Internal Revenue Bulletin 2013-20 (PDF rendition): IRS Notices

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing. Whole bulletin rendition: numbered items are identified below; other legal material and publisher context remain included. This is not a new standalone advance release.

Bulletin No. 201
3-20
May 13, 2013
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Rev. Rul. 2013–11, page 1059.
Federal rates; adjusted federalrates; adjusted federal long-
term rate and the long-term exempt rate. For purposes of
sections 382, 642, 1274, 1288, and other sections of the
Code, tables set forth the rates for May 2013.
T.D. 9616, page 1061.
REG–154563–12, page 1097.
Final regulations under section 6045 provide guidance to bro-
kers who must report basis for the sale of a debt instrument
or an option. The final regulations under sections 6045A and
6045B provide guidance to brokers for transfers of debt in-
strumentsandoptionsandtocertainissuersofsecuritiesfor
corporate actions that affect the basis of a debt instrument or
an option. The final regulations under section 1275 provide
guidance to an issuer when a debt instrument that is not regis-
tered with the SEC on the date of issue is registered with the
SEC at some later date. Temporary and proposed regulations
under section 6049 provide guidance to a broker who must
report interest or OID income on a debt instrument that has
either bond premium or acquisition premium.
REG–160873–04, page 1089.
Proposed regulations relate to the penalty under section 6708
of the Code for failing to make available lists of advisees with
respect to reportable transactions. A public hearing is sched-
uled for July 2, 2013.
Notice 2013–29, page 1085.
Under the American Taxpayer Relief Act of 2012, Pub. L. No.
112-240, 126 Stat. 2313, a qualified facility (as described in
section 45(d) of the Code) will be eligible to receive the renew-
able electricity production tax credit (PTC) under section 45,
or the energy investment tax credit (ITC) under section 48 in
lieu of the PTC, if construction of such facility begins before
January 1, 2014. This notice provides guidelines and a safe
harbortodeterminewhenconstructionhasbegunonsucha
facility.
EMPLOYEE PLANS
Notice 2013–17, page 1082.
This notice provides relief from the anti-cutback requirements
of § 411(d)(6) of the Code for plan amendments that eliminate
a distribution option described in § 401(a)(28)(B)(ii)(I) from an
employee stock ownership plan, as defined in § 4975(e)(7)
(ESOP), that becomes subject to the diversification require-
ments of § 401(a)(35), which apply to certain defined contribu-
tion plans that hold (or are treated as holding) publicly traded
employer securities. The relief provided by this notice allows
amendment of the ESOP to eliminate all in-service distribution
options previously used to satisfy the diversification require-
ments of § 401(a)(28)(B)(i). The relief applies to amendments
that are both adopted and put into effect under a plan by the
last day of the first plan year beginning on or after January
1, 2013, or by the time the plan must be amended to satisfy
§ 401(a)(35), if later.
ADMINISTRATIVE
REG–160873–04, page 1089.
Proposed regulations relate to the penalty under section 6708
of the Code for failing to make available lists of advisees with
respect to reportable transactions. A public hearing is sched-
uled for July 2, 2013.
(Continued on the next page)
Finding Lists begin on page ii.

Announcement 2013–33, page 1098.
This document contains corrections to Announcement
2013–29, 2013–18 I.R.B. 1024, regarding “Request for
Comments on Voluntary Tip Compliance Agreements.”
May 13, 20132013–20 I.R.B.

The IRS Mission
Provide Americ
a’s taxpayers top-quality service by helping
them understa
nd and meet their tax responsibilities and en-
force the law wi
th integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly.
It is the poli
cy of the Service to publish in the Bulletin all sub-
stantive ru
lings necessary to promote a uniform application of
the tax laws
, including all rulings that supersede, revoke, mod-
ify, or amen
d any of those previously published in the Bulletin.
All publish
ed rulings apply retroactively unless otherwise indi-
cated. Pro
cedures relating solely to matters of internal man-
agement ar
e not published; however, statements of internal
practices
and procedures that affect the rights and duties of
taxpayers
are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions of
the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Secre-
tary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The cont
ents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
2013–20 I.R.B.May 13, 2013

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 42.—L
ow-Income
Housing Credi
t
The adjusted a
pplicable federal short-term, mid-
term, and long
-term rates are set forth for the month
of May 2013. Se
e Rev. Rul. 2013-11, page 1059.
Section 280G.—Golden
Parachute Payments
Federal short-term, mid-term, and long-term rates
are set forth for the month of May 2013. See Rev.
Rul. 2013-11, page 1059.
Section 382.—Limitation
on Net Operating Loss
Carryforwa
rds and Certain
Built-In Losses Following
Ownership Change
The adjusted applicable federal long-term rate is
set forth for the month of May 2013. See Rev. Rul.
2013-11, page 1059.
Section 412.—Minimum
Funding Standards
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of May 2013. See Rev. Rul. 2013-11, page 1059.
Section 467.—Certain
Payments for the Use of
Property or Services
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of May 2013. See Rev. Rul. 2013-11, page 1059.
Section 468.—Special
Rules for Mining and Solid
Waste
Reclamation and
Closi
ng Costs
The ad
justed applicable federal short-term, mid-
term,
and long-term rates are set forth for the month
of May
2013. See Rev. Rul. 2013-11, page 1059.
Section 482.—
Allocation
of Income and D
eductions
Among Taxpaye
rs
Federal short
-term, mid-term, and long-term rates
are set forth f
or the month of May 2013. See Rev.
Rul. 2013-11
, page 1059.
Section 483.—Interest on
Certain Deferred Payments
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of May 2013. See Rev. Rul. 2013-11, page 1059.
Section 642.—Special
Rules for Credits and
Deductions
Federal short-term, mid-term, and long-term rates
are set forth for the month of May 2013. See Rev.
Rul. 2013-11, page 1059.
Section 807.—Rules for
Certain Reserves
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of May 2013. See Rev. Rul. 2013-11, page 1059.
Section 846.—Discounted
Unpaid Losses Defined
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of May 2013. See Rev. Rul. 2013-11, page 1059.
Section 1274.—Determi-
nation of Issue Price in the
Case of Certain Debt Instru-
ments Issued for Property
(Also Sections 42, 280G, 382, 412, 467, 468, 482,
483, 642, 807, 846, 1288, 7520, 7872.)
Federal rates; adjusted federal rates; ad-
justed federal long-term rate and the long-
term exempt rate. For purposes of sections
382, 642, 1274
, 1288, and other sections of
the Code, tabl
es set forth the rates for May
2013.
Rev. Rul. 2013
–11
This revenue
ruling provides vari-
ous prescrib
ed rates for federal income
tax purposes
for May 2013 (the current
month). Tabl
e 1 contains the short-term,
mid-term, an
d long-term applicable fed-
eral rates (
AFR) for the current month
for purpose
s of section 1274(d) of the
Internal Re
venue Code. Table 2 contains
the short-t
erm, mid-term, and long-term
adjusted a
pplicable federal rates (adjusted
AFR) for th
e current month for purposes
of section
1288(b). Table 3 sets forth the
adjusted f
ederal long-term rate and the
long-ter
m tax-exempt rate described in
section 3
82(f). Table 4 contains the ap-
propriat
e percentages for determining the
low-inco
me housing credit described in
section 4
2(b)(1) for buildings placed in
service
during the current month. How-
ever, un
der section 42(b)(2), the applicable
percent
age for non-federally subsidized
new buil
dings placed in service after July
30, 2008
, and before December 31, 2013,
shall n
ot be less than 9%. Finally, Table
5conta
ins the federal rate for determining
the pre
sent value of an annuity, an interest
for lif
e or for a term of years, or a remain-
derora
reversionary interest for purposes
of sec
tion 7520.
2013–20 I.R.B.1059May 13, 2013

REV. RUL. 2013–11 TABLE 1
Applicable Federal Rates (AFR) for May 2013
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term
AFR.20%.20%.20%.20%
110% AFR.22%.22%.22%.22%
120% AFR.24%.24%.24%.24%
130% AFR.26%.26%.26%.26%
Mid-term
AFR1.00%1.00%1.00%1.00%
110% AFR1.10%1.10%1.10%1.10%
120% AFR1.20%1.20%1.20%1.20%
130% AFR1.30%1.30%1.30%1.30%
150% AFR1.51%1.50%1.50%1.50%
175% AFR
1.76%
1.75%1.75%
1.74%
Long-term
AFR2.60%
2.58%2.57%2.57%
110% AFR2.86%2.84%2.83%2.82%
120% AFR3.12%3.10%3.09%3.08%
130% AFR3.38%
3.35%
3.34%3.33%
REV. RUL. 2013–11 TABLE 2
Adjusted AFR for May 2013
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term adjusted
AFR
.20%.20%.20%.20%
Mid-term adjusted AFR1.00%1.00%1.00%1.00%
Long-term adjusted
AFR
2.60%
2.58%2.57%2.57%
REV. RUL. 2013–11 TABLE 3
Rates Under Section 382 for May 2013
Adjusted federal long-term rate for the current month2.60%
Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted
federal long-term rates for the current month and the prior two months.)2.70%
REV. RUL. 2013–11 TABLE 4
Appropriate Percentages Under Section 42(b)(1) for May 2013
Note: Under Section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after July
30, 2008, and before December 31, 2013, shall not be less than 9%.
Appropriate percentage for the 70% present value low-income housing credit7.41%
Appropriate percentage for the 30% present value low-income housing credit3.18%
May 13, 201310602013–20 I.R.B.

REV. RUL. 2013–11 TABLE 5
Rate Under Section 7520 for May 2013
Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years,
or a remainder or reversionary interest1.2%
Section 1288.—Treatment
of Original Issue Discount
on Tax-Exempt Obligations
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of May 2013. See Rev. Rul. 2013-11, page 1059.
Section 6045.—Returns
of Brokers
T.D. 9616
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Basis Reporting by
Securities Brokers and
Basis Determination for Debt
Instruments and Options;
Reporting for Premium
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regula-
tions.
SUMMARY: This document contains fi-
nal regulations relating to reporting by bro-
kers for transactions involving debt instru-
ments and options. These final regulations
reflect changes in the law made by the En-
ergy Improvement and Extension Act of
2008 that require brokers when reporting
the sale of securities to the IRS to include
the customer’s adjusted basis in the sold
securities and to classify any gain or loss as
long-term or short-term. These final reg-
ulations also implement the requirement
that a broker report gross proceeds from
a sale or closing transaction with respect
to certain options. In addition, this docu-
ment contains final regulations that imple-
ment reporting requirements for a transfer
of a debt instrument or an option to an-
other broker and for an organizational ac-
tion that affects the basis of a debt instru-
ment or an option. Moreover, this doc-
ument contains final regulations relating
to the filing of Form 8281, “Information
Return for Publicly Offered Original Issue
Discount Instruments,” for certain debt in-
struments with original issue discount and
temporary regulationsrelating to informa-
tion reporting for premium. The text of
the temporary regulations in this document
also serves as the text of the proposed regu-
lations (REG–154563–12) set forth in this
issue of the Bulletin.
DATES:Effective Date:These regulations
are effective on April 18, 2013.
Applicability Dates:For dates of
applicability,see§§1.1275–3(c)(4),
1.6045–1(a)(15)(i)(C)through
1.6045–1(a)(15)(i)(F), 1.6045–1(a)(18),
1.6045–1(c)(3)(vii)(C)and(D),
1.6045–1(c)(3)(x), 1.6045–1(c)(3)(xiii),
1.6045–1(d)(2),1.6045–1(d)(5),
1.6045–1(d)(6)(ii)(A),1.6045–1(m),
1.6045–1(n),1.6045A–1(d),
1.6045B–1(j), and 1.6049–9T(a).
FOR FURTHER INFORMATION
CONTACT: Pamela Lew of the Office
of Associate Chief Counsel (Financial
Institutions and Products) at (202)
622–3950 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained
in these final regulations related to the
furnishing of information in connection
with the transfer of securities has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act of
1995 (44 U.S.C. 3507(d)) under control
number 1545–2186. The collection of
information in these final regulations in
§§1.6045–1(c)(3)(xi)(C) and 1.6045A–1
is necessary to allow brokers that effect
sales of transferred covered securities to
determine and report the adjusted basis of
the securities and whether any gain or loss
with respect to the securities is long-term
or short-term in compliance with section
6045(g) of the Internal Revenue Code
(Code). This collection of information is
required to comply with the provisions of
section 403 of the Energy Improvement
and Extension Act of 2008, Division B
of Public Law 110–343 (122 Stat. 3765,
3854 (2008)) (the Act).
In addition, the collection of informa-
tion contained in §1.6045–1(n)(5) of these
final regulations related to the furnishing
of information in connection with the sale
or transfer of a debt instrument that is a
covered security is an increase in the to-
tal annual burden under control number
1545–2186. Under section 6045(g), a bro-
ker is required to determine and report the
adjusted basis upon the sale or transfer of
a debt instrument that is a covered secu-
rity. If a sale has occurred, a broker must
also determine and report whether any gain
or loss with respect to the debt instrument
is long-term or short-term in compliance
with section 6045(g). The holder of a debt
instrument is permitted to make a number
of elections that affect how basis is com-
puted. To minimize the need for reconcil-
iation between information reported by a
broker to both a customer and the IRS and
the amounts reported on the customer’s tax
return, a broker is required to take into
account certain specified elections in re-
porting information to the customer. A
customer, therefore, must provide certain
information concerning an election to the
broker in a written notification, which in-
cludes a writing in electronic format. The
adjusted basis information will be used
for audit and examination purposes. The
likely respondents are recipients of Form
1099-B.
Estimated total annual reporting burden
is 1,417 hours.
Estimated average annual burden per
respondent is 0.12 hours.
2013–20 I.R.B.1061May 13, 2013

