by the successor employer.
If the predecessor employer ceases to pay wages, (i.e., is required to
file a final Form 941), the predecessor employer is required under
these regulations to furnish Forms W-2 on an expedited basis to those
individuals who are not employed by the successor employer. The
predecessor employer must also file Forms W-2 and W-3 with SSA on an
expedited basis for those individuals who are not employed by the
successor employer. Revenue Procedure 84-77 is being modified to
reflect this change.
Some commentators asked how the proposed regulations apply in the
context of mergers. If a final Form 941 is not filed because a merger
does not involve the cessation of business operations but only a change
in corporate or business form, the expedited filing requirements are
inapplicable.
Use of an agent
One commentator suggested the final regulations provide an
exception from expedited filing for an employer that appoints an agent
to assume the employer's reporting obligation. A similar exception was
suggested in the case of a controlled group of corporations in which
one member of the group acts as the payroll agent for the group.
Because there is no practically effective enforceable manner for
shifting liability for reporting from an employer to an agent and for
assuring that the agent will satisfy the reporting obligations, these
suggestions were not adopted.
Application to Returns filed by Employers for Employees in Guam, U.S.
Virgin Islands, American Samoa, Commonwealth of the Northern Mariana
Islands and Puerto Rico.
One commentator questioned whether the proposed regulations applied
to wage statements furnished to employees and filed with SSA by
employers for employees in Guam, U.S. Virgin Islands, American Samoa,
Commonwealth of the Northern Mariana Islands and Puerto Rico. While
these employers file variations of the Forms 941, W-2 and W-3, they are
subject to the filing
[[Page 66141]]
requirements for Forms 941, W-2 and W-3. In addition, employees of
these employers receive social security credit on the same basis as
employers who file the Forms 941, W-2 and W-3. Thus, these employers
are subject to the regulations.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It also has been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to
these regulations, and, therefore, a Regulatory Flexibility Analysis is
not required. Pursuant to section 7805(f) of the Internal Revenue Code,
the notice of proposed rulemaking preceding these regulations was
submitted to the Small Business Administration for comment on its
impact on small business.
Drafting Information
The principal author of these regulations is Jean M. Casey, Office
of the Associate Chief Counsel (Employee Benefits and Exempt
Organizations), IRS. However, other personnel from the IRS and Treasury
Department participated in their development.
List of Subjects
26 CFR Part 31
Employment taxes, Income taxes, Penalties, Pensions, Railroad
retirement, Reporting and recordkeeping requirements, Social security,
Unemployment compensation.
26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 31 and part 301 are amended as follows:
PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE
Paragraph 1. The authority citation for part 31 is amended by
adding the following entries in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 31.6051-1(d) also issued under 26 U.S.C. 6051.
Section 31.6051-2 also issued under 26 U.S.C. 6051 * * *
Section 31.6071-1 also issued under 26 U.S.C. 6071 * * *
Section 31.6081-1 also issued under 26 U.S.C. 6081 * * *
Par. 2. Section 31.6051-1, paragraph (d) is amended as follows:
1. Paragraph (d)(1) is redesignated as (d)(1)(i).
2. Paragraph (d)(1)(ii) is added.
3. Paragraph (d)(2) is revised.
The addition and revision read as follows:
Sec. 31.6051-1 Statements for employees.
* * * * *
(d) * * * (1)(i) * * *
(ii) Expedited furnishing--(A) General rule. If an employer is
required to make a final return under Sec. 31.6011(a)-6(a)(1) (relating
to the final return for Federal Insurance Contributions Act taxes and
income tax withholding from wages) on Form 941, or a variation thereof,
the employer must furnish the statement required by this section on or
before the date required for filing the final return. See
Sec. 31.6071(a)-1(a)(1). However, if the final return under
Sec. 31.6011(a)-6(a)(1) is a monthly return, as described in
Sec. 31.6011(a)-5, the employer must furnish the statement required by
this section on or before the last day of the month in which the final
return is required to be filed. See Sec. 31.6071(a)-1(a)(2). Except as
provided in paragraph (d)(2)(i) of this section, in no event may an
employer furnish the statement required by this section later than
January 31 of the year succeeding the calendar year to which it
relates. The requirements set forth in this paragraph (d)(1)(ii) do not
apply to employers with respect to employees whose wages are for
domestic service in the private home of the employer. See
Sec. 31.6011(a)-1(a)(3).
(B) Requests by employees. An employer is not permitted to furnish
a statement pursuant to the provisions of the third sentence of
paragraph (d)(1)(i) of this section (relating to written requests by
terminated employees for Form W-2) at a time later than that required
by the provisions of paragraph (d)(1)(ii)(A) of this section.
(C) Effective date. This paragraph (d)(1)(ii) is effective January
1, 1997.
(2) Extensions of time--(i) In general (a) The Director,
Martinsburg Computing Center, may grant an extension of time in which
to furnish to employees the statements required by this section. A
request may be made by a letter to the Director, Martinsburg Computing
Center. The request must contain:
(1) The employer's name and address;
(2) The employer's taxpayer identification number;
(3) The type of return (i.e., Form W-2) and
(4) A concise statement of the reasons for requesting the
extension.
(b) The application must be mailed or delivered on or before the
applicable due date prescribed in paragraph (d)(1) of this section for
furnishing the statements required by this section.
(c) In any case in which an employer is unable, by reason of
illness, absence, or other good cause, to sign a request for an
extension, any person standing in close personal or business
relationship to the employer may sign the request on his behalf, and
shall be considered as a duly authorized agent for this purpose,
provided the request sets forth a reason for a signature other than the
employer's and the relationship existing between the employer and the
signer. For provisions relating to extensions of time for filing the
Social Security Administration copies of the statement, see
Sec. 31.6081(a)-1(a)(3).
(ii) Automatic Extension of Time. The Commissioner may, in
appropriate cases, publish procedures for automatic extensions of time
to furnish Forms W-2 where the employer is required to furnish the Form
W-2 on an expedited basis.
* * * * *
Par. 3. Section 31.6051-2, paragraph (c), first sentence is revised
to read as follows:
Sec. 31.6051-2 Information returns on Form W-3 and Internal Revenue
Service copies of Form W-2.
* * * * *
(c) Cross references. For provisions relating to the time for
filing the information returns required by this section and to
extensions of the time for filing, see Secs. 31.6071(a)-1(a)(3) and
31.6081(a)-1(a)(3), respectively. * * *
Par. 4. Section 31.6071(a)-1(a)(3) is amended as follows:
1. Paragraph (a)(3)(i) is removed.
2. Paragraph (a)(3)(ii) is redesignated as paragraph (a)(3)(i) and
the heading is revised.
3. A new paragraph (a)(3)(ii) is added.
The addition and revision read as follows:
Sec. 31.6071(a)-1 Time for filing returns and other documents.
(a) * * *
(3) * * * (i) General rule. * * *
(ii) Expedited filing--(A) General rule. If an employer who is
required to make a return pursuant to Sec. 31.6011(a)-1 or
Sec. 31.6011(a)-4 is required to make a final return on Form 941, or a
variation thereof, under Sec. 31.6011(a)-6(a)(1) (relating to the final
return for Federal Insurance Contributions Act taxes and
[[Page 66142]]
income tax withholding from wages), the return which is required to be
made under Sec. 31.6051-2 must be filed on or before the last day of
the second calendar month following the period for which the final
return is filed. The requirements set forth in this paragraph
(a)(3)(ii) do not apply to employers with respect to employees whose
wages are for domestic service in the private home of the employer. See
Sec. 31.6011(a)-1(a)(3).
(B) Effective date. This paragraph (a)(3)(ii) is effective January
1, 1997.
* * * * *
Par. 5. Section 31.6081(a)-1(a)(3) is revised to read as follows:
Sec. 31.6081(a)-1 Extensions of time for filing returns and other
documents.
(a) * * *
(3) Information returns of employers on Forms W-2 and W-3--(i) In
general. The Director, Martinsburg Computing Center, may grant an
extension of time in which to file the Social Security Administration
copy of Forms W-2 and the accompanying transmittal form which
constitutes an information return under paragraph Sec. 31.6051-2(a).
The request must contain a concise statement of the reasons for
requesting the extension. The request must be mailed or delivered on or
before the date on which the employer is required to file the Form W-2
with the Social Security Administration.
(ii) Automatic Extension of Time. The Commissioner may, in
appropriate cases, publish procedures for automatic extensions of time
to file Forms W-2 where the employer is required to file the Form W-2
on an expedited basis.
* * * * *
PART 301--PROCEDURE AND ADMINISTRATION
Par. 6. The authority citation for part 301 continues to read in
part as follows:
Authority: 26 U. S. C. 7805 * * *
Par. 7. Section 301.6011-2(c)(4)(i) is revised to read as
follows:
Sec. 301.6011-2 Required use of magnetic media.
* * * * *
(c) * * *
(4) Waiver. (i) The Commissioner may waive the requirements of this
section if hardship is shown in a request for waiver filed in
accordance with this paragraph (c)(4)(i). The principal factor in
determining hardship will be the amount, if any, by which the cost of
filing the information returns in accordance with this section exceeds
the cost of filing the returns on other media. Notwithstanding the
forgoing, if an employer is required to make a final return on Form
941, or a variation thereof, and expedited filing of Forms W-2 is
required, the unavailability of specifications for magnetic media
filing will be treated as creating a hardship. See Sec. 31.6071(a)-
1(a)(3)(ii). A request for waiver should be filed at least 45 days
before the due date of the information return in order for the Service
to have adequate time to respond to the request for waiver. The waiver
will specify the type of information return and the period to which it
applies and will be subject to such terms and conditions regarding the
method of reporting as may be prescribed by the Commissioner.
* * * * *
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved: December 12, 1995.
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 95-30685 Filed 12-20-95; 8:45 am]
BILLING CODE 4830-01-U
Complete official Federal Register PDF
FR Doc. 95-30682 Grantor Trust Reporting Requirements
[Federal Register Volume 60, Number 245 (Thursday, December 21, 1995)]
[Rules and Regulations]
[Pages 66085-66091]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30682]
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DEPARTMENT OF THE TREASURY
26 CFR Parts 1, 25, 301, and 602
[TD 8633]
RIN 1545-AS37
Grantor Trust Reporting Requirements
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations relating to the
method of reporting for trusts that are treated as owned by grantors or
other persons under the provisions of subpart E (section 671 and
following), part I, subchapter J, chapter 1 of the Internal Revenue
Code. These regulations are intended to reduce the current filing
burden on trustees, to provide necessary information to grantors or
other persons treated as the owners of trusts, to reduce any cases of
duplicate filing, and to provide more meaningful information to the
IRS. These regulations affect grantors and trustees of trusts that are
treated as owned by grantors or other persons, as well as persons who
are required to file information returns with respect to payments to
these trusts.
DATES: These regulations are effective January 1, 1996. For dates of
applicability of these regulations, see Sec. 1.671-4(h).
FOR FURTHER INFORMATION CONTACT: Steven Schneider, (202) 622-3060 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in these final regulations
has been reviewed and approved by the Office of Management and Budget
in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under
control number 1545-1442. This information is required by the IRS to
insure the proper reporting of income and proceeds paid to a trust any
portion of which is treated as owned by the grantor or another person.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid control number.
The estimated annual burden per respondent is 30 minutes.
Comments concerning the accuracy of this burden estimate and
suggestions for reducing this burden should be sent to the Internal
Revenue Service, Attn: IRS Reports Clearance Officer, T:FP, Washington,
DC 20224, and to the Office of Management and Budget, Attn: Desk
Officer for the Department of the Treasury, Office of Information and
Regulatory Affairs, Washington, DC 20503.