Estimated average burden per response
is 7 minutes.
Estimated number of respondents is
11,500.
Estimated total frequency of responses
is 11,500.
This collection of information is re-
quired to comply with the provisions of
section 403 of the Act.
The burden for the collection of in-
formation contained in the amendment to
§1.1275–3 will be reflected in the burden
on Form 8281, “Information Return for
Publicly Offered Original Issue Discount
Instruments,”whenrevisedtorequestthe
additional information in the regulations.
The burden for the collection of informa-
tion contained in the other amendments to
§1.6045–1 will be reflected in the burden
on Form 1099-B, “Proceeds from Broker
and Barter Exchange Transactions,” when
revised to request the additional informa-
tion in the regulations. The burden for
the collection of information contained
in the amendments to §1.6045B–1 will
be reflected in the burden on Form 8937,
“Report of Organizational Actions Affect-
ing Basis of Securities,” when revised to
request the additional information in the
regulations. The burden for the collection
of information contained in §1.6049–9T
will be reflected in the burdens on Form
1099-INT and Form 1099-OID when re-
vised to request the additional information
in the regulations. The information de-
scribed in this paragraph is required to
enable the IRS to verify that a taxpayer
is reporting the correct amount of income
or gain or claiming the correct amount of
losses or deductions.
An agency may not conduct or sponsor,
and a person is not required to respond to, a
collection of information unless it displays
a valid control number assigned by the Of-
fice of Management and Budget.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
Background
This document contains amendments to
the Income Tax Regulations (26 CFR part
1) relating to information reporting by bro-
kers and others as required by section 6045
of the Code. This section was amended by
section 403 of the Act to require the report-
ing of adjusted basis for a covered security
and whether any gain or loss upon the sale
of the security is long-term or short-term
if gross proceeds reporting is required with
respect to such security. The Act also re-
quires the reporting of gross proceeds for
an option that is a covered security. In
addition, the Act added section 6045A,
which requires certain information to be
reported in connection with a transfer of
a covered security to another broker, and
section 6045B, which requires an issuer of
a specified security to file a return relating
to certain actions that affect the basis of the
security. Final regulations under these pro-
visions relating to stock were published in
theFederal Registeron October 18, 2010,
in TD 9504 (the 2010 final regulations).
On November 25, 2011, the Trea-
sury Department and the IRS published
in theFederal Register(76 FR 72652)
proposed regulations (REG–102988–11)
relating to information reporting by bro-
kers, transferors, and issuers of securities
under sections 6045, 6045A, and 6045B
for debt instruments and options. Written
and electronic comments responding to
the notice of proposed rulemaking were
received and are available for public in-
spection athttp://www.regulations.govor
upon request. A public hearing was held
on March 16, 2012.
After considering the comments, the
Treasury Department and the IRS adopt
the proposed regulations as amended by
this Treasury decision. The comments and
revisions are discussed in this preamble.
Summary of Comments
A.Effective Dates and Penalty Relief
The proposed regulations had a pro-
posed effective date for both debt instru-
ments and options of January 1, 2013. The
Treasury Department and the IRS received
numerous requests to delay the proposed
effective dates for both debt instruments
and options. Brokers and other interested
parties maintained that the proposed effec-
tive date of January 1, 2013, did not pro-
vide them sufficient time to build and test
the systems required to implement the re-
porting rules for debt instruments and op-
tions. In response to these requests, No-
tice 2012–34, 2012–21 I.R.B. 937, was is-
sued to announce thatthe effective dates in
the final regulations would be postponed to
January 1, 2014.
A number of commenters also re-
quested relief related to various aspects
of reporting under sections 6045, 6045A,
and 6045B. One commenter requested a
36-month general penalty relief period
to allow brokers to test and refine their
reporting systems.
In response to these comments, as was
announced in Notice 2012–34, the effec-
tive date of these final regulations is post-
poned so that basis reporting is required
for debt instruments and options no earlier
than January 1, 2014. Moreover, these fi-
nal regulations implement the reporting re-
quirements for debt instruments in phases,
as described in more detail later in this pre-
amble. These final regulations also imple-
ment transfer reporting in phases. These
features of the regulations are intended to
give brokers ample time to develop and
implement reporting systems.
Another commenter requested a safe
harbor for good faith reliance upon
debt instrument data that is provided
by third-party vendors for purposes of
both basis and transfer reporting. With
respect to information from third-party
vendors, §§1.6045–1(d)(2)(iv)(B) and
1.6045A–1(b)(8)(ii) of the 2010 fi-
nal regulations provide that a broker
is deemed to rely upon the informa-
tion provided by a third party in good
faith if the broker neither knows nor has
reason to know that the information is
incorrect (§1.6045A–1(b)(8)(ii) is re-
designated in these final regulations as
§1.6045A–1(b)(11)(ii)). Therefore, be-
cause the 2010 final regulations already
address the concerns raised by these com-
ments, no change on this issue is needed
in these final regulations.
Several commenters requested a safe
harbor for purposes of both basis and trans-
fer reporting for good faith reliance upon
information received on a section 6045A
transfer statement. With respect to basis
reporting, §1.6045–1(d)(2)(iv)(A) of the
2010 final regulations provides for penalty
relief if a broker relies upon transferred
information when preparing a return under
section 6045. With respect to transfer re-
porting, §1.6045A–1(b)(8)(i) of the 2010
final regulations (redesignated in these
final regulations as §1.6045A–1(b)(11)(i))
May 13, 201310622013–20 I.R.B.

provides for penalty relief if a broker relies
upon transferred information when prepar-
ing a transfer statement under section
6045A. Because the 2010 final regulations
already address the concerns raised by
these comments, no change on this issue
is needed in these final regulations.
B.Debt Instruments
1.Scope of Debt Instrument Reporting
andPhasedImplementation
The proposed regulations required ba-
sis reporting for all debt instruments, other
than a debt instrument subject to section
1272(a)(6) (in general, a debt instrument
with principal subject to acceleration).
Numerous commenters requested that
the final regulations narrow the scope
of basis reporting for debt instruments.
Many commenters requested permanent
exemptions from basis reporting for debt
instruments that the commenters believe
present data collection or computational
difficulties, including convertible debt in-
struments, debt instruments denominated
in non-U.S. dollar currencies, contingent
payment debt instruments, variable rate
debt instruments, municipal obligations,
tax credit bonds, payment-in-kind (PIK)
bonds, certificates of deposit, debt instru-
ments issued by foreign persons, U.S.
Treasury strips and other stripped debt
instruments, inflation-indexed debt instru-
ments, privately placed debt instruments,
commercial paper, hybrid securities, in-
vestment units, debt instruments subject
to put or call options, debt instruments
with stepped interest rates, factored bonds,
and short-term debt instruments. Alterna-
tively, some commenters suggested that
basis reporting be deferred for debt instru-
ments until data is more readily available
for some of the instruments described in
the preceding sentence. One commenter
renewed a request for exempting corporate
trustees from basis reporting for registered
debt instruments issued in a physical form.
Some commenters asked for a permanent
exemption or deferred reporting for debt
instruments because, unlike the rules for
equity, there are numerous rules in the
Code and regulations, including holder
elections, that affect the adjusted basis of a
debt instrument, such as the rules relating
to original issue discount (OID), bond pre-
mium, market discount, and acquisition
premium.
Several commenters requested that the
final regulations provide a specific list of
the debt instruments subject to basis re-
porting rather than a list of the debt instru-
ments not subject to basis reporting. Other
commenters suggested limiting basis re-
porting to a debt instrument that has a fixed
yield and fixed maturity date. One com-
menter indicated that fixed yield, fixed ma-
turity date debt instruments comprise ap-
proximately 90% of the reportable debt in-
strument transactions.
Section 6045(g) by its terms requires
basis reporting by brokers with respect to
any note, bond, debenture, or other ev-
idence of indebtedness that is a covered
security. After consideration of the com-
ments, however, the Treasury Department
and the IRS appreciate that the proper im-
plementation of broker basis reporting for
debt instruments will require time to build
and implement reporting systems, espe-
cially for debt instruments with more com-
plex features. Thus, to facilitate an or-
derly transition to basis reporting for debt
instruments, these final regulations imple-
ment basis reporting for debt instruments
in phases.
For a debt instrument with less complex
features, these final regulations require
basis reporting by a broker if the debt
instrument is acquired on or after January
1, 2014, consistent with Notice 2012–34.
This category of less complex debt in-
struments includes a debt instrument that
provides for a single fixed payment sched-
ule for which a yield and maturity can
be determined for the instrument un-
der §1.1272–1(b), a debt instrument that
provides for alternate payment sched-
ules for which a yield and maturity can
be determined for the instrument under
§1.1272–1(c) (such asa debt instrument
with an embedded put or call option), and
a demand loan for which a yield can be
determined under §1.1272–1(d). Com-
menters requested delayed reporting for
any debt instrument with an embedded put
or call option. The Treasury Department
and the IRS believe that brokers should
be able to implement reporting for a debt
instrument with an embedded option that
entitles the issuer to call or the holder to put
the debt instrument prior to its scheduled
maturity. Moreover, because an embedded
put or call option is a common feature of
debt instruments, delaying basis reporting
for debt instruments with such a feature
could delay basis reporting for an unduly
large proportion of debt instruments.
Some debt instruments with a fixed
yield and a fixed maturity date never-
theless pose challenges for information
reporting. For these debt instruments and
for more complex debt instruments that do
not have a fixed yield and a fixed maturity
date, these final regulations require basis
reporting for debt instruments acquired on
or after January 1, 2016. The Treasury De-
partment and the IRS believe that brokers
may need additional time to implement
basis reporting for these debt instruments
because of their more complex features
or the lack of public information for the
debt instruments. Fixed yield, fixed ma-
turity debt instruments that are subject to
reportingiftheyareacquiredonorafter
January 1, 2016, include a debt instrument
that provides for more than one rate of
stated interest (such as a debt instrument
with stepped interest rates), a convert-
ible debt instrument, a stripped bond or
coupon, a debt instrument that requires
payment of either interest or principal in a
non-U.S. dollar currency, certain tax credit
bonds, a debt instrument that provides for
a PIK feature, a debt instrument issued by
a non-U.S. issuer, a debt instrument for
which the terms of the instrument are not
reasonably available to the broker within
90 days of the date the debt instrument was
acquired by the customer, a debt instru-
ment that is issued as part of an investment
unit, and a debt instrument evidenced by a
physical certificate unless such certificate
is held (whether directly or through a nom-
inee, agent, or subsidiary) by a securities
depository or by a clearing organization
described in §1.1471–1(b)(18). Other debt
instruments that do not have a fixed yield
and fixed maturity date but are subject to
reportingiftheyareacquiredonorafter
January 1, 2016, include a contingent pay-
ment debt instrument, a variable rate debt
instrument, and an inflation-indexed debt
instrument.
As noted earlier in this preamble, due
to the difficulties in implementing basis re-
porting, the proposed regulations provided
that a debt instrument described in sec-
tion 1272(a)(6) (in general, a debt instru-
ment with principal subject to accelera-
tion) would not be subject to basis report-
ing. In response to favorable comments on
2013–20 I.R.B.1063May 13, 2013

this exception, these final regulations re-
tain this exception from basis reporting.
A number of commenters requested de-
layed reporting or no basis reporting for
short-term debt instruments (that is, debt
instruments with a fixed maturity date not
more than one year from the date of issue).
One commenter argued that the applica-
tion of the OID, bond premium, market
discount, and acquisition premium rules
to a short-term debt instrument, including
the numerous elections applicable to short-
term debt instruments, is complicated, that
the effects on the basis of a short-term
debt instrument would be marginal, and
that basis reporting for short-term debt in-
struments may impose a significant bur-
den on brokers and provide little benefit
to taxpayers or the IRS. Because the Trea-
sury Department and the IRS agree with
this comment, these final regulations ex-
cept short-term debt instruments from ba-
sis reporting.
Another commenter requested that the
rules pertaining to short-term debt instru-
ments be extended to all debt instruments
that are acquired with a remaining term of
one year or less. This exemption from in-
formation reporting would apply to a debt
instrument originally issued with a term of
greater than one year and acquired in a sec-
ondary market purchase when there is a
remaining term of one year or less. The
request to extend the short-term debt in-
strument rules to a long-term debt instru-
ment with one year or less until maturity is
not adopted because the rules that govern a
debt instrument with a term over one year
do not change when the maturity has de-
clined to one year or less. While the poten-
tial for significant gain or loss on the debt
instrument usually diminishes in the final
year, the reporting is useful to the customer
and the IRS, and all information required
for reporting will be available to the bro-
ker.
One commenter requested that the final
regulations exempt from reporting securi-
ties issued in connection with a bankruptcy
restructuring because it is not always clear
if a particular security is a debt instrument.
After consideration of the comment, this
request was not adopted because these fi-
nal regulations provide that a security is
treated as debt for reporting purposes only
if the issuer has classified the security as
debt or, if the issuer has not classified the
security, if the broker knows that the secu-
rity is reasonably classified as debt under
general Federal tax principles.
2.Lack of Industry Consistency Could
Affect Reporting
A number of commenters raised con-
cerns and suggestions about how to make
reporting more consistent, both between
transferring and receiving brokers and be-
tween brokers and customers. Many com-
menters expressed a strong desire to en-
sure that a customer who transfers a secu-
rity from one broker to another will receive
consistent reporting from the two brokers.
Many commenters also asked for assis-
tance in minimizing the amount of poten-
tial reconciliation between an amount re-
ported by a broker to a customer and the
IRS and the amount reported by that cus-
tomeronataxreturn.
a.Support of Taxpayer Elections
The proposed regulations attempted
to simplify reporting requirements by
specifying the elections brokers were to
assume to compute OID, market discount,
bond premium, and acquisition premium
reported to holders, and not permitting
brokers to support alternative customer
elections. A number of commenters,
however, indicated a desire by brokers to
support debt instrument elections made
by their customers rather than rely on
assumptions provided in the regulations.
Some commenters stated that they already
support some or all elections for debt as
a service to their customers, and these
commenters predict that similar customer
service demands will eventually require all
brokers to support customer elections, just
as they support customer elections with re-
spect to stock. Other commenters pointed
out that the default assumptions in the
proposed regulations might be preferred
by most individual taxpayers, but other
customers, such as trusts or partnerships,
might not prefer the default assumptions.
One commenter noted that the reporting
rules provided in the proposed regulations
would make computations by brokers sim-
pler, but that educating customers about
permissible elections, and the computa-
tions that each election would entail if an
election is made, would become critical.
This commenter recommended permitting
a broker to support customer elections in
the future as systems are upgraded.
However, other commenters indicated
that some of the statutory defaults were
generally simpler to apply and produced
economic results that were only negligi-
bly different than the defaults prescribed
by the proposed regulations. For exam-
ple, while the proposed regulations would
have required reporting of market discount
using a constant yield method, several
commenters indicated a preference for
reporting accrued market discount using a
straight line method.
The Treasury Department and the IRS
also received comments regarding the
treatment of amortizable bond premium
under section 171. One commenter re-
quested that the section 171 election not
be mandatory for reporting purposes be-
cause most taxpayers have not made the
election, but suggested that a broker be re-
quired to support the section 171 election
if a customer informs the broker that the
election was or will be made.
After consideration of all the com-
ments, the Treasury Department and the
IRS have concluded that the best way to
balance certainty and flexibility is to re-
quire brokers to report information using
the default assumptions provided in the
relevant statute and regulations, except in
the case of the section 171 election, but to
require brokers to accommodate elections
by taxpayers that choose to depart from
the defaults. Under these final regulations,
upon written notification by a customer, a
broker must take into account the follow-
ing elections for basis reporting purposes:
the election to accrue market discount us-
ing a constant yield; the election to include
market discount in income currently; the
election to treat all interest as OID; and
the spot rate election for interest accruals
with respect to a covered debt instrument
denominated in a currency other than the
U.S. dollar. The Treasury Department
and the IRS do not anticipate that many
taxpayers will make these elections. As a
practical matter, by removing short-term
debt instruments from the basis reporting
rules, the number of elections available
for a covered security has been reduced to
a manageable number, and it is reasonable
to require that the remaining debt instru-
ment elections be supported.
These final regulations make an excep-
tion to the general rule requiring brokers
to use the default elections provided in the
statute and regulations in the case of bond
May 13, 201310642013–20 I.R.B.