Books or records relating to this 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 26 U.S.C. 6103.
Background
On July 22, 1994, the IRS published in the Federal Register a
notice of proposed rulemaking and notice of public hearing (59 FR
37450) proposing amendments to the Income Tax Regulations (26 CFR part
1) under section 671 of the Internal Revenue Code (Code) and to the
Procedure and Administration Regulations (26 CFR part 301) under
sections 6012 and 6109 of the Code.
Written comments responding to the notice were received. A public
hearing was held on September 21, 1994, pursuant to the notice
published in the Federal Register on July 22, 1994. After consideration
of all written and oral comments regarding the proposed amendments,
those amendments are adopted as revised by this Treasury decision.
Explanation of Provisions and Significant Changes in the Final
Regulations
Subject to certain new limitations under Sec. 1.671-4(b)(6) and
(7), discussed below, Sec. 1.671-4(b) of the final regulations retains
the optional alternative methods of reporting contained in the proposed
regulations published on July 22, 1994.
Several comments were submitted requesting confirmation that the
alternative methods of reporting described in the proposed regulations
are optional and not mandatory. Section 1.671-4(b) of the final
regulations clarifies that the trustee of a trust all of which is
treated as owned by one or more grantors or other persons may, but is
not required to, report pursuant to one of the alternative methods.
Certain commentators were unsure of which persons are considered
payors for purposes of the alternative filing methods. The final
regulations define the term payor as including any person who is
required by any provision of the Code and the regulations thereunder to
make any type of information return with respect to the trust for the
taxable year.
With respect to the alternative methods of reporting, several
commentators were unsure of the items
[[Page 66086]]
and the amounts of income that must be reported on any Forms 1099
required to be filed by the trustee. Section 1.671-4(b)(5) of the final
regulations clarifies that the amounts that must be included on any
Forms 1099 required to be filed by the trustee do not include any
amounts that are reportable by the payor on an information return other
than Form 1099.
For example, in the case of a trustee who furnishes the name, TIN,
and address of the trust to all payors pursuant to Sec. 1.671-
4(b)(2)(i)(B) of the final regulations, the trustee does not include
items of income attributable to an interest in a partnership on any
Forms 1099 filed by the trustee because those items are reportable by
the partnership on Schedule K-1 of Form 1065 (reporting distributive
shares to members of a partnership). While the statement furnished to
the grantor or other person treated as the owner of the trust by the
trustee will show all items of income, deduction, and credit
attributable to the partnership interest, those items will not be
reported to the IRS by the trustee on any type of form.
Several commentators were unsure of the dates by which a trustee
must file any required Forms 1099 and must furnish any required
statements to grantors or other persons treated as owners of the trust.
Section 1.671-4(c) of the final regulations provides that the due date
for any Forms 1099 required to be filed with the IRS by a trustee is
the due date otherwise in effect for filing Forms 1099. Currently, the
due date is February 28 of the following year.
Section 1.671-4(d) of the final regulations provides that the due
date for the statement required to be furnished by a trustee to the
grantor or other person treated as an owner of the trust is the date
specified by section 6034A(a). Currently, the due date is April 15 of
the following year.
Comments were received requesting clarification of the trustee's
obligation, under the first of the alternative reporting methods, to
furnish the name and TIN of the grantor to all payors. The final
regulations provide that: (1) A trustee may not report under the first
alternative reporting method unless the grantor or other person treated
as the owner of the trust provides to the trustee a complete Form W-9
or other acceptable substitute form; (2) a trustee reporting under the
first alternative reporting method acts as the agent of the grantor or
other person treated as the owner of the trust for purposes of
furnishing backup withholding information to a payor; and (3) the payor
may rely on the name and TIN provided to the payor by the trustee. If
the Form W-9 indicates that the grantor or other person is subject to
backup withholding, then the trustee must notify all payors of
reportable interest and dividend payments of the requirement to backup
withhold.
Comments were received requesting clarification of the annuity and
unitrust payment dates under Sec. 25.2702-3 of the Gift Tax Regulations
for trusts electing one of the alternative methods of reporting. The
final regulations contain conforming amendments to Sec. 25.2702-
3(b)(1)(i) and Sec. 25.2702-3(c)(1)(i).
One commentator noted the need for more guidance concerning the
reporting requirements for widely held fixed investment trusts. Because
that guidance is outside the scope of this regulation, the final
regulations do not provide special rules for these trusts. However IRS
and Treasury anticipate providing guidance for these trusts in a
separate project and would welcome comments from interested taxpayers
and practitioners regarding such guidance.
Several of the comments received with respect to the proposed
regulations emphasized the necessity of making the trustee's choice to
report under one of the alternative methods revocable. The final
regulations provide that a trustee who has reported pursuant to one of
the alternative methods may report pursuant to the general rule
requiring the trustee to file a Form 1041 for any subsequent taxable
years of the trust, provided that certain conditions are met.
The final regulations provide that the trustee of a trust all of
which is treated as owned by one grantor or one other person that is an
exempt recipient for information reporting purposes may not report
under an alternative method. However, if the trust is treated as owned
by two or more grantors or other persons, the trustee may report
pursuant to the alternative method for multiple grantors if (1) at
least one grantor or one other person who is treated as an owner of the
trust is a person who is not an exempt recipient for information
reporting purposes and (2) the trustee reports without regard to
whether any of the grantors or other persons treated as owners of the
trust are exempt recipients for information reporting purposes.
The final regulations also provide that the trustee of a trust all
of which is treated as owned by one grantor or other person whose
taxable year is a fiscal year may not report under an alternative
method. However, the trustee of a trust that is treated as owned by two
or more grantors or other persons may report pursuant to the
alternative method for multiple grantors even though one or more of the
grantors or other persons treated as an owner of the trust has a
taxable year that is the fiscal year.
In addition, the final regulations provide that a trustee of a
trust that is a qualified subchapter S trust as defined in section
1361(d)(3) may not report under an alternative method.
The final regulations also provide that the trustee of a trust may
not report under an alternative method if any person who is treated as
an owner of the trust is not a United States person.
Effective Date and Transition Rule
The final regulations are effective for taxable years beginning on
or after January 1, 1996, subject to a requirement that certain
trustees file a final Form 1041 before adopting one of the alternative
methods of reporting. The final regulations retain the transition rule
contained in the proposed regulations providing that, for taxable years
beginning prior to January 1, 1996, the IRS will not challenge the
manner of reporting by trustees of certain trusts.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It has also been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to
these regulations, and, therefore, a Regulatory Flexibility Analysis is
not required. Pursuant to section 7805(f) of the Code, the notice of
proposed rulemaking preceding these regulations was submitted to the
Small Business Administration for comment on its impact on small
business.
Drafting Information
The principal author of these regulations is Robert Rio, formerly
of the Office of Assistant Chief Counsel (Passthroughs and Special
Industries), IRS. However, other personnel from the IRS and Treasury
Department participated in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 25
Gift taxes, Reporting and recordkeeping requirements.
26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes,
[[Page 66087]]
Penalties, Reporting and recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 1, 25, 301, and 602 are amended as
follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805. * * *
Par. 2. Section 1.671-4 is revised to read as follows:
Sec. 1.671-4 Method of reporting.
(a) Portion of trust treated as owned by the grantor or another
person. Except as otherwise provided in paragraph (b) of this section,
items of income, deduction, and credit attributable to any portion of a
trust which, under the provisions of subpart E (section 671 and
following), part I, subchapter J, chapter 1 of the Internal Revenue
Code, is treated as owned by the grantor or another person are not
reported by the trust on Form 1041, but are shown on a separate
statement to be attached to that form.
(b) A trust all of which is treated as owned by one or more
grantors or other persons--(1) In general. In the case of a trust all
of which is treated as owned by one or more grantors or other persons,
and which is not described in paragraph (b)(6) or (7) of this section,
the trustee may, but is not required to, report by one of the methods
described in this paragraph (b) rather than by the method described in
paragraph (a) of this section. A trustee may not report, however,
pursuant to paragraph (b)(2)(i)(A) of this section unless the grantor
or other person treated as the owner of the trust provides to the
trustee a complete Form W-9 or acceptable substitute Form W-9 signed
under penalties of perjury. See section 3406 and the regulations
thereunder for the information to include on, and the manner of
executing, the Form W-9, depending upon the type of reportable payments
made.
(2) A trust all of which is treated as owned by one grantor or by
one other person--(i) In general. In the case of a trust all of which
is treated as owned by one grantor or one other person, the trustee
reporting under this paragraph (b) must either--
(A) Furnish the name and taxpayer identification number (TIN) of
the grantor or other person treated as the owner of the trust, and the
address of the trust, to all payors during the taxable year, and comply
with the additional requirements described in paragraph (b)(2)(ii) of
this section; or
(B) Furnish the name, TIN, and address of the trust to all payors
during the taxable year, and comply with the additional requirements
described in paragraph (b)(2)(iii) of this section.
(ii) Additional obligations of the trustee when name and TIN of the
grantor or other person treated as the owner of the trust and the
address of the trust are furnished to payors. (A) Unless the grantor or
other person treated as the owner of the trust is the trustee or a co-
trustee of the trust, the trustee must furnish the grantor or other
person treated as the owner of the trust with a statement that--
(1) Shows all items of income, deduction, and credit of the trust
for the taxable year;
(2) Identifies the payor of each item of income;
(3) Provides the grantor or other person treated as the owner of
the trust with the information necessary to take the items into account
in computing the grantor's or other person's taxable income; and
(4) Informs the grantor or other person treated as the owner of the
trust that the items of income, deduction and credit and other
information shown on the statement must be included in computing the
taxable income and credits of the grantor or other person on the income
tax return of the grantor or other person.
(B) The trustee is not required to file any type of return with the
Internal Revenue Service.
(iii) Additional obligations of the trustee when name, TIN, and
address of the trust are furnished to payors--(A) Obligation to file
Forms 1099. The trustee must file with the Internal Revenue Service the
appropriate Forms 1099, reporting the income or gross proceeds paid to
the trust during the taxable year, and showing the trust as the payor
and the grantor or other person treated as the owner of the trust as
the payee. The trustee has the same obligations for filing the
appropriate Forms 1099 as would a payor making reportable payments,
except that the trustee must report each type of income in the
aggregate, and each item of gross proceeds separately. See paragraph
(b)(5) of this section regarding the amounts required to be included on
any Forms 1099 filed by the trustee.
(B) Obligation to furnish statement. (1) Unless the grantor or
other person treated as the owner of the trust is the trustee or a co-
trustee of the trust, the trustee must also furnish to the grantor or
other person treated as the owner of the trust a statement that--
(i) Shows all items of income, deduction, and credit of the trust
for the taxable year;
(ii) Provides the grantor or other person treated as the owner of
the trust with the information necessary to take the items into account
in computing the grantor's or other person's taxable income; and
(iii) Informs the grantor or other person treated as the owner of
the trust that the items of income, deduction and credit and other
information shown on the statement must be included in computing the
taxable income and credits of the grantor or other person on the income
tax return of the grantor or other person.
(2) By furnishing the statement, the trustee satisfies the
obligation to furnish statements to recipients with respect to the
Forms 1099 filed by the trustee.