premium. Section 171 generally requires
taxpayers to affirmatively elect to amortize
bond premium on taxable bonds, which
then offsets interest income on the bond.
Except in the rare case of a holder that
prefers a capital loss, the election to amor-
tize bond premium generally will bene-
fit the holder of a debt instrument. Thus,
consistent with the proposed regulations,
these final regulations require brokers to
assume that customers have made the elec-
tion to amortize bond premium provided
in section 171 when reporting basis, unless
the customer has notified the broker other-
wise.
The rules regarding basis reporting for
bond premium in the proposed regulations
prompted a number of commenters to re-
quest that the rules for reporting interest
income associated with a bond acquired
at a premium be conformed to the rules
regarding basis reporting for these same
debt instruments. In response to these
commenters, this document contains tem-
porary regulations addressing reporting of
premium under section 6049. See Part H
of this preamble for additional discussion
of this issue.
The Treasury Department and the IRS
considered making broker support of debt
instrument elections a permitted, but not
required, activity, but the additional ad-
ministrative problems that can arise if a
transferring brokersupports certain elec-
tions while the receiving broker does not
support the same elections made a permis-
sive approach problematic. For example,
if the receiving broker did not support the
same elections as the transferring broker,
and the customer properly made one of
the elections permitted with respect to a
debt instrument and notified the transfer-
ring broker of the election, the informa-
tion provided by the receiving broker on
the relevant Form 1099 would not reflect
the customer’s election, requiring the cus-
tomer to provide a reconciliation on the
customer’s income tax return. These ad-
ministrative problems lead to the conclu-
sion that brokers should be required to sup-
port either all of the permitted elections for
debt instruments or none of them. Given
the numerous requests to support customer
elections, coupled with requests to reduce
the need for a customer to reconcile tax
return data to the data provided by a bro-
ker, the Treasury Department and the IRS
decided that support for customer debt in-
strument elections would be beneficial to
taxpayers and would not impose an undue
burden on brokers. It should be noted that
supporting customer elections will require
additional transfer statement information
to advise a receiving broker of any elec-
tions that were used to compute the infor-
mation provided.
b.Industry Conventions
Several commenters pointed out that
brokers do not necessarily use common
terms or conventions for debt instrument
computations. For example, 30 days per
month/360 days per year, actual days per
month/360 days per year, and actual days
per month/365 days per year are possi-
ble interest computation day count con-
ventions. Different brokers may use dif-
ferent amortization and accretion assump-
tions, different accrual periods, and differ-
ent rounding conventions.
The proposed regulations prescribed
conventions to determine the accrual pe-
riod to be used for reporting purposes.
These final regulations generally adopt the
conventions in the proposed regulations.
Under these final regulations, a broker
must use the same accrual period that is
used to report OID or stated interest to
a customer under section 6049. In any
other situation, a broker is required to use
a semi-annual accrual period unless the
debt instrument provides for scheduled
payments of principal or interest at regular
intervals of less than six months over its
term, in which case a broker must use
an accrual period equal in length to this
shorter interval. In response to a comment,
these final regulations use a semi-annual
accrual period rather than an annual ac-
crual period as the default accrual period.
These final regulations do not prescribe
a particular day count convention brokers
must use for basis reporting. Instead, these
final regulations provide that a broker may
use any reasonable day count convention.
The terms of a debt instrument, however,
generally include the day count convention
that the issuer will use to compute interest
payments. The Treasury Department and
the IRS expect that a broker generally will
choose to use this day count convention to
determine the accruals of interest and OID
on the debt instrument and the related basis
adjustments, which will facilitate reconcil-
iation of the accruals with the amount of
cash received by a broker and distributed
to a customer. These final regulations also
do not prescribe a particular rounding con-
vention.
Commenters also indicated disagree-
ment on the effect of puts and calls on
calculations associated with a debt instru-
ment. One commenter asked for clarifica-
tion about whether issuer choice or holder
choice will govern the treatment of put
and call dates and recommended amortiz-
ing all callable debt instruments to their
maturity dates rather than call dates. An-
other commenter requested standardizing
the deemed maturity date and limiting the
application of the put/call rules to cases
in which the broker has actual knowledge
of payment terms that could result in a
different maturity date if the put/call rules
are applied.
These final regulations continue the
approach taken in the proposed regu-
lations. The basis reporting rules are
not intended to, and do not, change the
substantive rules applicable to debt instru-
ments. Thus, when assessing the effect
of an embedded put or call option on
a debt instrument, a broker must apply
the rules described in §1.1272–1(c)(5) or
§1.171–3(c)(4), whichever is applicable,
to determine the correct date to be used in
accrual calculations. The rules described
in §1.1272–1(c)(5) have been in effect
since 1994 and the rules described in
§1.171–3(c)(4) have been in effect since
1997. Both rules provide a clear and work-
able framework for determining the effect,
if any, of an embedded put or call option
on a debt instrument.
One commenter requested that, to the
extent brokers are not required to report
using a single set of assumptions and com-
putation conventions, explicit language
should be added to the regulations cover-
ing transfer statements to require transfer
of all information needed for a receiving
broker to compute adjustments in a man-
ner consistent with the transferor broker,
including payment terms and assumptions
used by the transferor broker, as well as
any taxpayer elections that were supported
by the transferor broker. These final regu-
lations adopt this comment by expanding
the information that must be included in a
transfer statement for a debt instrument.
2013–20 I.R.B.1065May 13, 2013

3.Other Issues
One commenter stated that there could
be problems tracking the adjustments for
discount and premium if different mea-
surement periods are used (for example, a
daily period versus a period ending on pay-
ment dates), especially for a customer that
has purchased debt from the same issue at
a discount and at a premium. The com-
menter indicated that tracking OID, market
discount, bond premium, and/or acquisi-
tion premium adjustments for multiple lots
ofasingleissuewillbecomplex.
One commenter, noting that reporting
to the IRS and taxpayers is only required
once a year, asked whether a duty exists to
compute the debt instrument accruals and
display them more frequently than once
each year, such as for each accrual or pay-
ment period. Another commenter indi-
cated that to facilitate the preparation of
transfer statements at any time during a
year, it may be necessary to compute all
debt instrument accruals each day.
These final regulations generally con-
tinue the approach taken in the proposed
regulations regarding computations that
affect the basis of a debt instrument. In
particular, these final regulations do not
require a broker to compute debt instru-
ment accruals more than once per year
unless a transfer takes place during a tax
year, in which case the transferring broker
must provide a transfer statement to the
receiving broker. If a broker’s systems
generate more frequent computations to
support transfer statements, the broker is
permitted to compute the accruals more
than once per tax year.
The proposed regulations require ac-
crued market discount to be reported upon
the sale of a debt instrument. One com-
menter asked whether accrued market dis-
count should be reported at the time of a
call or at maturity. The commenter also
noted that two rules in the proposed reg-
ulations relating to market discount may
have required the filing of a Form 1099-
INT and a Form 1099-B to report accrued
market discount. The commenter recom-
mended that accrued market discount be
reported only on a Form 1099-B, “Pro-
ceeds from Broker and Barter Exchange
Transactions,” and associated with a spe-
cific sale.
For purposes of section 6045,
§1.6045–1(a)(9) defines a sale to include
any disposition of a debt instrument, which
includes a retirement of a debt instrument
at or prior to its stated maturity. These
final regulations do not change this defi-
nition of a sale with respect to a debt in-
strument; however, these final regulations
clarify that a sale for purposes of section
6045 includes a partial principal payment.
Moreover, under these final regulations, in
the case of a sale, accrued market discount
will be reported only on the Form 1099-B,
which would associate the accrued market
discount with a specific sale of a single
security. In connection with this comment,
these final regulations amend the rule in
§1.6045–1(d)(3) for reporting accrued
stated interest on a Form 1099-INT when
a debt instrument is sold between interest
payment dates to make it clear that the rule
does not apply to accrued market discount.
A number of comments were received
that address narrower issues. One com-
menter requested guidance about how to
determine and translate interest income or
expense (including OID) on certain non-
functional currency debt. Rules regard-
ing the determination and translation of in-
terest income and expense on certain debt
instruments denominated in a non-func-
tional currency are explicitly addressed in
the regulations under section 988.See,for
example, §1.988–2(b).
During the preparation of these final
regulations, the Treasury Department and
the IRS reviewed the existing reporting
requirements for short-term debt instru-
ments. Based on this review, these final
regulations exempt from gross proceeds
reporting all short-term debt instruments.
This exemption is consistent with the
existing exemption from reporting for
certain short-term debt instruments in
§1.6045–1(c)(3)(vii)(C), and the provi-
sions in these final regulations that exempt
short-term debt instruments from basis
reporting. Moreover, almost all income
related to short-term debt instruments is
captured through the income reporting
rules under section 6049 and any capital
gain or loss related to a short-term debt
instrument is expected to be very small.
C.Comments on Option Transactions
1.Scope of Option Reporting
In general, under the proposed regula-
tions, basis and gross proceeds reporting
applied to the following options granted
or acquired on or after January 1, 2013:
an option on one or more specified securi-
ties, including an option on an index sub-
stantially all the components of which are
specified securities; an option on finan-
cial attributes of specified securities, such
as interest rates or dividend yields; and a
warrant or a stock right on a specified se-
curity. The scope provisions in these fi-
nal regulations are generally the same as
the scope provisions in the proposed regu-
lations, except that these final regulations
explicitly exclude a compensatory option.
As announced in Notice 2012–34, these fi-
nal regulations generally apply to an op-
tion granted or acquired on or after January
1, 2014.
One commenter asked for clarification
of the concept of “financial attributes” in
the scope provision. After reviewing the
proposed language, the Treasury Depart-
ment and the IRS believe that the list of
items provided in §1.6045–1(m)(2)(i)(B)
provides adequate detail to describe the
concept.
Commenters also requested that the
regulations not apply to options that are
subject to section 1256. As explained
immediately below, this comment was not
adopted in these final regulations.
2.Option Transactions Subject to
Section 1256
Numerous comments were received re-
lated to nonequity options that are covered
by section 1256(b)(1)(C) (“section 1256
options”), which includes a listed option
on a stock index that is not a narrow-based
security index. Several commenters noted
that the substantive rules that apply to
section 1256 options are different from
the rules that apply to non-section 1256
options and asked for different reporting
treatment for the two types of options.
Some commenters requested an exemp-
tion from reporting for all section 1256
options. The commenters suggested that if
a blanket exemption from reporting is not
provided, the IRS should consider extend-
ing the reporting rules for regulated futures
contracts described in §1.6045–1(c)(5) to
section 1256 options. One commenter
noted that although the current rules only
require reporting for regulated futures con-
tracts on Form 1099-B, some brokers may
May 13, 201310662013–20 I.R.B.

already be reporting section 1256 options
in a similar manner.
The Treasury Department and the IRS
agree that there should be different report-
ing rules for section 1256 options and non-
section 1256 options. In general, an option
is subject to reporting under section 6045
only if the option references one or more
specified securities. For a nonequity op-
tion described in section 1256(b)(1)(C) on
one or more specified securities, a broker
will apply the reporting rules that apply to
a regulated futures contract, which are de-
scribed in §1.6045–1(c)(5). For an option
on one or more specified securities that is
not described in section 1256(b)(1)(C), a
broker will report gross proceeds and basis
in accordance with the rules in these final
regulations for a non-section 1256 option,
which are described later in this preamble.
a.Scope Issues Related to Section 1256
Options
A number of comments focused on
potential difficulties in distinguishing
between an option on a broad-based in-
dex, which would be covered by section
1256, and an option on a narrow-based
index, which would be treated in the same
manner as an option on a single equity.
Commenters requested guidance about
how to determine whether an index is
broad-based or narrow-based, and some
commenters requested that the IRS an-
nually publish a list of what constitutes
a section 1256 option. Alternatively, the
commenters requested complete exclusion
of all stock index options. These final
regulations do not provide substantive
rules on index options. Rather, to deter-
mine whether an index substantially all
the components of which are specified
securities is a broad-based index under
section 1256(g)(6)(B), a broker must look
to rules established by the Securities Ex-
change Commission and the Commodities
Futures Trading Commission that deter-
mine which regulator has jurisdiction over
an option on the index. An option on a
broad-based index is a nonequity option
describedinsection1256(b)(1)(C).
Several commenters requested broker
penalty relief for good faith determinations
of section 1256 status for index options.
The Treasury Department and the IRS ap-
preciate the difficulty in making determi-
nations of section 1256 status. Therefore,
these final regulations grant relief under
sections 6721 and 6722 if a broker deter-
mines in good faith that an index is, or
is not, a narrow-based index described in
section 1256(g)(6) and reports in a manner
consistent with that determination.
One commenter asked for an exemption
from basis reporting for options on foreign
currency and suggested that foreign cur-
rency be treated as a commodity. Because
commodities and foreign currency are not
specified securities, basis reporting by a
broker for an option on foreign currency or
an option on a commodity is not currently
required under section 6045. Accordingly,
no change is made in these final regula-
tions in response to this comment.
b.Other Issues Related to Section 1256
Options
A number of commenters asserted that
neither the wash sale rules under section
1091 nor the short sale rules described
in section 1233 should apply to a section
1256 option. One commenter asked for
clarification about how holding period ad-
justments due to application of the wash
sale provisions should be applied to sec-
tion 1256 options. These comments have
not been adopted because the changes re-
quested are substantive in nature and out-
side the scope of the reporting rules.
3.Non-section 1256 Options
Comments were also received on the
rules in the proposed regulations relating
to non-section 1256 options. Several com-
menters asserted that there are administra-
tive issues involved in reporting over-the-
counter (OTC) options and asked that OTC
options be exempted from reporting. One
commenter suggested that if exemptions
were not granted, the IRS should create a
“best efforts” safe harbor for OTC options.
The Treasury Department and the IRS be-
lieve that it is reasonable to expect a broker
to know the information required to report
on an OTC option when it is entered into
or when it is transferred into a customer’s
account. Moreover, the regulations under
section 6045A require the transferor of an
OTC option to provide detailed informa-
tion to a receiving broker sufficient to de-
scribe the option. This could include data
about the underlying asset, contract size,
non-standardized strike price, and expira-
tion date. These final regulations therefore
applytoanyOTCoptiononaspecifiedse-
curity.
For a cash settled non-section 1256 op-
tion, the proposed regulations required a
broker to adjust gross proceeds related to
an option transaction by increasing gross
proceeds by the amount of any payments
received for issuing the option and de-
creasing gross proceeds by the amount of
any payments made on the option. A num-
ber of commenters requested that, instead
of decreasing gross proceeds by amounts
paid out, brokers be permitted to report
gross amounts paid and received with re-
spect to the option. Under this approach,
the gross proceeds box on Form 1099-B
would include all payments received, and
the basis box on Form 1099-B would re-
flect any payments made. These com-
menters noted that some broker systems
already deal with equity options this way.
This suggestion has not been adopted be-
cause it is not consistent with the overall
concept of gross proceeds and basis report-
ing, which applies to all covered securities.
The rules in these final regulations for a
cash settled option are based upon the ba-
sic idea that costs related to the acquisition
of a position affect basis, while the costs
related to the sale or closeout of a position
affect gross proceeds. This is consistent
with the changes to the definition of gross
proceeds in the proposed regulations.
Under these final regulations, expenses
related to the sale of an asset must be de-
ducted from gross proceeds and may not
be added to basis. For a purchased op-
tion, the basis in the option will include the
premium paid as well as any commissions,
fees, or other transaction costs related to
the purchase. Gross proceeds on the cash
settlement of the purchased option should
be adjusted to account for any commis-
sions, fees, or other transaction costs re-
lated to the cash settlement. In the case of
a written option, a broker must determine
the amount of reportable proceeds by sub-
tracting from the amount of the premium
received for writing the option any set-
tlement payments, commissions, or other
costs related to the close out or cash set-
tlement. At the suggestion of several com-
menters, a clarification has been added that
the basis under this scenario should be re-
ported as $0.
One commenter requested that for cash-
settled options, acquisition costs be treated
as adjustments to gross proceeds and that
2013–20 I.R.B.1067May 13, 2013

no adjustments be made to basis for acqui-
sition costs. This comment has not been
adopted because it is contrary to the re-
quirements of §1.263(a)–4(c), which re-
quire that acquisition costs be treated as
part of basis.
One commenter requested that if multi-
ple option contracts are bundled into a sin-
gle investment vehicle and the components
cannot be separately exercised, the invest-
ment will be treated as a single instrument
with a single basis. These final regulations
do not adopt this comment because the ba-
sis of each financial instrument is required
to be accounted for separately.
Another commenter asked that the
regulations explicitly address whether a
broker must take into account the strad-
dle rules under section 1092, including
the qualified covered call rules in section
1092(c)(4). Consistent with the approach
taken for broker basis reporting for stock,
these final regulations explicitly provide
that a broker will not take section 1092
into consideration when determining basis
of an option that is a covered security.
Several comments were received ask-
ing for guidance in determining which
options would be considered substantially
identical for the purpose of applying the
wash sale rules under section 1091. The
2010 final regulations only require a bro-
ker to apply the wash sale rules when the
transaction involves covered securities
with the same CUSIP number, and these
final regulations do not change this rule.
4.StockAcquiredThroughtheExercise
of a Compensatory Option
The proposed regulations provided that
a broker was permitted, but not required, to
increase a customer’s initial basis in stock
for income recognized upon the exercise
of a compensatory option or the vesting
or exercise of other equity-based compen-
sation arrangement. The preamble to the
proposed regulations also stated that the
IRS might add a field to Form 1099-B to
indicate when stock was acquired via the
exercise of a compensatory option. In re-
sponse, commenters asked that there be no
change to the Form 1099-B to reflect com-
pensation status or, alternatively, that us-
ing the indicator be permitted, but not re-
quired. These commenters indicated that
compensation information is not accessi-
ble to most brokers, and extensive repro-
gramming for both the underlying data-
base and the reporting process would be
required. The commenters also expressed
concerns that, in many situations, a broker
would have to accept customer-provided
information in order to track the compen-
sation-related status.
After consideration of the comments,
the Treasury Department and the IRS agree
a compensation-related field should not be
added to the Form 1099-B. The lack of a
mechanism to communicate whether the
basis of stock has been adjusted for the ex-
ercise of a compensatory option coupled
with a system involving discretionary bro-
ker adjustments for compensatory options
would, however, be unworkable. There-
fore, these final regulations provide that
brokers are not permitted to adjust basis
to account for the exercise of a compen-
satory option that is granted or acquired
on or after January 1, 2014. This ap-
proach will eliminate confusion and un-
certainty for an employee who has exer-
cised a compensatory option. Under the
permissive adjustment rule in the proposed
regulations, without an indicator on Form
1099-B, an employee would not necessar-
ily know whether the basis of the stock ac-
quired through the exercise of a compen-
satory option had beenadjusted by a bro-
ker to account for any income recognized
by the employee due to the option exercise.
By prohibiting adjustment by a broker, an
employee will know that the basis num-
ber reported by the broker only reflects the
strike price paid for the stock and that a ba-
sis adjustment may be necessary to reflect
the full amount paid by the employee.
5.Backup Withholding for Option
Transactions
One commenter asked for guidance
on how to implement backup withhold-
ing for option transactions. In partic-
ular, the commenter asked for clarifi-
cation about whether a rule similar to
§31.3406(b)(3)–2(b)(4) applies, permit-
ting a broker to withhold at either the time
of sale or upon a closing transaction or
lapse. The commenter also asked how to
apply backup withholding to several situ-
ations involving physically settled options
or when the taxpayer transfers an option or
ends up closing out an option transaction
at a loss. This comment is not adopted
because backup withholding rules are out-
side the scope of these final regulations.
6.Stock Rights and Warrants under
Sections 305 and 307
Several commenters requested that
stock rights and warrants be excluded
from basis reporting. Several other com-
menters addressed issues under sections
305 and 307. One commenter pointed out
some administrative problems with the
taxpayer election to allocate basis under
section 307, including the fact that the
election to allocate basis can be made after
a broker’s Form 1099-B reporting window
closes. This commenter recommended
requiring basis adjustments to reflect the
issuance of stock rights or warrants only
when section 307 requires allocation of
basis because the value of the stock right
or warrant represents 15% or more of the
fair market value of the old stock. An-
other commenter noted that distributions
of stock rights or warrants representing
15% or more of the value of the old stock
are uncommon and recommended that
brokers should not make an adjustment for
the effects of section 307.
One commenter requested a clarifica-
tion of the rules for a stock right or war-
rant that terminates other than by exercise
or actual sale, so that a closing transaction
that results in $0 proceeds is not a sale sub-
ject to reporting on a Form 1099-B. The
commenter was concerned that in many
cases a broker would have to report a lapse
of a stock right or warrant by reporting $0
as proceeds on the Form 1099-B, even in
situations where there is no basis to report.
After consideration of the comments,
these final regulations provide that a bro-
ker is permitted, but not required, to apply
the rules of sections 305 and 307 when re-
porting the basis of a stock right or war-
rant or any stock related to a stock right or
warrant. This rule will permit the industry
to deploy its resources most efficiently. A
broker who already supports adjustments
under sections 305 and 307 will not need to
reprogram its systems, while a broker who
does not currently support the adjustments
can decide to do so later, or not at all. Note
that, under these final regulations, a stock
right or a warrant purchased from the orig-
inal recipient is treated as an option.
May 13, 201310682013–20 I.R.B.