(iv) Examples. The following examples illustrate the provisions of
this paragraph (b)(2):
Example 1. G, a United States citizen, creates an irrevocable
trust which provides that the ordinary income is to be payable to
him for life and that on his death the corpus shall be distributed
to B, an unrelated person. Except for the right to receive income, G
retains no right or power which would cause him to be treated as an
owner under sections 671 through 679. Under the applicable local
law, capital gains must be added to corpus. Since G has a right to
receive income, he is treated as an owner of a portion of the trust
under section 677. The tax consequences of any items of capital gain
of the trust are governed by the provisions of subparts A, B, C, and
D (section 641 and following), part I, subchapter J, chapter 1 of
the Internal Revenue Code. Because not all of the trust is treated
as owned by the grantor or another person, the trustee may not
report by the methods described in paragraph (b)(2) of this section.
Example 2. (i)(A) On January 2, 1996, G, a United States
citizen, creates a trust all of which is treated as owned by G. The
trustee of the trust is T. During the 1996 taxable year the trust
has the following items of income and gross proceeds:
Interest.........................................................$2,500
Dividends.........................................................3,205
Proceeds from sale of B stock.....................................2,000
(B) The trust has no items of deduction or credit.
(ii)(A) The payors of the interest paid to the trust are X
($2,000), Y ($300), and Z ($200). The payors of the dividends paid
to the trust are A ($3,200), and D ($5). The payor of the gross
proceeds paid to the trust is D, a brokerage firm, which held the B
stock as the nominee for the trust. The B stock was purchased by T
for $1,500 on January 3, 1996, and sold by T on November 29, 1996. T
chooses to report pursuant to paragraph
[[Page 66088]]
(b)(2)(i)(B) of this section, and therefore furnishes the name, TIN,
and address of the trust to X, Y, Z, A, and D. X, Y, and Z each
furnish T with a Form 1099-INT showing the trust as the payee. A
furnishes T with a Form 1099-DIV showing the trust as the payee. D
does not furnish T with a Form 1099-DIV because D paid a dividend of
less than $10 to T. D furnishes T with a Form 1099-B showing the
trust as the payee.
(B) On or before February 28, 1997, T files a Form 1099-INT with
the Internal Revenue Service on which T reports interest
attributable to G, as the owner of the trust, of $2,500; a Form
1099-DIV on which T reports dividends attributable to G, as the
owner of the trust, of $3,205; and a Form 1099-B on which T reports
gross proceeds from the sale of B stock attributable to G, as the
owner of the trust, of $2,000. On or before April 15, 1997, T
furnishes a statement to G which lists the following items of income
and information necessary for G to take the items into account in
computing G's taxable income:
Interest.........................................................$2,500
Dividends.........................................................3,205
Gain from sale of B stock...........................................500
Information regarding sale of B stock:
Proceeds.........................................................$2,000
Basis.............................................................1,500
Date acquired...................................................1/03/96
Date sold......................................................11/29/96
(C) T informs G that any items of income, deduction and credit
and other information shown on the statement must be included in
computing the taxable income and credits of the grantor or other
person on the income tax return of the grantor or other person.
(D) T has complied with T's obligations under this section.
(iii)(A) Same facts as paragraphs (i) and (ii) of this Example
2, except that G contributed the B stock to the trust on January 2,
1996. On or before April 15, 1997, T furnishes a statement to G
which lists the following items of income and information necessary
for G to take the items into account in computing G's taxable
income:
Interest $2,500
Dividends 3,205
Information regarding sale of B stock:
Proceeds.........................................................$2,000
Date sold......................................................11/29/96
(B) T informs G that any items of income, deduction and credit
and other information shown on the statement must be included in
computing the taxable income and credits of the grantor or other
person on the income tax return of the grantor or other person.
(C) T has complied with T's obligations under this section.
Example 3. On January 2, 1996, G, a United States citizen,
creates a trust all of which is treated as owned by G. The trustee
of the trust is T. The only asset of the trust is an interest in C,
a common trust fund under section 584(a). T chooses to report
pursuant to paragraph (b)(2)(i)(B) of this section and therefore
furnishes the name, TIN, and address of the trust to C. C files a
Form 1065 and a Schedule K-1 (Partner's Share of Income, Credits,
Deductions, etc.) showing the name, TIN, and address of the trust
with the Internal Revenue Service and furnishes a copy to T. Because
the trust did not receive any amounts described in paragraph (b)(5)
of this section, T does not file any type of return with the
Internal Revenue Service. On or before April 15, 1997, T furnishes G
with a statement that shows all items of income, deduction, and
credit of the trust for the 1996 taxable year. In addition, T
informs G that any items of income, deduction and credit and other
information shown on the statement must be included in computing the
taxable income and credits of the grantor or other person on the
income tax return of the grantor or other person. T has complied
with T's obligations under this section.
(3) A trust all of which is treated as owned by two or more
grantors or other persons--(i) In general. In the case of a trust all
of which is treated as owned by two or more grantors or other persons,
the trustee must furnish the name, TIN, and address of the trust to all
payors for the taxable year, and comply with the additional
requirements described in paragraph (b)(3)(ii) of this section.
(ii) Additional obligations of trustee--(A) Obligation to file
Forms 1099. The trustee must file with the Internal Revenue Service the
appropriate Forms 1099, reporting the items of income paid to the trust
by all payors during the taxable year attributable to the portion of
the trust treated as owned by each grantor or other person, and showing
the trust as the payor and each grantor or other person treated as an
owner of the trust as the payee. The trustee has the same obligations
for filing the appropriate Forms 1099 as would a payor making
reportable payments, except that the trustee must report each type of
income in the aggregate, and each item of gross proceeds separately.
See paragraph (b)(5) of this section regarding the amounts required to
be included on any Forms 1099 filed by the trustee.
(B) Obligation to furnish statement. (1) The trustee must also
furnish to each grantor or other person treated as an owner of the
trust a statement that--
(i) Shows all items of income, deduction, and credit of the trust
for the taxable year attributable to the portion of the trust treated
as owned by the grantor or other person;
(ii) Provides the grantor or other person treated as an owner of
the trust with the information necessary to take the items into account
in computing the grantor's or other person's taxable income; and
(iii) Informs the grantor or other person treated as the owner of
the trust that the items of income, deduction and credit and other
information shown on the statement must be included in computing the
taxable income and credits of the grantor or other person on the income
tax return of the grantor or other person.
(2) Except for the requirements pursuant to section 3406 and the
regulations thereunder, by furnishing the statement, the trustee
satisfies the obligation to furnish statements to recipients with
respect to the Forms 1099 filed by the trustee.
(4) Persons treated as payors--(i) In general. For purposes of this
section, the term payor means any person who is required by any
provision of the Internal Revenue Code and the regulations thereunder
to make any type of information return (including Form 1099 or Schedule
K-1) with respect to the trust for the taxable year, including persons
who make payments to the trust or who collect (or otherwise act as
middlemen with respect to) payments on behalf of the trust.
(ii) Application to brokers and customers. For purposes of this
section, a broker, within the meaning of section 6045, is considered a
payor. A customer, within the meaning of section 6045, is considered a
payee.
(5) Amounts required to be included on Forms 1099 filed by the
trustee--(i) In general. The amounts that must be included on any Forms
1099 required to be filed by the trustee pursuant to this section do
not include any amounts that are reportable by the payor on an
information return other than Form 1099. For example, in the case of a
trust which owns an interest in a partnership, the trust's distributive
share of the income and gain of the partnership is not includible on
any Forms 1099 filed by the trustee pursuant to this section because
the distributive share is reportable by the partnership on Schedule K-
1.
(ii) Example. The following example illustrates the provisions of
this paragraph (b)(5):
Example. (i)(A) On January 2, 1996, G, a United States citizen,
creates a trust all of which is treated as owned by G. The trustee
of the trust is T. The assets of the trust during the 1996 taxable
year are shares of stock in X, an S corporation, a limited
partnership interest in P, shares of stock in M, and shares of stock
in N. T chooses to report pursuant to paragraph (b)(2)(i)(B) of this
section and therefore furnishes the name, TIN, and address of the
trust to X, P, M, and N. M furnishes T with a Form 1099-DIV showing
the trust as the payee. N does not furnish T with a Form 1099-DIV
because N paid a dividend of less than $10 to T. X and P furnish T
with Schedule K-1 (Shareholder's Share of Income, Credits,
Deductions, etc.) and Schedule K-1 (Partner's Share of Income,
Credits, Deductions, etc.), respectively, showing the trust's name,
TIN, and address.
(B) For the 1996 taxable year the trust has the following items
of income and deduction:
[[Page 66089]]
Dividends paid by M . . . . . . . . . . . . . . $12
Dividends paid by N . . . . . . . . . . . . . . 6
Administrative expense . . . . . . . . . . . . $20
Items reported by X on Schedule K-1 attributable to trust's
shares of stock in X:
Interest . . . . . . . . . . . . . . . . . . $20
Dividends . . . . . . . . . . . . . . . . . 35
Items reported by P on Schedule K-1 attributable to trust's
limited partnership interest in P:
Ordinary income . . . . . . . . . . . . . $300
(ii)(A) On or before February 28, 1997, T files with the
Internal Revenue Service a Form 1099-DIV on which T reports
dividends attributable to G as the owner of the trust in the amount
of $18. T does not file any other returns.
(B) T has complied with T's obligation under paragraph
(b)(2)(iii)(A) of this section to file the appropriate Forms 1099.
(6) Trusts that cannot report under this paragraph (b). The
following trusts cannot use the methods of reporting described in this
paragraph (b)--
(i) A common trust fund as defined in section 584(a);
(ii) A trust that has its situs or any of its assets located
outside the United States;
(iii) A trust that is a qualified subchapter S trust as defined in
section 1361(d)(3);
(iv) A trust all of which is treated as owned by one grantor or one
other person whose taxable year is a fiscal year;
(v) A trust all of which is treated as owned by one grantor or one
other person who is not a United States person; or
(vi) A trust all of which is treated as owned by two or more
grantors or other persons, one of whom is not a United States person.
(7) Grantors or other persons who are treated as owners of the
trust and are exempt recipients for information reporting purposes--(i)
Trust treated as owned by one grantor or one other person. The trustee
of a trust all of which is treated as owned by one grantor or one other
person may not report pursuant to this paragraph (b) if the grantor or
other person is an exempt recipient for information reporting purposes.
(ii) Trust treated as owned by two or more grantors or other
persons. The trustee of a trust, all of which is treated as owned by
two or more grantors or other persons, may not report pursuant to this
paragraph (b) if one or more grantors or other persons treated as
owners are exempt recipients for information reporting purposes
unless--
(A) At least one grantor or one other person who is treated as an
owner of the trust is a person who is not an exempt recipient for
information reporting purposes; and
(B) The trustee reports without regard to whether any of the
grantors or other persons treated as owners of the trust are exempt
recipients for information reporting purposes.
(8) Husband and wife who make a single return jointly. A trust all
of which is treated as owned by a husband and wife who make a single
return jointly of income taxes for the taxable year under section 6013
is considered to be owned by one grantor for purposes of this paragraph
(b).
(c) Due date for Forms 1099 required to be filed by trustee. The
due date for any Forms 1099 required to be filed with the Internal
Revenue Service by a trustee pursuant to this section is the due date
otherwise in effect for filing Forms 1099.
(d) Due date and other requirements with respect to statement
required to be furnished by trustee. The due date for the statement
required to be furnished by a trustee to the grantor or other person
treated as an owner of the trust pursuant to this section is the date
specified by section 6034A(a). The trustee must maintain in its records
a copy of the statement furnished to the grantor or other person
treated as an owner of the trust for a period of three years from the
due date for furnishing such statement specified in this paragraph (d).