D.Other Financial Instruments Subject
to Reporting
One commenter asked for an explicit
exemption from reporting for single stock
futures that fall under section 1234B or for
guidance on how to apply section 1234B.
This request was not adopted; instead,
these final regulations add section 1234B
contracts to the definitions of specified se-
curity and covered security. The Treasury
Department and the IRS believe that there
is no reason to exclude single stock futures
on a specified security from information
reporting when information reporting is
generally required on stock, options on
stock, and regulated futures contracts.
E.Transfer Reporting under Section
6045A
Numerous comments were received
related to transfer reporting for debt in-
struments, as required by section 6045A.
Many comments focused on the informa-
tion that was to be included on the transfer
statement. Some commenters argued for
the transfer of original purchase informa-
tion related to debt instruments because
some brokers will recompute OID, market
discount, bond premium, and acquisition
premium through the transfer date and
will use the recomputed numbers, instead
of the numbers provided by the prior bro-
ker, to populate their data systems. Other
commenters argued that only adjusted ba-
sis needs to be transferred to provide for
subsequent accrual computations; these
commenters point outthat some adjust-
ments, such as wash sale loss deferrals
and holding period adjustments, will be
reported accurately ifadjusted basis is re-
ported on a transfer statement, but may not
be reflected if basis is recomputed based
on original purchase information. Further,
to the extent that a transferor broker might
have used a computational method that
is different from the method used by the
receiving broker, as long as each broker is
internally consistent in reporting income
and adjusting basis, permitting the receiv-
ing broker to start from adjusted basis will
help ensure that there is no duplication or
omission of income and adjustments. An-
other commenter argued that the market
discount, acquisition premium, and bond
premium amounts should be implicit in
the combination of adjusted issue price
and adjusted cost basis, and transfer of
the details is not needed. One commenter
suggested treating each transfer as though
it were a new purchase. This would entail
comparing the reported adjusted basis to
the adjusted issue price, determining new
amounts of bond premium, market dis-
count, or acquisition premium, and then
basing all further accruals on these num-
bers.
After consideration of the comments,
the Treasury Department and the IRS be-
lieve that brokers and customers are bet-
ter served when all relevant information
is provided when a security is transferred.
These final regulations therefore generally
require the information specified in the
proposed regulations, and have expanded
the list of information that must be pro-
vided to support the new requirement that
a broker support customer debt instrument
elections. It is not anticipated that a partic-
ular receiving brokerwill necessarily use
all of the information received. For exam-
ple, if a receiving broker’s systems are set
up to recompute debt instrument accruals
from the issue date, that broker may not
find the data for adjusted issue price as of
thetransferdatetobeuseful.
Several commenters also expressed
concerns about transferring data purchased
from third-party vendors. One commenter
suggested that communicating the CUSIP
identifier for a debt instrument might be
sufficient to enable a receiving broker
to retrieve information that applies to all
debt instruments in a particular issue, such
that some of the data described in the
proposed regulations might not be nec-
essary. Another commenter argued that
data specific to a customer, such as initial
purchase price and date, and the CUSIP
should provide a receiving broker with all
information needed to properly compute
debt instrument accruals.
These final regulations, like the pro-
posed regulations, require that a transferor
broker provide all information necessary
to allow a receiving broker to comply with
its information reporting obligations. Con-
sistent with the comments, if providing a
CUSIP number or similar security identi-
fier is adequate to enable the receiving bro-
ker to obtain some of the required infor-
mation, a transferring broker is permitted
to supply the CUSIP number or security
identifier as a substitute for that informa-
tion. For example, data that applies to all
debt instruments in an issue, such as issuer
name, issue date, coupon rate, coupon pay-
ment dates, or issue price, might be data
that could be derived from a CUSIP or
other security identifier. However, under
these final regulations, like the proposed
regulations, a receiving broker may re-
quest to receive the information specified
in the regulations from the transferor bro-
ker. Further, data specific to a customer,
such as price paid by the customer, the ac-
quisition date, or yield, must be transmit-
ted separately as these data will be differ-
ent for each customer and cannot be de-
rived from the CUSIP number.
A few commenters focused specifi-
cally on the list of debt instrument-spe-
cific data that was included in proposed
§1.6045A–1(b)(3). One commenter asked
if the amount of acquisition premium al-
ready amortized should be added to the
list, pointing out that accrued market dis-
count and amortized bond premium are
already reportable. One commenter asked
that the date through which the transferor
broker made adjustments be added to the
list. These final regulations adopt these
comments and add these data to the list of
transfer statement items.
One commenter asked whether, when
complying with the transfer statement
rules under section 6045A for a section
1256 option, a broker may report the ad-
justed basis instead of the original basis
for a position that has been marked to mar-
ket. Section 1.6045A–1(b)(1)(vii) of the
2010 final regulations requires a broker
to report the adjusted basis of a specified
security. Therefore, no change is needed
to address this comment.
One commenter asked for penalty relief
for transfer reporting analogous to the re-
lief that was provided for transfer report-
ing for stock in Notice 2010–67, 2010–43
I.R.B. 529. Under Notice 2010–67, al-
though broker reporting for basis began for
some stock acquired on or after January
1, 2011, transferring brokers were given
penalty relief if they did not provide trans-
fer statements for transfers occurring dur-
ing 2011, and receiving brokers were in-
structed to treat a transfer during 2011 for
which no transfer statement was received
as the transfer of a noncovered security.
Instead of penalty relief, the Treasury De-
partment and the IRS believe that it is ap-
propriate to provide additional time for
brokers to phase in transfer reporting for
2013–20 I.R.B.1069May 13, 2013

transfers of debt instruments, options, and
securities futures contracts, and the final
regulations provide that transfer reporting
for debt instruments, options, and securi-
ties futures contracts will be applicable no
earlier than January 1, 2015.
F.Issuer Reporting under Section 6045B
A number of comments were received
concerning returns relating to issuer ac-
tions affecting the basis of securities under
section 6045B. Several commenters asked
whether certain types of events would be
reportable under section 6045B, including
the issuance of a debt instrument, a reis-
suance of a debt instrument, and a reor-
ganization in bankruptcy where new debt
instruments are issued for old debt instru-
ments. Section 6045B only applies to an
issuer action that affects basis. The is-
suance of a debt instrument generally is not
an issuer action affecting the basis of a debt
instrument. Accordingly, in many cases,
the issuance of a debt instrument is not
subject to section 6045B. The legislative
history, however, indicates that reorgani-
zations, such as mergers and acquisitions,
are among the organizational actions that
can trigger reporting under section 6045B.
Thus, for example, the issuance of a debt
instrument in a recapitalization, including
a recapitalization resulting from a signifi-
cant modification or a bankruptcy reorga-
nization, can be an issuer action affecting
the basis of a debt instrument for purposes
of section 6045B.
One commenter pointed out that a
REMIC regular interest is excluded from
being a covered security, but is not ex-
cluded from being a specified security.
With respect to reporting under section
6045B, the commenter requested that if a
specified security is not subject to basis
reporting, issuer reporting under section
6045B should not be required. These final
regulations clarify that a REMIC regular
interest is not a specified security and,
therefore, is not subject to reporting under
section 6045B.
Section 1.6045B–1(a)(3) of the 2010 fi-
nal regulations provides that an issuer may
meet its reporting obligation under section
6045B by posting a copy of Form 8937
to its public website. One commenter re-
newed a request that the IRS permit an is-
suer to provide the information required by
section 6045B on a website without post-
ing a copy of Form 8937. The regulations
do not adopt this suggestion because post-
ing a copy of Form 8937 ensures consistent
presentation of the reported information.
Another commenter noted that posting a
copy of Form 8937 could facilitate iden-
tity theft because the written signature of
the certifying company official would be
widely available. These final regulations
allow an issuer to publicly post a Form
8937 with an electronic signature as an al-
ternative to a written signature.
One commenter requested that a clear-
ing organization involved in clearing
exchange-traded options be treated as an
issuer rather than a writer for purposes of
section 6045B. Other commenters sug-
gested language to clarify the identifica-
tion of the party responsible for reporting
in the case of an OTC option. In response
to the commenters, these final regulations
specify that a clearing organization that
is the counterparty to an exchange-traded
option is the issuer of the option for pur-
poses of section 6045B, and the writer of
an OTC option is the issuer for purposes
of section 6045B.
One commenter pointed out that cur-
rently there is no safe harbor for modifica-
tions to non-debt instruments, so any mod-
ification of an option technically might
result in a taxable event. The commenter
recommended providing an assumption
for brokers that changes to option terms
do not result in a taxable event if section
1001 does not apply. This request is out-
side the scope of the current project and
so no changes were made to these final
regulations in response to this comment.
It should be noted, however, that under
these final regulations, an option issuer
only needs to comply with §1.6045B–1 if
the change in the underlying asset results
in a different number of option contracts.
If the terms of the option are changed to
reflect a corporate event, but the number
of option contracts does not change, a
section 6045B event has not occurred.
G.Foreign Intermediaries
One commenter requested that foreign
entities that are not U.S. payors and are
either qualified intermediaries or partici-
pating foreign financial institutions be ex-
cluded from basis reporting requirements.
The Treasury Department and the IRS in-
tend to issue future guidance coordinating
the reporting requirements applicable to
qualified intermediaries and participating
foreign financial institutions under chapter
61 (including section 6045) with the appli-
cable chapter 4 reporting requirements.
H.Temporary Regulations Related
to Reporting of Bond Premium and
Acquisition Premium
As noted earlier in this preamble, a
number of commentersrequested that the
rules for reporting interest income asso-
ciated with a debt instrument acquired
at a premium be conformed to the rules
regarding basis reporting for these same
debt instruments. Under the current infor-
mation reporting rules under section 6049,
interest income is reported without ad-
justment for bond premium or acquisition
premium.
Under section 171(e) (which was added
to the Code in 1988) and §1.171–1 (which
was amended in 1997 to reflect the ad-
dition of section 171(e)), amortized bond
premium offsets stated interest payments.
As a result, only the portion of a stated
interest payment that is not offset by the
amortized premium is treated as interest
for federal income tax purposes. Under
section 6049(a), the Secretary can pre-
scribe regulations toimplement the report-
ing of interest payments, which includes
the determination of the amount of a pay-
ment that is reportable interest. Similarly,
notwithstanding section 6049(d)(6)(A)(i),
under section 6049(a), the Secretary can
prescribe regulations to implement the
reporting of OID, which includes the de-
termination of the amount reportable as
OID (interest).
The Treasury Department and the IRS
believe that the income reporting and
basis reporting rules should be consis-
tent. Therefore, to improve consistency
between income reporting and basis re-
porting and to provide immediate guidance
to brokers and investors, this document
adds temporary regulations under section
6049 to require broker reporting of inter-
est (OID) income to reflect amounts of
amortized bond premium or acquisition
premium for a covered debt instrument.
Under the temporary regulations, for
purposes of section 6049, a broker will as-
sume that a customer has elected to amor-
tize bond premium unless the broker has
been notified that the customer has not
May 13, 201310702013–20 I.R.B.

made the election. It should be noted
that this change applies only to the infor-
mation reported by the broker to its cus-
tomer. Thus, a customer that does not pre-
fer to make the section 171 election can re-
port interest on the customer’s income tax
return unadjusted for bond premium be-
cause the information reporting rules do
not change the substantive rules affecting
bond premium (or any of the other rules
pertaining to OID, market discount, or ac-
quisition premium). Moreover, a customer
can notify a broker that the customer has
not made or has revoked a section 171
election, and the broker is required to re-
flect this fact on the Form 1099-INT and
the Form 1099-B. If a broker is required
to report amounts reflecting amortization
of bond premium, the temporary regula-
tions allow a broker to report either a gross
amount for both stated interest and amor-
tized bond premium or a net amount of
stated interest that reflects the offset of the
stated interest payment by the amount of
amortized bond premium allocable to the
payment.
In addition, under the temporary reg-
ulations, for purposes of section 6049,
a broker must report OID adjusted for
acquisition premiumin accordance with
§1.1272–2 by assuming that a customer
has not elected to amortize acquisition pre-
mium based on a constant yield. However,
if the broker has been notified that the
customer has made an election to amortize
acquisition premium based on a constant
yield, the broker is required to reflect this
fact on the Form 1099-OID and the Form
1099-B. The temporary regulations allow
a broker to report either a gross amount for
both OID and acquisition premium, or a
net amount of OID that reflects the offset
of the OID by the amount of amortized
acquisition premium allocable to the OID.
I.Form 8281
Under §1.1275–3(c) of the current final
regulations, an issuer of a publicly offered
debt instrument issued with OID must
file a Form 8281, “InformationReturnfor
Publicly Offered Original Issue Discount
Instruments,” within 30 days after the issue
date of the debt instrument. The informa-
tion from Form 8281 is used to develop
the tables of OID information that are part
of Publication 1212, “Guide to Original
Issue Discount (OID) Instruments.” To be
publicly offered, a debt instrument gener-
ally must be registered with the Securities
and Exchange Commission as of the in-
strument’s issue date. In many instances,
a debt instrument issued in a private place-
ment is registered with the Securities and
Exchange Commission after the issue date.
As a result, a Form 8281 is not required
to be filed with the IRS and, therefore,
the OID information generally does not
appear in the Publication 1212 tables. A
number of commenters on the proposed
regulations asked that OID information on
more debt instruments be provided in the
tables to Publication 1212. In response
to these comments, the regulations under
§1.1275–3(c) are amended to require the
filing of a Form 8281 for a debt instru-
ment that is part of an issue the offering of
which is registered with the Securities and
Exchange Commission after the issue date
of the debt instrument. The Form 8281
is required to be filed within 30 days of
the date the offering is registered with the
Securities and Exchange Commission.
J.Consideration of Administrative
Burdens Related to Basis Reporting
A number of commenters indicated that
compliance with basis reporting require-
ments and the use of basis and other in-
formation reported by brokers will require
considerable resources and effort on the
part of return preparers and information re-
cipients. The Treasury Department and the
IRS are continuing to review all aspects of
the information reporting process and are
exploring ways to reduce the compliance
burden for both brokers and for informa-
tion recipients.
Effective/Applicability Dates
These regulations are effective when
published in theFederal Registeras fi-
nal regulations. In general, the regulations
regarding reporting of basis and whether
any gain or loss on a sale is long-term or
short-term under section 6045(g) apply to
certain debt instruments acquired on or af-
ter January 1, 2014.See§1.6045–1(n)(2).
In general, for all other debt instruments,
the regulations apply to debt instruments
acquired on or after January 1, 2016.See
§1.6045–1(n)(3). The regulations regard-
ing reporting of gross proceeds, basis, and
whether gain or loss on a sale is long-term
or short-term under section 6045(h) apply
to options granted or acquired on or after
January 1, 2014. The regulations regard-
ing reporting of basis and whether any gain
or loss on a sale is long-term or short-term
apply to securities futures contracts en-
tered into on or after January 1, 2014. In
general, the regulations regarding transfer
reporting for certain debt instruments, op-
tions, and securities futures contracts apply
to transfers occurring on or after January
1, 2015. The regulations regarding trans-
fer reporting for more complex debt instru-
ments apply to transfers occurring on or af-
ter January 1, 2017.See§1.6045A–1(d).
The regulations regarding reporting for is-
suer actions that affect the basis of certain
debt instruments, options, and securities
futures contracts apply to issuer actions oc-
curring on or after January 1, 2014. The
regulations regarding reporting for issuer
actions that affect the basis of more com-
plex debt instrumentsapplytoissuerac-
tions occurring on or after January 1, 2016.
See§1.6045B–1(j). The final regulations
regarding the filing of Form 8281 apply to
a debt instrument that is part of an issue
the offering of which is registered with the
Securities and Exchange Commission on
or after January 1, 2014. The temporary
regulations under section 6049 relating to
the reporting of premium apply to covered
securities acquired on or after January 1,
2014.
Special Analyses
It has been determined that this rule-
making is not a significant regulatory ac-
tion as defined in Executive Order 12866,
as supplemented by Executive Order
13563. Therefore, a regulatory assessment
is not required. It also has been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does
not apply to these regulations, and because
the temporary regulations do not impose a
collection of information on small entities,
the Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply to the temporary
regulations.
Pursuant to the Regulatory Flexibility
Act (5 U.S.C. chapter 6), it is hereby certi-
fied that the final regulations in this docu-
ment will not have a significant economic
impact on a substantial number of small
entities. Any effect on small entities by the
rules in the final regulations flows directly
from section 403 of the Act.
2013–20 I.R.B.1071May 13, 2013

Section 403(a) of the Act modifies sec-
tion 6045 to require that, when reporting
the sale of a covered security, brokers re-
port the adjusted basis of the security and
whether any gain or loss with respect to the
security is long-term or short-term. The
Act also requires gross proceeds report-
ing for options. It is anticipated that these
statutory requirementswill fall only on fi-
nancial services firms with annual receipts
greater than $7 million and, therefore, on
no small entities. Further, in implementing
the statutory requirements, the final regu-
lations generally limit reporting to infor-
mation required under the Act.
Section 403(a) of the Act requires a bro-
ker to report the adjusted basis of a debt
instrument that is a covered security. The
holder of a debt instrument is permitted to
make a number of elections that affect how
basis is computed. To minimize the need
for reconciliation between information re-
ported by a broker to both a customer and
the IRS and the amounts reported on the
customer’s tax return, the final regulations
require a broker to take into account cer-
tain specified elections in reporting infor-
mation to the customer. Therefore, un-
der the final regulations, a customer must
provide certain information concerning an
election to the broker in a written notifica-
tion, which includes a writing in electronic
format. It is anticipated that this collection
of information will not fall on a substantial
number of small entities. Further, the final
regulations generally implement the statu-
tory requirements for reporting adjusted
basis. Moreover, any economic impact is
expected to be minimal because it should
take a customer no more than seven min-
utes to satisfy the information-sharing re-
quirement in these final regulations.
Section 403(c) of the Act added sec-
tion 6045A, which requires applicable per-
sons to furnish a transfer statement in con-
nection with the transfer of custody of a
covered security. The modifications to
§1.6045A–1 effectuate the Act by giving
the broker who receives the transfer state-
ment the information necessary to deter-
mine and report adjusted basis and whether
any gain or loss with respect to a debt in-
strument or option is long-term or short-
term as required by section 6045 when
the security is subsequently sold. Conse-
quently, the final regulations do not add
to the impact on small entities imposed by
the statutory scheme. Instead, it limits the
informationtobereportedtoonlythose
items necessary to effectuate the statutory
scheme.
Section 403(d) of the Act added sec-
tion 6045B, which requires issuer report-
ing by all issuers of specified securities re-
gardless of size and even when the secu-
rities are not publicly offered. The modi-
fications to §1.6045B–1 limit reporting to
the additional information for debt instru-
ments and options necessary to meet the
Act’s requirements. Additionally, the fi-
nal regulations, as modified, retain the rule
that permits an issuer to report each ac-
tion publicly instead of filing a return and
furnishing each nominee or holder a state-
ment about the action. The final regula-
tions therefore do not add to the statutory
impact on small entities but instead eases
this impact to the extent the statute permits.
Therefore, because the final regulations
in this document will not have a significant
economic impact on a substantial number
of small entities, a regulatory flexibility
analysis is not required.
Pursuant to section 7805(f) of the Code,
the proposed regulations preceding the fi-
nal regulations in this document were sub-
mitted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on their impact on small busi-
ness, and no comments were received. In
addition, the proposed regulations accom-
panying the section 6049 temporary reg-
ulations in this document have been sub-
mitted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on their impact on small busi-
ness.
Drafting Information
The principal author of these regula-
tions is Pamela Lew, Office of Associate
Chief Counsel (Financial Institutions and
Products). However, other personnel from
the IRS and the Treasury Department
participated in their development.
*****
Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.6049–9T also issued under 26
U.S.C. 6049(a). * * *
Par. 2. Section 1.1271–0(b) is amended
by adding an entry for §1.1275–3(c)(4) to
read as follows:
§1.1271–0 Original issue discount;
effective date; table of contents.
*****
(b) * * *
*****
§1.1275–3 OID information reporting
requirements.
*****
(c) * * *
(4) Subsequent registration.
*****
Par. 3. Section 1.1275–3 is amended by
adding paragraph (c)(4) to read as follows:
§1.1275–3 OID information reporting
requirements.
*****
(c) * * *
(4)Subsequent registration. Except as
provided in paragraph (c)(3) or (d) of this
section, the information reporting require-
ments of paragraph (c)(1) of this section
apply to any debt instrument that has orig-
inal issue discount if the instrument is part
of an issue the offering of which is reg-
istered with the Securities and Exchange
Commission (SEC) after the issue date of
the debt instrument. For example, this
paragraph (c)(4) applies to a newly issued
debt instrument (B bond) exchanged for
an otherwise identical non-SEC-registered
debt instrument (A bond) if the B bond is
part of an issue the offering of which is reg-
istered with the SEC and the B bond has
an issue date that is the same as the issue
date of the A bond for federal tax purposes
because the exchange is not a realization
event under §1.1001–3. If a debt instru-
ment is subject to this paragraph (c)(4), the
prescribed form (Form 8281 or any succes-
sor) must be filed with the Internal Rev-
enue Service within 30 days after the date
the offering is registered with the SEC.
May 13, 201310722013–20 I.R.B.

This paragraph (c)(4) applies to a debt in-
strument that is part of an issue the offering
of which is registered with the SEC on or
after January 1, 2014.
*****
Par. 4. Section 1.6045–1 is amended
by:
1. Revising paragraphs (a)(3)(v)
and (a)(3)(vi) and adding paragraphs
(a)(3)(vii) and (a)(3)(viii).
2. Revising paragraphs (a)(8) and
(a)(9).
3. Revising paragraphs (a)(14) and
(a)(15)(i)(A).
4.Redesignating paragraph
(a)(15)(i)(C) as paragraph (a)(15)(i)(G)
and adding new paragraphs (a)(15)(i)(C)
through (a)(15)(i)(F).
5. Adding a new sentence at the end of
paragraph (a)(15)(ii).
6. Adding new paragraphs (a)(17) and
(a)(18).
7. Adding two new sentences at the
end of paragraph (c)(3)(vii)(C) and adding
a new sentence at the end of paragraph
(c)(3)(vii)(D).
8. Adding a new sentence at the end
of paragraph (c)(3)(x) and revising the first
two sentences in paragraph (c)(3)(xi)(C).
9. Adding new paragraph (c)(3)(xiii).
10. Revising the last sentence of para-
graph (c)(4)Example 9(i).
11. Adding two new sentences at the
end of paragraph (d)(2)(i) and revising
paragraph (d)(2)(ii) and the first sentence
of paragraph (d)(2)(iii).
12. Revising paragraph (d)(3).
13. Removing the first four sentences
of paragraph (d)(5) and adding six sen-
tences in their place.
14. Revising the second sentence and
adding two new sentences at the end of
paragraph (d)(6)(i).
15. Removing the first three sentences
of paragraph (d)(6)(ii)(A) and adding five
sentences in their place.
16. Revising the heading for paragraph
(d)(6)(ii)(B).
17. Revising the last sentence of para-
graph (d)(6)(iii)(A).
18. Revising paragraph (d)(6)(iv).
19. Revising paragraph (d)(6)(vii)Ex-
ample 4.
20. Revising the second sentence of
paragraph (d)(7)(i).
21. Removing the first sentence of
paragraph (d)(8)(i)(A) and adding a sen-
tence and a parenthetical phrase in its
place.
22. Adding paragraphs (m) and (n).
The additions and revisions read as fol-
lows:
§1.6045–1 Returns of information of
brokers and barter exchanges.
(a) * * *
(3) * * *
(v) An interest in or right to purchase
anyoftheforegoinginconnectionwiththe
issuance thereof from the issuer or an agent
of the issuer or from an underwriter that
purchases any of the foregoing from the
issuer;
(vi) An interest in a security described
in paragraph (a)(3)(i) or (iv) of this section
(but not including executory contracts that
require delivery of such type of security);
(vii) An option described in paragraph
(m)(2) of this section; or
(viii) A securities futures contract.
*****
(8) The termclosing transactionmeans
a lapse, expiration,settlement, abandon-
ment, or other termination of a position.
For purposes of the preceding sentence, a
position includes a right or an obligation
under a forward contract, a regulated fu-
tures contract, a securities futures contract,
or an option.
(9) The termsalemeans any disposi-
tion of securities, commodities, options,
regulated futures contracts, securities fu-
tures contracts, or forward contracts, and
includes redemptions of stock, retirements
of debt instruments (including a partial re-
tirement attributable to a principal pay-
ment received on or after January 1, 2014),
and enterings into short sales, but only to
the extent any of these actions are con-
ducted for cash. In the case of an option, a
regulated futures contract, a securities fu-
tures contract, or a forward contract, a sale
includes any closing transaction. When a
closing transaction for a contract described
in section 1256(b)(1)(A) involves making
or taking delivery, there are two sales, one
resultinginprofitorlossonthecontract,
and a separate sale on the delivery. When a
closing transaction for a contract described
in section 988(c)(5) involves making de-
livery, there are two sales, one resulting in
profit or loss on the contract, and a separate
sale on the delivery. For purposes of the
preceding sentence, a broker may assume
that any customer’s functional currency is
the U.S. dollar. When a closing transac-
tion in a forward contract involves making
or taking delivery, the broker may treat the
delivery as a sale without separating the
profit or loss on the contract from the profit
or loss on the delivery, except that taking
delivery for United States dollars is not a
sale. The termsaledoes not include en-
tering into a contract that requires delivery
of personal property or an interest therein,
the initial grant or purchase of an option,
or the exercise of a purchased call option
for physical delivery (except for a contract
described in section 988(c)(5)). For pur-
poses of this section only, a constructive
sale under section 1259 and a mark to fair
market value under section 475 or 1296 are
not sales.
*****
(14) The termspecified securitymeans:
(i) Any share of stock (or any inter-
est treated as stock, including, for exam-
ple, an American Depositary Receipt) in
an entity organized as, or treated for Fed-
eral tax purposes as, a corporation, either
foreign or domestic (provided that, solely
for purposes of this paragraph (a)(14)(i), a
security classified as stock by the issuer is
treated as stock, and if the issuer has not
classified the security, the security is not
treated as stock unless the broker knows
that the security is reasonably classified
as stock under general Federal tax princi-
ples);
(ii) Any debt instrument described in
paragraph (a)(17) of this section, other
than a debt instrument subject to section
1272(a)(6) (certain interests in or mort-
gages held by a REMIC, certain other debt
instruments with payments subject to ac-
celeration, and poolsof debt instruments
the yield on which may be affected by
prepayments) or a short-term obligation
described in section 1272(a)(2)(C);
(iii) Any option described in paragraph
(m)(2) of this section; or
(iv) Any securities futures contract.
(15) * * *
(i) * * *
(A) A specified security described in
paragraph (a)(14)(i) of this section ac-
quired for cash in an account on or after
January 1, 2011, except stock for which
the average basis method is available un-
der §1.1012–1(e).
*****
2013–20 I.R.B.1073May 13, 2013

(C) A specified security described in
paragraphs (a)(14)(ii) and (n)(2)(i) of this
section (not including the debt instruments
described in paragraph (n)(2)(ii) of this
section) acquired for cash in an account on
or after January 1, 2014.
(D) A specified security described in
paragraphs (a)(14)(ii) and (n)(3) of this
section acquired for cash in an account on
or after January 1, 2016.
(E) An option described in paragraph
(a)(14)(iii) of this section granted or ac-
quired for cash in an account on or after
January 1, 2014.
(F) A securities futures contract de-
scribed in paragraph (a)(14)(iv) of this
section entered into in an account on or
after January 1, 2014.
*****
(ii) * * * Acquiring a security in an
account includes granting an option and
entering into a short sale.
*****
(17) For purposes of this section, the
termsdebt instrument,bond,debt obliga-
tion,andobligationmean a debt instru-
ment as defined in §1.1275–1(d) and any
instrument or position that is treated as
a debt instrument under a specific pro-
vision of the Internal Revenue Code (for
example, a regular interest in a REMIC
as defined in section 860G(a)(1) and
§1.860G–1). Solely for purposes of this
section, a security classified as debt by the
issuer is treated as debt. If the issuer has
not classified the security, the security is
not treated as debt unless the broker knows
that the security is reasonably classified as
debt under general Federal tax principles
or that the instrument or position is treated
as a debt instrument under a specific pro-
vision of the Internal Revenue Code.
(18) For purposes of this section, the
termsecurities futures contractmeans a
contract described in section 1234B(c)
whose underlying asset is described in
paragraph (a)(14)(i) of this section and
which is entered into on or after January
1, 2014.
*****
(c) * * *
(3) * * *
(vii) * * *
(C) * * * The preceding sentence does
not apply to a debt instrument issued on
or after January 1, 2014. For a short-term
obligation issued on or after January 1,
2014, see paragraph (c)(3)(xiii) of this sec-
tion.
(D) * * * The preceding sentence does
not apply to a debt instrument issued on or
after January 1, 2014.
*****
(x)Certain retirements. * * * The pre-
ceding sentence does not apply to a debt
instrument issued on or after January 1,
2014.
(xi) * * *
(C)Short sale obligation transferred
to another account. If a short sale obli-
gation is satisfied by delivery of a secu-
rity transferred into a customer’s account
accompanied by a transfer statement (as
described in §1.6045A–1(b)(7)) indicating
that the security was borrowed, the broker
receiving custody of the security may not
file a return of information under this sec-
tion. The receiving broker must furnish a
statement to the transferor that reports the
amount of gross proceeds received from
the short sale, the date of the sale, the quan-
tity of shares, units, or amounts sold, and
the Committee on Uniform Security Iden-
tification Procedures (CUSIP) number of
the sold security (if applicable) or other se-
curity identifier number that the Secretary
may designate by publication in theFed-
eral Registeror in the Internal Revenue
Bulletin (see §601.601(d)(2) of this chap-
ter). ***
*****
(xiii)Short-term obligations issued on
or after January 1, 2014. Noreturnof
information is required under this section
with respect to a sale (including a retire-
ment) of a short-term obligation, as de-
scribed in section 1272(a)(2)(C), that is is-
sued on or after January 1, 2014.
(4) * * *
Example 9. (i)***Nindicateson
the transfer statement that the transferred
stock was borrowed in accordance with
§1.6045A–1(b)(7).
*****
(d) * * *
(2)Transactional reporting—(i)Re-
quired information. * * * In addition, for
a sale of a covered security on or after
January 1, 2014, a broker must report on
Form 1099-B whether any gain or loss is
ordinary. See paragraph (m) of this section
for additional rules related to options and
paragraph (n) of this section for additional
rules related to debt instruments.
(ii)Specific identification of securities.
Except as provided in §1.1012–1(e)(7)(ii),
for a specified security described in para-
graph (a)(14)(i) of this section sold on or
after January 1, 2011, or for a specified
security described in paragraph (a)(14)(ii)
ofthissectionsoldonorafterJanuary1,
2014, a broker must report a sale of less
than the entire position in an account of
a specified security that was acquired on
different dates or at different prices con-
sistently with a customer’s adequate and
timely identification of the security to be
sold.See§1.1012–1(c). If the customer
does not provide an adequate and timely
identification for the sale, the broker must
first report the sale of securities in the ac-
count for which the broker does not know
the acquisition or purchase date followed
by the earliest securities purchased or ac-
quired, whether covered securities or non-
covered securities.
(iii)Sales of noncovered securities.A
broker is not required to report adjusted ba-
sis and the character of any gain or loss for
the sale of a noncovered security if the re-
turn identifies the sale as a sale of a non-
covered security. * * *
*****
(3)Sales between interest payment
dates. For each sale of a debt instrument
prior to maturity with respect to which
abrokerisrequiredtomakeareturnof
information under this section, a broker
must show separately on Form 1099 the
amount of accrued and unpaid qualified
stated interest as of the sale date that must
be reported by the customer as interest in-
come under §1.61–7(d).See§1.1273–1(c)
for the definition of qualified stated in-
terest. Such interest information must be
shown in the manner and at the time re-
quired by Form 1099 and section 6049.
*****
(5)Gross proceeds. For purposes of
this section,gross proceedson a sale are
the total amount paid to the customer or
credited to the customer’s account as a re-
sult of the sale reduced by the amount of
any qualified stated interest reported un-
der paragraph (d)(3) of this section and in-
creased by any amount not paid or credited
by reason of repayment of margin loans. In
the case of a closing transaction (other than
a closing transaction related to an option)
that results in a loss, gross proceeds are the
amount debited from the customer’s ac-
May 13, 201310742013–20 I.R.B.