(e) Backup withholding requirements--(1) Trustee reporting under
paragraph (b)(2)(i)(A) of this section. In order for the trustee to be
able to report pursuant to paragraph (b)(2)(i)(A) of this section and
to furnish to all payors the name and TIN of the grantor or other
person treated as the owner of the trust, the grantor or other person
must provide a complete Form W-9 to the trustee in the manner provided
in paragraph (b)(1) of this section, and the trustee must give the name
and TIN shown on that Form W-9 to all payors. In addition, if the Form
W-9 indicates that the grantor or other person is subject to backup
withholding, the trustee must notify all payors of reportable interest
and dividend payments of the requirement to backup withhold. If the
Form W-9 indicates that the grantor or other person is not subject to
backup withholding, the trustee does not have to notify the payors that
backup withholding is not required. The trustee should not give the
Form W-9, or a copy thereof, to a payor because the Form W-9 contains
the address of the grantor or other person and paragraph (b)(2)(i)(A)
of this section requires the trustee to furnish the address of the
trust to all payors and not the address of the grantor or other person.
The trustee acts as the agent of the grantor or other person for
purposes of furnishing to the payors the information required by this
paragraph (e)(1). Thus, a payor may rely on the name and TIN provided
to the payor by the trustee, and, if given, on the trustee's statement
that the grantor is subject to backup withholding.
(2) Other backup withholding requirements. Whether a trustee is
treated as a payor for purposes of backup withholding is determined
pursuant to section 3406 and the regulations thereunder.
(f) Penalties for failure to file a correct Form 1099 or furnish a
correct statement. A trustee who fails to file a correct Form 1099 or
to furnish a correct statement to a grantor or other person treated as
an owner of the trust as required by paragraph (b) of this section is
subject to the penalties provided by sections 6721 and 6722 and the
regulations thereunder.
(g) Changing reporting methods--(1) Changing from reporting by
filing Form 1041 to a method described in paragraph (b) of this
section. If the trustee has filed a Form 1041 for any taxable year
ending before January 1, 1996 (and has not filed a final Form 1041
pursuant to Sec. 1.671-4(b)(3) (as contained in the 26 CFR part 1
edition revised as of April 1, 1995)), or files a Form 1041 for any
taxable year thereafter, the trustee must file a final Form 1041 for
the taxable year which ends after January 1, 1995, and which
immediately precedes the first taxable year for which the trustee
reports pursuant to paragraph (b) of this section, on the front of
which form the trustee must write: ``Pursuant to Sec. 1.671-4(g), this
is the final Form 1041 for this grantor trust.''.
(2) Changing from reporting by a method described in paragraph (b)
of this section to the filing of a Form 1041. The trustee of a trust
who reported pursuant to paragraph (b) of this section for a taxable
year may report pursuant to paragraph (a) of this section for
subsequent taxable years. If the trustee reported pursuant to paragraph
(b)(2)(i)(A) of this section, and therefore furnished the name and TIN
of the grantor to all payors, the trustee must furnish the name, TIN,
and address of the trust to all payors for such subsequent taxable
years. If the trustee reported pursuant to paragraph (b)(2)(i)(B) or
(b)(3)(i) of this section, and therefore furnished the name and TIN of
the trust to all payors, the trustee
[[Page 66090]]
must indicate on each Form 1096 (Annual Summary and Transmittal of U.S.
Information Returns) that it files (or appropriately on magnetic media)
for the final taxable year for which the trustee so reports that it is
the final return of the trust.
(3) Changing between methods described in paragraph (b) of this
section--(i) Changing from furnishing the TIN of the grantor to
furnishing the TIN of the trust. The trustee of a trust who reported
pursuant to paragraph (b)(2)(i)(A) of this section for a taxable year,
and therefore furnished the name and TIN of the grantor to all payors,
may report pursuant to paragraph (b)(2)(i)(B) of this section, and
furnish the name and TIN of the trust to all payors, for subsequent
taxable years.
(ii) Changing from furnishing the TIN of the trust to furnishing
the TIN of the grantor. The trustee of a trust who reported pursuant to
paragraph (b)(2)(i)(B) of this section for a taxable year, and
therefore furnished the name and TIN of the trust to all payors, may
report pursuant to paragraph (b)(2)(i)(A) of this section, and furnish
the name and TIN of the grantor to all payors, for subsequent taxable
years. The trustee, however, must indicate on each Form 1096 (Annual
Summary and Transmittal of U.S. Information Returns) that it files (or
appropriately on magnetic media) for the final taxable year for which
the trustee reports pursuant to paragraph (b)(2)(i)(B) of this section
that it is the final return of the trust.
(4) Example. The following example illustrates the provisions of
paragraph (g) of this section:
Example. (i) On January 3, 1994, G, a United States citizen,
creates a trust all of which is treated as owned by G. The trustee
of the trust is T. On or before April 17, 1995, T files with the
Internal Revenue Service a Form 1041 with an attached statement for
the 1994 taxable year showing the items of income, deduction, and
credit of the trust. On or before April 15, 1996, T files with the
Internal Revenue Service a Form 1041 with an attached statement for
the 1995 taxable year showing the items of income, deduction, and
credit of the trust. On the Form 1041, T states that ``pursuant to
Sec. 1.671-4(g), this is the final Form 1041 for this grantor
trust.'' T may report pursuant to paragraph (b) of this section for
the 1996 taxable year.
(ii) T reports pursuant to paragraph (b)(2)(i)(B) of this
section, and therefore furnishes the name, TIN, and address of the
trust to all payors, for the 1996 and 1997 taxable years. T chooses
to report pursuant to paragraph (a) of this section for the 1998
taxable year. On each Form 1096 (Annual Summary and Transmittal of
U.S. Information Returns) which T files for the 1997 taxable year
(or appropriately on magnetic media), T indicates that it is the
trust's final return. On or before April 15, 1999, T files with the
Internal Revenue Service a Form 1041 with an attached statement
showing the items of income, deduction, and credit of the trust. On
the Form 1041, T uses the same TIN which T used on the Forms 1041
and Forms 1099 it filed for previous taxable years. T has complied
with T's obligations under paragraph (g)(2) of this section.