count. For sales before January 1, 2014, a
broker may, but is not required to, reduce
gross proceeds by the amount of commis-
sions and transfer taxes, provided the treat-
ment chosen is consistent with the books of
the broker. For sales on or after January 1,
2014, a broker must reduce gross proceeds
by the amount of commissions and transfer
taxes related to the sale of the security. For
securities sold pursuant to the exercise of
an option granted or acquired before Jan-
uary 1, 2014, a broker may, but is not re-
quired to, take the option premiums into
account in determining the gross proceeds
of the securities sold, provided the treat-
ment chosen is consistent with the books
of the broker. For securities sold pursuant
to the exercise of an option granted or ac-
quired on or after January 1, 2014, or for
the treatment of an option granted or ac-
quired on or after January 1, 2014, see
paragraph (m) of this section. * * *
(6)Adjusted basis—(i)In general.*
* * A broker is not required to consider
transactions or events occurring outside
the account except for an organizational
action taken by an issuer during the pe-
riod the broker holds custody of the se-
curity (beginning with the date that the
broker receives a transferred security) re-
ported on an issuer statement (as described
in §1.6045B–1) furnished or deemed fur-
nished to the broker. Except as otherwise
provided in paragraph (n) of this section, a
broker is not required to consider customer
elections. For rules related to the adjusted
basis of a debt instrument, see paragraph
(n) of this section.
(ii)Initial basis—(A)Cost basis.Fora
security acquired forcash, the initial basis
generally is the total amount of cash paid
by the customer or credited against the cus-
tomer’s account for the security, increased
by the commissions and transfer taxes re-
lated to its acquisition. A broker may, but
is not required to, take option premiums
into account in determining the initial ba-
sis of securities purchased or acquired pur-
suant to the exercise of an option granted
or acquired before January 1, 2014. For
rules related to optionsgranted or acquired
on or after January 1, 2014, see paragraph
(m) of this section. A broker may, but is
not required to, increase initial basis for
income recognized upon the exercise of a
compensatory option or the vesting or ex-
ercise of other equity-based compensation
arrangements, granted or acquired before
January 1, 2014. A broker may not in-
crease initial basis for income recognized
upon the exercise of a compensatory op-
tion or the vesting or exercise of other
equity-based compensation arrangements,
granted or acquired on or after January 1,
2014. * * *
(B)Basis of transferred securities***
*****
(iii)Adjustments for wash sales—(A)
In general. * * * The broker must in-
crease the basis of the purchased security
by the amount of loss disallowed on the
sale transaction.
*****
(iv)Certain adjustments not taken
into account. A broker is not required to
applysection1259(regardingconstruc-
tive sales), section 475 (regarding the
mark-to-market method of accounting),
section 1296 (regarding the mark-to-mar-
ket method of accounting for marketable
stockinapassiveforeigninvestment
company), or section 1092 (regarding
straddles) when reporting adjusted basis.
*****
(vii)***
Example 4. R, an employee of C, a corpora-
tion, participates in C’s stock option plan. On April
2, 2014, C grants R a nonstatutory option under the
plan to buy 100 shares of stock. The option becomes
substantially vested on April 2, 2015. On October
2, 2015, R exercises the option and purchases 100
shares. On December 2, 2015, R sells the 100 shares.
Under paragraph (d)(6)(ii)(A) of this section, C is re-
quired to determine adjusted basis from the amount
R pays under the terms of the option. Under para-
graph (d)(6)(ii)(A) of this section, C is not permitted
to adjust basis for any amount R must include as wage
income with respect to the October 2, 2015, stock pur-
chase.
(7)Long-term or short-term gain or
loss—(i)In general. ***Abroker
is not required to consider transactions,
elections, or events occurring outside the
account except for an organizational ac-
tiontakenbyanissuerduringtheperiod
the broker holds custody of the security
(beginning with the date that the broker
receives a transferred security) reported
on an issuer statement (as described in
§1.6045B–1) furnished or deemed fur-
nished to the broker.
*****
(8)Conversion into United States dol-
lars of amounts paid or received in for-
eign currency—(i)Conversion rules—(A)
When a payment other than a payment
of interest is made in a foreign currency,
a broker must determine the U.S. dollar
amount of the payment by converting the
foreign currency into U.S. dollars on the
date it receives, credits, or makes the pay-
ment, as applicable, at the spot rate (as de-
fined in §1.988–1(d)(1)) or pursuant to a
reasonable spot rate convention. (For in-
terest payments, see paragraph (n)(4)(v) of
this section concerning a customer’s spot
rate election.) * * *
*****
(m)Additional rules for option transac-
tions—(1)In general. This paragraph (m)
provides rules for a broker to determine
and report the information required under
this section for an option that is a covered
security under paragraph (a)(15)(i)(E) of
this section.
(2)Scope—(i)In general. Paragraph
(m) of this section applies to the following
types of options granted or acquired on or
after January 1, 2014:
(A) An option on one or more specified
securities (which includes an index sub-
stantially all the components of which are
specified securities);
(B) An option on financial attributes of
specified securities, such as interest rates
or dividend yields; or
(C) A warrant or a stock right.
(ii)Delayed effective date for cer-
tain options. Notwithstanding paragraph
(m)(2)(i) of this section, if an option, stock
right, or warrant is issued as part of an in-
vestment unit described in §1.1273–2(h),
paragraph (m) of this section applies to
the option, stock right, or warrant if it is
acquired on or after January 1, 2016.
(iii)Compensatory option.Notwith-
standing paragraphs (m)(2)(i) and
(m)(2)(ii) of this section, paragraph (m)
of this section does not apply to compen-
satory options.
(3)Option subject to section 1256.If
an option described in paragraph (m)(2)
of this section is also described in sec-
tion 1256(b), a broker must apply the rules
described in paragraph (c)(5) of this sec-
tion by treating the option as if it were a
regulated futures contract and must report
the information required under paragraph
(c)(5) of this section. A broker is permit-
ted, but not required, to report the amounts
for options and the amounts for regulated
futures contracts determined under para-
graph (c)(5) of this section as a net amount
for each reportable item.
2013–20 I.R.B.1075May 13, 2013

(4)Option not subject to section 1256.
The following rules apply to an option that
is described in paragraph (m)(2) of this
section but is not also described in para-
graph (m)(3) of this section:
(i)Physical settlement. For purposes of
paragraph (d) of this section, if a specified
security (other than an option) is acquired
or disposed of pursuant to the exercise of
an option, the broker must adjust the basis
of the acquired asset or the gross proceeds
amount as appropriate to account for any
payment related to the option, including
the premium.
(ii)Cash settlement. For purposes of
paragraph (d) of this section, for an option
that is settled for cash, a broker must re-
flect on Form 1099-B all payments made
or received on the option. For a purchased
option, a broker must report as basis the
premium paid plus any costs (for example,
commissions) relatedtotheacquisitionof
the option and must report as proceeds the
gross proceeds from settlement minus any
costs related to the settlement of the op-
tion. For a written option, a broker must
report as proceeds the premium received
decreased by any amounts paid on the op-
tion and report $0 as the basis of the option.
(iii)Rules for warrants and stock rights
acquiredinasection305distribution.For
a right (including a warrant) to acquire
stock received in the same account as the
underlying security in a distribution that is
describedinsection305(a),abrokerisper-
mitted, but not required, to apply the rules
describedinsections305and307whenre-
porting or accounting for the basis of the
option and the underlying equity. If a stock
right or warrant is acquired from the initial
distributee, the buyer or transferee must
treat it as an option covered by either para-
graph (m)(4)(i) or (m)(4)(ii) of this section.
(iv)Examples. The following examples
illustrate the rules in this paragraph (m)(4):
Example 1. (i) On January 15, 2014, C, an indi-
vidual who is neither a dealer nor a trader in securi-
ties, writes a 2-year exchange-traded option on 100
shares of Company X through Broker D. C receives a
premium for the option of $100 and pays no commis-
sion. In C’s hands, the option produces capital gain
or loss and Company X stock is a capital asset. On
December 16, 2014, C pays $110 to close out the op-
tion.
(ii) D is required to report information about the
closing transaction because the option is a covered
security as described in paragraph (a)(15)(i)(E) of
this section and was part of a closing transaction de-
scribed in paragraph (a)(8) of this section. Under
paragraph (m)(4)(ii) of this section, D must report as
gross proceeds on C’s Form1099-B -$10(the $100
received as option premium minus the $110 C paid to
close out the option) and report $0 in the basis box on
the Form 1099-B. Under section 1234(b)(1) and para-
graph (d)(2) of this section, D must also report the
loss on the closing transaction as a short-term capital
loss.
Example 2. (i) On January 15, 2014, E, an indi-
vidual who is neither a dealer nor a trader in secu-
rities, buys a 2-year exchange-traded option on 100
shares of Company X through Broker F. E pays a pre-
mium of $100 for the option and pays no commission.
In E’s hands, both the option and Company X stock
are capital assets. On December 16, 2014, E receives
$110 to close out the option.
(ii) F is required to report information about the
closing transaction because the option is a covered
security as described in paragraph (a)(15)(i)(E) of
this section and was part of a closing transaction de-
scribed in paragraph (a)(8) of this section. Because
the option is on the shares of a single company, it is
an equity option described in section 1256(g)(6) and
is not described in section 1256(b)(1)(C). Therefore,
the rules of paragraph (m)(3) of this section do not ap-
ply, and F must report under paragraph (m)(4) of this
section. Under paragraph (m)(4)(ii) of this section,
F must report $110 as gross proceeds on the Form
1099-B for the gross proceeds E received and $100 in
the basis box on the Form 1099-B to reflect the $100
option premium paid. Under section 1234(b)(1) and
paragraph (d)(2) of this section, F must also report the
gain on the closing transaction as a short-term capital
gain.
(5)Multiple options documented in a
single contract. If more than one option
described in paragraph (m)(2) of this sec-
tion is documented in asingle contract, a
broker must separately report the required
information for each option as that option
is sold.
(6)Determination of index status.
Penalties will not be asserted under sec-
tions 6721 and 6722 if a broker in good
faith determines that an index is, or is not,
a narrow-based index described in section
1256(g)(6) and reports in a manner con-
sistent with this determination.
(n)Reporting for debt instrument trans-
actions—(1)In general. For purposes of
this section, this paragraph (n) provides
rules for a broker to determine and re-
port information for a debt instrument
that is a covered security under paragraph
(a)(15)(i)(C) or (D) of this section. Nei-
ther a debt instrument subject to section
1272(a)(6) nor a short-term obligation
described in section 1272(a)(2)(C) is sub-
ject to this paragraph (n) because neither
is a specified security under paragraph
(a)(14)(ii) of this section (a requirement
for a debt instrument to be a covered se-
curity).
(2)Debt instruments subject to January
1, 2014, reporting—(i)In general.For
purposes of paragraph (a)(15)(i)(C) of this
section, except as provided in paragraph
(n)(2)(ii) of this section, a debt instrument
is described in this paragraph (n)(2)(i) if
the debt instrument is one of the following:
(A) A debt instrument that provides for
a single fixed payment schedule for which
a yield and maturity can be determined for
the instrument under §1.1272–1(b);
(B) A debt instrument that provides for
alternate payment schedules for which a
yield and maturity can be determined for
the instrument under §1.1272–1(c); or
(C) A debt instrument for which the
yield of the debt instrument can be deter-
mined under §1.1272–1(d).
(ii)Exceptions. A debt instrument is
not described in paragraph (n)(2)(i) of this
section if the debt instrument is one of the
following:
(A) A debt instrument that provides for
more than one rate of stated interest (in-
cluding a debt instrument that provides for
stepped interest rates);
(B) A convertible debt instrument de-
scribed in §1.1272–1(e);
(C) A stripped bond or stripped coupon
subject to section 1286;
(D) A debt instrument that requires pay-
ment of either interest or principal in a cur-
rency other than the U.S. dollar;
(E) A debt instrument that, at one or
more times in the future, entitles a holder
to a tax credit;
(F) A debt instrument that provides for
a payment-in-kind (PIK) feature (that is,
under the terms of the debt instrument, a
holder may receive one or more additional
debt instruments of the issuer);
(G) A debt instrument issued by a non-
U.S. issuer;
(H) A debt instrument for which the
terms of the instrument are not reasonably
available to the broker within 90 days of
the date the debt instrument was acquired
by the customer;
(I) A debt instrument that is issued as
part of an investment unit described in
§1.1273–2(h); or
(J) A debt instrument evidenced by a
physical certificate unless such certificate
is held (whether directly or through a nom-
inee, agent, or subsidiary) by a securities
depository or by a clearing organization
described in §1.1471–1(b)(18).
May 13, 201310762013–20 I.R.B.

(iii)Remote or incidental. For purposes
of paragraphs (n)(2)(i) and (n)(2)(ii) of this
section, a remote or incidental contingency
(as determined under §1.1275–2(h)) is ig-
nored.
(iv)Penalty rate. For purposes of para-
graph (n)(2)(ii)(A) of this section, a debt
instrument does not provide for more than
one rate of stated interest merely because
the instrument provides for a penalty inter-
est rate or an adjustment to the stated inter-
est rate in the event of a default or similar
event.
(3)Debt instruments subject to Jan-
uary 1, 2016, reporting. For purposes
of paragraph (a)(15)(i)(D) of this sec-
tion, a debt instrument is described in
this paragraph (n)(3) if it is described in
paragraph(n)(2)(ii)ofthissectionorit
otherwise is not described in paragraph
(n)(2)(i) of this section. For example, this
paragraph (n)(3) applies to variable rate
debt instruments, inflation-indexed debt
instruments, and contingent payment debt
instruments because these instruments are
not described in paragraph (n)(2)(i) of this
section.
(4)Holder elections. For purposes of
this section, a broker is required to take
into account an election described in this
paragraph (n)(4), and the broker must take
the election into account in accordance
with the rules in paragraph (n)(5) of this
section. A broker, however, may not take
into account any other election.
(i)Electiontoamortizebondpre-
mium. An election under section 171 and
§1.171–4 to amortize bond premium on
a taxable debt instrument (this election
applies to all taxable debt instruments held
by a taxpayer during the taxable year the
election is effective and thereafter; this
election may be revoked with the consent
of the Commissioner).
(ii)Election to currently include ac-
crued market discount. An election under
section 1278(b) to include market discount
in income as it accrues (this election ap-
plies to all debt instruments acquired by a
taxpayer during the taxable year the elec-
tion is effective and thereafter; this elec-
tion may be revoked with the consent of
the Commissioner).
(iii)Election to accrue market discount
based on a constant yield.Anelectionun-
der section 1276(b)(2) to compute accruals
of market discount using a constant yield
method (this election is generally made
on an instrument-by-instrument basis and
must be made for the earliest taxable year
for which the taxpayer is required to deter-
mine accrued market discount on the debt
instrument; this election may not be re-
voked).
(iv)Election to treat all interest as OID.
An election under §1.1272–3 to treat all
interest on a taxable debt instrument (ad-
justed for any acquisition premium or pre-
mium) as original issue discount (this elec-
tion is generally made on an instrument-
by-instrument basis and must be made for
the taxable year the debt instrument is ac-
quired by the taxpayer; this election may
be revoked with the consent of the Com-
missioner).
(v)Election to translate interest income
and expense at the spot rate. An elec-
tion under §1.988–2(b)(2)(iii)(B) to trans-
late interest income and expense at the spot
rate on the last day of the interest accrual
period or, in the case of a partial accrual pe-
riod, the last day of the taxable year (this
election applies to all taxable debt instru-
ments held by a taxpayer during the tax-
able year the election is effective and there-
after; this election may be revoked with the
consent of the Commissioner).
(5)Broker assumptions and customer
notice to brokers—(i)Broker assump-
tions if the customer does not notify the
broker. Except as provided in paragraph
(n)(5)(ii)(A) of this section, a broker must
report the information required under para-
graph (d) of this section by assuming that
a customer has made the election to amor-
tize bond premium described in paragraph
(n)(4)(i) of this section. In addition, ex-
cept as provided in paragraph (n)(5)(ii)(B)
of this section, a broker must report the
information required under paragraph (d)
of this section by assuming that a customer
has not made an election described in
paragraph (n)(4)(ii), (n)(4)(iii), (n)(4)(iv),
or (n)(4)(v) of this section.
(ii)Effect of customer notification of
an election or revocation—(A)Election to
amortize bond premium. If a customer
notifies a broker in writing that the cus-
tomer does not want the broker to take
into account the election to amortize bond
premium, the broker must report the in-
formation required under paragraph (d) of
this section without taking into account the
election to amortize bond premium. The
customer must provide this notification to
the broker by the end of the calendar year
for which the customer does not want to
amortize bond premium. If for a subse-
quent calendar year, the customer wants
the broker to take into account the elec-
tion to amortize bond premium, the cus-
tomer must notify the broker in writing by
the end of the calendar year that the cus-
tomer wants to amortize bond premium.
If the customer provides such notification,
the broker must report the information re-
quired under paragraph (d) of this section
as if the customer made the election to
amortize bond premium for that year.
(B)Other debt elections. If a customer
notifies a broker in writing that the cus-
tomer has made or will make an election
described in paragraph (n)(4)(ii), (iii), (iv),
or (v) of this section, the broker must report
the information required under paragraph
(d) of this section by taking into account
the election. A customer must notify the
broker in writing of the election by the end
of the calendar year in which a debt instru-
ment subject to the election is acquired in,
or transferred into, an account with the bro-
ker or, if later, by the end of the calendar
year for which the election is effective. If
a customer has revoked or will revoke an
election described in paragraph (n)(4)(ii),
(n)(4)(iv), or (n)(4)(v) of this section for a
calendar year, the customer must notify the
broker of the revocation in writing by the
end of the calendar year for which the re-
vocation is effective. If the customer pro-
vides such notification, the broker must re-
port the information required under para-
graph (d) of this section by taking into ac-
count the revocation.
(iii)Electronic notification.Forpur-
poses of paragraph (n)(5)(ii) of this sec-
tion, the written notification to the broker
includes a writing in electronic format.
(6)Reportingofaccruedmarketdis-
count. In addition to the information re-
quired to be reported under paragraph (d)
of this section, if a debt instrument is sub-
ject to the market discount rules in sections
1276 through 1278, a broker also must
report the information described in para-
graph (n)(6)(i) or (n)(6)(ii) of this section,
whichever is applicable. Such information
must be shown in the manner and at the
time required by Form 1099 and section
6045.
(i)Sale. A broker must report the
amount of market discount that has ac-
crued on a debt instrument as of the date of
the instrument’s sale, as defined in para-
2013–20 I.R.B.1077May 13, 2013

graph (a)(9) of this section. See paragraph
(n)(5) of this section to determine whether
the amount reported should take into ac-
count a customer election under section
1276(b)(2). See paragraph (n)(8) of this
section to determine the accrual period to
be used to compute the accruals of market
discount. This paragraph (n)(6)(i) does
not apply if the customer notifies the bro-
ker under the rules in paragraph (n)(5) of
this section that the customer elects under
section 1278(b) to include market discount
in income as it accrues.
(ii)Current inclusion election.Ifa
customer notifies a broker under the rules
in paragraph (n)(5) of this section that the
customer elects under section 1278(b) to
include market discount in income as it
accrues, the broker is required to report to
the customer the amount of market dis-
count that accrued on a debt instrument
during a taxable year while held by the
customer in the account. The broker also
must adjust basis in accordance with sec-
tion 1278(b)(4). If a customer notifies a
broker under the rules in paragraph (n)(5)
of this section that the customer is revok-
ing its election under section 1278(b), the
broker will not report the market discount
accrued during the taxable year of the
revocation and thereafter and will cease
to adjust basis in accordance with section
1278(b)(4). See paragraph (n)(8) of this
section to determine the accrual period to
be used to compute the accruals of market
discount.
(7)Adjusted basis. For purposes of this
section, a broker must use the rules in para-
graph (n) of this section to determine the
adjusted basis of adebt instrument.
(i)Original issue discount.Ifadebt
instrument is subject to the original issue
discount rules in sections 1271 through
1275, section 1286, or section 1288, a bro-
ker must increase a customer’s basis in the
debt instrument by the amount of original
issue discount that accrued on the debt in-
strument while held by the customer in the
account. See paragraph (n)(8) of this sec-
tion to determine the accrual period to be
used to compute the accruals of original is-
sue discount.
(ii)Amortizable bond premium—(A)
Taxable bond. A broker is required to
adjust the customer’s basis for any taxable
bond acquired at a premium and held in the
account in accordance with §1.1016–5(b).
If a customer, however, informs a broker
under the rules in paragraph (n)(5)(ii)(A)
of this section that the customer does not
want to amortize bond premium, the bro-
ker must not adjust the customer’s basis
for any premium.
(B)Tax-exempt bonds.Abrokerisre-
quired to adjust the customer’s basis for
any tax-exempt obligation acquired at a
premium and held in the account in accor-
dance with §1.1016–5(b).
(iii)Acquisition premium.Ifadebt
instrument is acquired at an acquisi-
tion premium (as determined under
§1.1272–2(b)(3)), a broker must decrease
the customer’s basis in the debt instrument
by the amount of acquisition premium
that is taken into account each year to
reduce the amount of the original issue
discount that is otherwise includible in
the customer’s income for that year.See
§1.1272–2(b)(4) to determine the amount
of the acquisition premium taken into
account each year. However, if a cus-
tomer informs a broker under the rules in
paragraph (n)(5) of this section that the
customer elects under §1.1272–3 to use a
constant yield to amortize the acquisition
premium, then the broker must decrease
the customer’s basis in the debt instrument
by the amount of acquisition premium that
is taken into account each year to reduce
the amount of the original issue discount
that is otherwise includible in the cus-
tomer’s income for that year in accordance
with §1.1272–2(b)(5) and §1.1272–3.
(iv)Market discount. See paragraph
(n)(6) of this section for rules to determine
the adjusted basis of a debt instrument with
market discount.
(v)Principal and certain other pay-
ments. A broker must decrease the cus-
tomer’s basis in a debt instrument by the
amount of any payment made to the cus-
tomer during the period the debt instru-
ment is held in the account, other than a
payment of qualified stated interest as de-
fined in §1.1273–1(c).
(8)Accrual period. For purposes of this
section, a broker generally must use the
same accrual period that is used to report
any original issue discount or stated inter-
est to a customer under section 6049 for a
debt instrument. In any other situation, a
broker must use a semi-annual accrual pe-
riod or, if a debt instrument provides for
scheduled payments of principal or interest
at regular intervals of less than six months
over the entire term of the debt instrument,
a broker must use an accrual period equal
in length to this shorter interval. For ex-
ample, if a debt instrument provides for
monthly payments of interest over the en-
tire term of the debt instrument, the bro-
ker must use a monthly accrual period.
The rules in §1.1272–1(b)(4)(iii) apply for
purposes of an initial short accrual period.
In computing the length of an accrual pe-
riod, any reasonable counting convention
may be used (for example, 30 days per
month/360 days per year, or actual days
per month/365 days per year).
(9)Premium on convertible bond.Ifa
customer acquires a convertible bond (as
defined in §1.171–1(e)(1)(iii)(C)) at a pre-
mium (as determined under §1.171–1(d)),
then, solely for purposes of this section and
§1.6049–9T, a broker must assume that the
premium is attributable to the conversion
feature. Based on this assumption, no por-
tion of the premium is amortizable for pur-
poses of this section and §1.6049–9T.
(10)Effect of broker assumptions on
customer. The rules in this paragraph (n)
only apply for purposes of a broker’s re-
porting obligation under section 6045. A
customer is not bound by the assumptions
that the broker uses to satisfy the broker’s
reporting obligations under section 6045.
In addition, a notification to the broker un-
der paragraph (n)(5) of this section does
not constitute an effective election or re-
vocation under the applicable rules for the
election.
*****
Par. 5. Section 1.6045A–1 is amended
by:
1. Adding new paragraph (a)(1)(vi) and
revising paragraph (b)(1) introductory text
and paragraph (b)(1)(v).
2. Revising the second sentence of
paragraph (b)(1)(vii).
3. Redesignating paragraphs (b)(2)
through (b)(9) as paragraphs (b)(5)
through (b)(12) respectively.
4. Redesignating paragraph (b)(1)(viii)
as paragraph (b)(2).
5. Revising the introductory text to
newly redesignated paragraph (b)(2).
6. Adding new paragraphs (b)(3) and
(b)(4).
7. Revising newly redesignated para-
graph (b)(5).
8. Revising the first and last sentences
of newly redesignated paragraph (b)(6).
May 13, 201310782013–20 I.R.B.

9. Revising newly redesignated para-
graph (b)(8)(ii).
10. Revising the first sentence of newly
redesignated paragraph (b)(9)(ii).
11. Revising the introductory text to
newly redesignated paragraph (b)(9)(iii),
the fifth sentence of paragraph (b)(9)(iii)
Example 1, and the second sentence of
paragraph (b)(9)(iii)Example 2.
12. Revising the last sentence of newly
redesignated paragraph (b)(10).
13. Redesignating the text of newly
redesignated paragraph (b)(12) as para-
graph (b)(12)(i), adding a heading for
newly redesignated paragraph (b)(12)(i),
and adding new paragraph (b)(12)(ii).
14. Revising paragraph (d).
The additions and revisions read as fol-
lows:
§1.6045A–1 Statements of information
required in connection with transfers of
securities.
(a) * * *
(1) * * *
(vi)Section 1256 options. A transferor
of an option described in §1.6045–1(m)(3)
is not required to furnish a transfer state-
ment.
(b)Information required—(1)In gen-
eral. For all specifiedsecurities, each
transfer statement must include the infor-
mation described in this paragraph (b)(1).
*****
(v)Security identifiers. The Committee
on Uniform Security Identification Pro-
cedures (CUSIP) number of the security
transferred (if applicable) or other secu-
rity identifier number that the Secretary
may designate by publication in theFed-
eral Registeror in the Internal Revenue
Bulletin (see§601.601(d)(2) of this chap-
ter), quantity of shares, units, or amounts,
and classification of the security (such as
stock or debt).
*****
(vii)Adjusted basis and acquisition
date.* * * The transferor must deter-
mine this information as provided un-
der §§1.6045–1(d), 1.6045–1(m), and
1.6045–1(n), including reporting the ad-
justed basis of the security in U.S. dollars.
***
(2)Examples. The following examples
illustrate the rules of paragraph (b)(1) of
this section:
*****
(3)Additional information required for
a transfer of a debt instrument. In addi-
tiontotheinformationrequiredinpara-
graph (b)(1) of this section, for a transfer
of a debt instrument that is a covered secu-
rity, the following additional information
is required:
(i) A description of the payment terms
used by the broker to compute any basis
adjustments under §1.6045–1(n);
(ii)Theissuepriceofthedebtinstru-
ment;
(iii) The issue date of the debt instru-
ment (if different from the original acqui-
sition date of the debt instrument);
(iv) The adjusted issue price of the debt
instrument as of the transfer date;
(v) The customer’s initial basis in the
debt instrument;
(vi) Any market discount that has ac-
crued as of the transfer date (as determined
under §1.6045–1(n));
(vii) Any bond premium that has been
amortized as of the transfer date (as deter-
mined under §1.6045–1(n));
(viii) Any acquisition premium that has
been amortized as of the transfer date (as
determined under §1.6045–1(n)); and
(ix) Whether the transferring broker has
computed any of the information described
inthisparagraph(b)(3)bytakingintoac-
count one or more elections described in
§1.6045–1(n), and, if so, which election or
elections were taken into account by the
transferring broker.
(4)Additional information required for
option transfers. In addition to the infor-
mation required in paragraph (b)(1) of this
section, for a transfer of an option that is a
covered security, thefollowing additional
information is required:
(i) The date of grant or acquisition of
the option;
(ii) The amount of premium paid or re-
ceived; and
(iii) Any other information required to
fully describe the option, which may in-
clude a security identifier used by option
exchanges, or details about the underly-
ing asset, quantity covered, exercise type,
strike price, and maturity date.
(5)Format of identification.Anap-
plicable person furnishing a transfer state-
ment and a broker receiving the transfer
statement may agree to combine the in-
formation required in paragraphs (b)(1),
(b)(3), and (b)(4) of this section in any for-
mat or to use a code in place of one or
more required items. For example, a trans-
feror and a receiving broker may agree
touseasinglecodetorepresentthebro-
ker instead of the broker’s name, address,
and telephone number, or may use a secu-
rity symbol or other identification number
or scheme instead of the security identi-
fier required by paragraphs (b)(1), (b)(3),
and (b)(4) of this section. As another ex-
ample, a transferor and a receiving broker
may agree to use a security identifier for an
exchange-traded option if that information
would be sufficient to inform thereceiving
broker of the terms for that option.
(6)Transfers of noncovered securities.
The information described in paragraphs
(b)(1)(vii), (b)(3), (b)(4), (b)(8), and (b)(9)
of this section is not required for a transfer
of a noncovered security if the transfer
statement identifies the security as a non-
covered security. * * * For purposes of
this paragraph (b)(6), a transferor must
treat a security for which a broker makes
a single-account election described in
§1.1012–1(e)(11)(i) as a covered security.
*****
(8) * * *
(ii)Transfers of securities to satisfy a
cash legacy. If a security is transferred
from a decedent or a decedent’s estate to
satisfy a cash legacy, paragraphs (b)(1),
(b)(3), and (b)(4) of this section apply and
paragraph (b)(8)(i) of this section does not
apply.
*****
(9) * * *
(ii)Subsequent transfers of gifts by the
same customer. If a transferor transfers to
a different account of the same customer
a security that a prior transfer statement
reported as a gifted security, the trans-
feror must include on the transfer state-
ment the information described in para-
graph (b)(9)(i) of this section for the date
of the gift to the customer. * * *
(iii)Examples. The following examples
illustrate the rules of this paragraph (b)(9):
Example 1. * * * Under paragraph (b)(9)(i) of
this section, S must provide a transfer statement to T
that identifies the securities as gifted securities and
indicates X’s adjusted basis and original acquisition
date. * * *
Example 2. ***Underparagraph(b)(9)(ii)of
this section, T must provide a transfer statement to
U that identifies the securities as gifted securities and
indicates X’s adjusted basis and original acquisition
date of the stock. * * *
2013–20 I.R.B.1079May 13, 2013