(h) Effective date and transition rule--(1) Effective date. The
trustee of a trust any portion of which is treated as owned by one or
more grantors or other persons must report pursuant to this section for
taxable years beginning on or after January 1, 1996.
(2) Transition rule. For taxable years beginning prior to January
1, 1996, the Internal Revenue Service will not challenge the manner of
reporting of--
(i) A trustee of a trust all of which is treated as owned by one or
more grantors or other persons who did not report in accordance with
Sec. 1.671-4(a) (as contained in the 26 CFR part 1 edition revised as
of April 1, 1995) as in effect for taxable years beginning prior to
January 1, 1996, but did report in a manner substantially similar to
one of the reporting methods described in paragraph (b) of this
section; or
(ii) A trustee of two or more trusts all of which are treated as
owned by one or more grantors or other persons who filed a single Form
1041 for all of the trusts, rather than a separate Form 1041 for each
trust, provided that the items of income, deduction, and credit of each
trust were shown on a statement attached to the single Form 1041.
(i) Cross-reference. For rules relating to employer identification
numbers, and to the obligation of a payor of income or proceeds to the
trust to furnish to the payee a statement to recipient, see
Sec. 301.6109-1(a)(2) of this chapter.
Par. 3. Section 1.6012-3 is amended by revising paragraph (a)(9) to
read as follows:
Sec. 1.6012-3 Returns by fiduciaries.
(a) * * *
(9) A trust any portion of which is treated as owned by the grantor
or another person pursuant to sections 671 through 678. In the case of
a trust any portion of which is treated as owned by the grantor or
another person under the provisions of subpart E (section 671 and
following) part I, subchapter J, chapter 1 of the Internal Revenue Code
see Sec. 1.671-4.
* * * * *
PART 25--GIFT TAX; GIFTS MADE AFTER DECEMBER 31, 1954
Par. 4. The authority citation for part 25 continues to read in
part as follows:
Authority: 26 U.S.C. 7805. * * *
Par. 5. Section 25.2702-3 is amended by adding a sentence to the
end of paragraphs (b)(1)(i) and (c)(1)(i), respectively, to read as
follows:
Sec. 25.2702-3 Qualified interests.
* * * * *
(b) * * *
(1) * * * (i) * * * If the trustee reports for the taxable year
pursuant to Sec. 1.671-4(b) of this chapter, the annuity payment must
be made no later than the date by which the trustee would have been
required to file the Federal income tax return of the trust for the
taxable year (without regard to extensions) had the trustee reported
pursuant to Sec. 1.671-4(a) of this chapter.
* * * * *
(c) * * *
(1) * * * (i) * * * If the trustee reports for the taxable year
pursuant to Sec. 1.671-4(b) of this chapter, the unitrust payment must
be made no later than the date by which the trustee would have been
required to file the Federal income tax return of the trust for the
taxable year (without regard to extensions) had the trustee reported
pursuant to Sec. 1.671-4(a) of this chapter.
* * * * *
PART 301--PROCEDURE AND ADMINISTRATION
Par. 6. The authority citation for part 301 continues to read in
part as follows:
Authority: 26 U.S.C. 7805. * * *
Par. 7. Section 301.6109-1 is amended by revising paragraph (a)(2)
to read as follows:
Sec. 301.6109-1 Identifying numbers.
(a) * * *
(2) A trust all of which is treated as owned by the grantor or
another person pursuant to sections 671 through 678--(i) Obtaining a
taxpayer identification number. If a trust does not have a taxpayer
identification number and the trustee furnishes the name and taxpayer
identification number of the grantor or other person treated as the
owner of the trust and the address of the trust to all payors pursuant
to Sec. 1.671-4(b)(2)(i)(A) of this chapter, the trustee need not
obtain a taxpayer identification number for the trust until either the
first taxable year of the trust in which all of the trust is no longer
owned by the grantor or another person, or until the first taxable year
of the trust for which the trustee no longer reports pursuant to
Sec. 1.671-4(b)(2)(i)(A) of this chapter. If the trustee has not
already obtained a taxpayer identification number for the trust, the
trustee must obtain a taxpayer identification number for the trust as
provided in paragraph (d)(2) of this
[[Page 66091]]
section in order to report pursuant to Sec. 1.671-4(a), (b)(2)(i)(B),
or (b)(3)(i) of this chapter.
(ii) Obligations of persons who make payments to certain trusts.
Any payor that is required to file an information return with respect
to payments of income or proceeds to a trust must show the name and
taxpayer identification number that the trustee has furnished to the
payor on the return. Regardless of whether the trustee furnishes to the
payor the name and taxpayer identification number of the grantor or
other person treated as an owner of the trust, or the name and taxpayer
identification number of the trust, the payor must furnish a statement
to recipients to the trustee of the trust, rather than to the grantor
or other person treated as the owner of the trust. Under these
circumstances, the payor satisfies the obligation to show the name and
taxpayer identification number of the payee on the information return
and to furnish a statement to recipients to the person whose taxpayer
identification number is required to be shown on the form.
(iii) Persons treated as payors. For purposes of this paragraph
(a)(2), the term payor means a person described in Sec. 1.671-4(b)(4)
of this chapter.
* * * * *
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Par. 8. The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
Par. 9. In Sec. 602.101, paragraph (c) is amended in the table by
revising the entry for 1.671-4 to read ``1.671-4 . . . . 1545-1442''.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved: December 5, 1995:
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 95-30682 Filed 12-20-95; 8:45 am]
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