(10) * * * If the customer does not pro-
vide an adequate and timely identification
for the transfer, a transferor must first re-
port the transfer of any securities in the
account for which the transferor does not
know the acquisition or purchase date fol-
lowed by the earliest securities purchased
or acquired, whether covered securities or
noncovered securities.
*****
(12)Failure to receive a complete trans-
fer statement—(i)In general.***
(ii)Transition rules for transfers of
debt instruments, options, and securi-
ties futures contracts. If an option de-
scribed in §1.6045–1(a)(14)(iii), a se-
curities futures contract described in
§1.6045–1(a)(14)(iv), or a debt instru-
ment described in §1.6045–1(a)(15)(i)(C)
is transferred in 2014 and no transfer
statement is received, the receiving bro-
ker is not required to request a transfer
statement from the transferor and may
treat the security as a noncovered se-
curity. If a debt instrument described
in §1.6045–1(a)(15)(i)(D) is transferred
in 2016 and no transfer statement is re-
ceived, the receiving broker is not required
to request a transfer statement from the
transferor and may treat the security as a
noncovered security.
*****
(d)Effective/applicability dates.This
section applies to:
(1) A transfer on or after January 1,
2011, of stock other than stock in a reg-
ulated investment company within the
meaning of §1.1012–1(e)(5);
(2) A transfer on or after January 1,
2012, of stock in a regulated investment
company;
(3) A transfer on or after Jan-
uary 1, 2015, of an option described
in §1.6045–1(a)(14)(iii), a securi-
ties futures contract described in
§1.6045–1(a)(14)(iv), or a debt instrument
described in §1.6045–1(a)(15)(i)(C); and
(4) A transfer on or after January 1,
2017, of a debt instrument described in
§1.6045–1(a)(15)(i)(D).
Par. 6. Section 1.6045B–1 is amended
by:
1. Adding two new sentences at the end
of paragraph (a)(3).
2. Redesignating paragraph (h) as
paragraph (j), adding new paragraph (h),
adding and reserving paragraph (i), and
revising newly-designated paragraph (j).
The additions and revisions read as fol-
lows:
§1.6045B–1 Returns relating to actions
affecting basis of securities.
(a) * * *
(3)Exception for public reporting.**
* An issuer may electronically sign a re-
turn that is publicly reported in accordance
with this paragraph (a)(3). The electronic
signature must identify the individual who
attests to the declaration in the jurat.
*****
(h)Rule for options—(1)In general.
Foranoptiongrantedoracquiredonoraf-
ter January 1, 2014, if the original contract
is replaced by a different number of option
contracts, the following rules apply:
(i) If the option is an exchange-traded
option, any clearinghouse or clearing facil-
ity that serves as a counterparty is treated
as the issuer of the option for purposes of
section 6045B.
(ii) If the option is not an exchange-
traded option, the option writer is treated
as the issuer of the option for purposes of
section 6045B.
(2)Examples. The following examples
illustrate the rules of paragraph (h)(1) of
this section:
Example 1. On January 15, 2014, F, an individ-
ual, purchases a one-year exchange-traded call option
on 100 shares of Company X stock, with a strike price
of $110. The call option is cleared through Clearing-
house G. Company X executes a 2-for-1 stock split
as of April 1, 2014. Due to the stock split, the terms
of F’s option are altered, resulting in two option con-
tracts, each on 100 shares of Company X stock with a
strike price of $55. All other terms remain the same.
Under paragraph (h)(1)(i) of this section, Clearing-
house G is required to prepare an issuer report for F.
Example 2. On January 31, 2014, J, an individual,
purchases from K a non-exchange traded 7-month
call option on 100 shares of Company X stock, with
a strike price of $110. Company X executes a 2-for-1
stock split as of April 1, 2014. Due to the stock split,
the terms of J’s option are altered, resulting in one op-
tion contract on 200 shares of Company X stock with
a strike price of $55. All other terms of the option
remain the same. Under paragraph (h)(1) of this sec-
tion, because the number of option contracts did not
change, K is not required to prepare an issuer report
for J.
(i) [Reserved]
(j)Effective/applicability dates.This
section applies to—
(1) Organizationalactions occurring on
or after January 1, 2011, that affect the ba-
sis of specified securities within the mean-
ing of §1.6045–1(a)(14)(i) other than stock
in a regulated investment company within
the meaning of §1.1012–1(e)(5);
(2) Organizationalactions occurring on
or after January 1, 2012, that affect the
basis of stock in a regulated investment
company;
(3) Organizational actions occurring
on or after January 1, 2014, that af-
fect the basis of debt instruments de-
scribed in §1.6045–1(n)(2)(i) (not in-
cluding the debt instruments described in
§1.6045–1(n)(2)(ii));
(4) Organizational actions occurring
on or after January 1, 2016, that affect
the basis of debt instruments described in
§1.6045–1(n)(3);
(5) Organizational actions occurring
on or after January 1, 2014, that af-
fect the basis of options described in
§1.6045–1(a)(14)(iii); and
(6) Organizationalactions occurring on
or after January 1, 2014, that affect the ba-
sis of securities futures contracts described
in §1.6045–1(a)(14)(iv).
Par. 7. Section 1.6049–9T is added to
read as follows:
§1.6049–9T Premium subject to reporting
for a debt instrument acquired on or after
January 1, 2014 (temporary).
(a)General rule. Notwithstanding
§1.6049–5(f), for a debt instrument ac-
quired on or after January 1, 2014, if a
broker (as defined in §1.6045–1(a)(1))
is required to file a statement for a debt
instrument under §1.6049–6, the broker
generally must report any bond premium
(as defined in §1.171–1(d)) or acquisition
premium (as defined in §1.1272–2(b)(3))
for the calendar year. This section, how-
ever, only applies to a debt instrument
that is a covered security as defined in
§1.6045–1(a)(15).
(b)Reporting of bond premium amor-
tization. Unless a broker has been no-
tified in writing in accordance with
§1.6045–1(n)(5) that a customer does not
want to amortize bond premium under
section 171, the broker must report the
amount of any amortizable bond premium
allocable to a stated interest payment made
to the customer during the calendar year.
See §§1.171–2 and 1.171–3 to determine
the amount of amortizable bond premium
allocable to a stated interest payment. In-
stead of reporting a gross amount for both
May 13, 201310802013–20 I.R.B.

stated interest and amortizable bond pre-
mium, a broker may report a net amount
of stated interest that reflects the offset of
the stated interest payment by the amount
of amortizable bond premium allocable to
the payment. In this case, the broker must
notreporttheamortizable bond premium
as a separate item. This paragraph (b) also
applies to amortizable bond premium on a
tax-exempt obligation, which is required
to be amortized under section 171.
(c)Reporting of acquisition premium
amortization. A broker must report the
amount of any acquisition premium that
reduces the amount of original issue dis-
count includible in income by the customer
during a calendar year. Unless a broker
has been notified in writing in accordance
with §1.6045–1(n)(5) that a customer has
made an election under §1.1272–3 to use a
constant yield to amortize the acquisition
premium, the broker must use the rules in
§1.1272–2(b)(4) to determine the amount
of acquisition premium. Instead of report-
ing a gross amount for both original is-
sue discount and acquisition premium, a
broker may report a net amount of origi-
nal issue discount that reflects the offset of
the original issue discount includible in in-
come by the customer for the calendar year
by the amount of acquisition premium al-
locable to the original issue discount. In
this case, the broker must not report the ac-
quisition premium as a separate item. This
paragraph (c) does not apply to a tax-ex-
empt obligation.
(d)Expiration date. The applicability
of this section expires on or before April
15, 2016.
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 §602.101, paragraph (b) is
amended by adding the following entry in
numerical order to the table to read as fol-
lows:
§602.101 OMB Control numbers.
*****
(b) * * *
CFR part or section where
Identified and described
Current OMB
Control No.
*****
1.6045–1(n)(5)
...........................................................
1545–2186
*****
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
Approved: April 11, 2013.
Mark J. Mazur,
Assistant Secretary
oftheTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on April 17, 2013,
8:45 a.m., a
nd published in the issue of the Federal Register
for April 18, 2013, 78 F.R. 23116)
Section 7520.—Valuation
Tables
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of May 2013. See Rev. Rul. 2013-11, page 1059.
Section 7872.—Treatment
of Loans With Below-Market
Interest Rates
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of May 2013. See Rev. Rul. 2013-11, page 1059.
2013–20 I.R.B.1081May 13, 2013

Part III. Administrative, Procedural, and Miscellaneous
Relief from the Anti-cutback
Requirements of § 411(d)(6)
for Certain ESOP Amendments
Notice 2013–17
I. Purpose
This notice provides relief from the
anti-cutback requirements of § 411(d)(6)
of the Internal Revenue Code for plan
amendments that eliminate a distribution
option described in § 401(a)(28)(B)(ii)(I)
from an employee stock ownership plan,
as defined in § 4975(e)(7) (ESOP), that
becomes subject to the diversification re-
quirements of § 401(a)(35), which apply to
certain defined contribution plans that hold
(or are treated as holding) publicly traded
employer securities. This notice addresses
circumstances in which an ESOP that sat-
isfied the diversification requirements of
§ 401(a)(28)(B)(i) by allowing distribu-
tion of a portion of a participant’s account
has become subject to the diversification
requirements of § 401(a)(35). As a result
of becoming subject to § 401(a)(35)(E),
§ 401(a)(28)(B) no longer applies and
such an ESOP is no longer able to make
distributions that (in the absence of the
applicability of § 401(a)(28)(B)(i)) would
be impermissible under other rules re-
stricting the distribution of plan benefits
before termination of employment or the
occurrence of certain other events. Thus,
under current rules for such plans, some
in-service distribution options used to sat-
isfy the diversification requirements under
§ 401(a)(28)(B) are no longer permissible.
The relief provided by this notice al-
lows amendment of the ESOP to elimi-
nate all in-service distribution options pre-
viously used to satisfy the diversification
requirements of § 401(a)(28)(B)(i). The
relief applies to amendments that are both
adopted and put intoeffect under a plan
by the last day of the first plan year be-
ginning on or after January 1, 2013, or by
the time the plan must be amended to sat-
isfy § 401(a)(35), if later. In cases in which
an ESOP has been timely amended to sat-
isfy § 401(a)(35) and the remedial amend-
ment period with respect to that amend-
ment expires before the ending date of
§ 411(d)(6) relief, this notice also extends
the remedial amendment period to the last
dayofthefirstplanyearbeginningonor
after January 1, 2013, to permit the adop-
tion of an amendment to the ESOP elim-
inating a distribution option described in
§ 401(a)(28)(B)(ii)(I).
II. Background
Section 401(a)(28)(B) requires an
ESOP to satisfy certain requirements re-
lating to diversification of investments.
In general, under § 401(a)(28)(B)(i), an
ESOP must provide certain participants
the opportunity to elect to direct the plan
as to the investment of at least 25 percent
of the participant’s account. The election
must be available to a participant during
the 90-day period following the close of
each plan year in the 6-plan-year period
beginning with the first plan year in which
the participant has both attained age 55
and completed 10 years of participation.
Section 401(a)(28)(B)(ii) allows an ESOP
to satisfy the diversification requirements
of § 401(a)(28)(B)(i) by, among other
means, distributing the portion of a par-
ticipant’s account that is covered by the
election within 90 days after the pe-
riod during which the election may be
made. Section 401(a)(28)(B)(v) provides
that the diversification requirements of
§ 401(a)(28)(B) do not apply to an appli-
cable defined contribution plan as defined
in § 401(a)(35)(E). Thus, the diversifi-
cation requirements of § 401(a)(28)(B)
do not apply to a plan that is subject to
§ 401(a)(35).
Section 401(a)(35), which was added
by section 901(a)(1) of the Pension Pro-
tection Act of 2006 (“PPA ’06”), Pub. L.
109–280, requires an applicable defined
contribution plan within the meaning of
§ 401(a)(35)(E) to meet certain diver-
sification requirements with respect to
investments in employer securities. Un-
like § 401(a)(28)(B), the § 401(a)(35)
diversification requirements cannot be
satisfied by distributing a portion of the
participant’s account. The requirements
of § 401(a)(35) generally apply to plan
years that begin after December 31, 2006.
Final regulations under § 401(a)(35)
were published on May 19, 2010, 75
F.R. 27933. Under § 401(a)(35)(E) and
§ 1.401(a)(35)–1(f)(2)(ii) of the regu-
lations, an ESOP that holds employer
securities that are readily tradable on an
established securities market is an “ap-
plicable defined contribution plan” that is
subject to the requirements of § 401(a)(35)
if either the ESOP is not a separate plan
for purposes of § 414(l) but rather is a
portion of a larger plan, or the ESOP holds
contributions that are or were subject to
§ 401(k) or § 401(m).
An ESOP that is an applicable defined
contribution plan ceases to be subject
to the diversification requirements of
§ 401(a)(28)(B) (and must instead sat-
isfy the diversification requirements of
§ 401(a)(35)) as of the effective date of
§ 401(a)(35). See § 401(a)(28)(B)(v).
Section 411(d)(6)(A) provides gener-
ally that a plan does not satisfy § 401(a)
if an amendment to the plan decreases
a participant’s accrued benefit. Sec-
tion 411(d)(6)(B) provides that a plan
amendment that has the effect of elimi-
nating an optional form of benefit with
respect to benefits attributable to service
before the amendment is treated as reduc-
ing accrued benefits. Section 411(d)(6)(C)
provides that an ESOP is not treated as fail-
ing to meet the requirements of § 411(d)(6)
merely because it modifies distribution
options in a nondiscriminatory manner.
Section 1.411(d)–4, A–2(d), describes
certain exceptions from the general re-
quirements of § 411(d)(6) with respect
to ESOPs and stock bonus plans. Sec-
tion 1.411(d)–4, A–2(d)(4), authorizes
the Commissioner to prescribe additional
rules and exceptions.
Notice 88–56, 1988–1 C.B. 540, pro-
vides guidance regarding the requirements
of § 401(a)(28)(B). Q&A–14 of Notice
88–56 provides, in part, that a distribution
in satisfaction of a diversification elec-
tion under § 401(a)(28)(B) is not subject
to the rules under § 401(a) restricting the
distribution of plan benefits before termi-
nation of employment (in the case of a
pension plan) or the occurrence of cer-
tain other events (in the case of a profit-
sharing plan). Thus, an ESOP that in-
cludes a qualified cash or deferred arrange-
ment, as defined in § 401(k)(2), may pro-
vide for and make a distribution, in satis-
faction of a diversification election under
§ 401(a)(28)(B)(ii)(I), of amounts attribut-
able to elective contributions, even if that
May 13, 201310822013–20 I.R.B.

distribution would otherwise be prohibited
under § 401(k)(2)(B) and § 1.401(k)–1(d).
Section 1107 of PPA ’06 provides that
a plan amendment made pursuant to PPA
’06 or regulations thereunder was not re-
quired to be adopted until a specified date
(the “section 1107 date”) that was the last
day of the first plan year that begins on or
after January 1, 2009 (or January 1, 2011,
in the case of a governmental plan as de-
finedin§414(d)),providedthatcertain
conditions were satisfied. Section 1107 of
PPA ’06 also provides that, except as pro-
vided by the Secretary, a plan does not fail
to satisfy the anti-cutback requirements
of § 411(d)(6) as a result of amendments
made pursuant to PPA ’06 or regulations
thereunder that were adopted by the plan’s
section 1107 date, provided that the same
conditions were satisfied. Generally, the
conditions under section 1107 are satisfied
if:
(1) the plan amendment is made pur-
suant to a provision of PPA ’06 or regu-
lations thereunder;
(2) the plan amendment is adopted no
later than the plan’s section 1107 date; and
(3) the plan is operated as if the plan
amendment were in effect during the pe-
riod beginning on the effective date of the
amendment and ending on the plan’s sec-
tion 1107 date or, if earlier, the date the
amendment is adopted.
A plan is not treated as failing to be op-
erated in accordance with its terms during
the period described in (3), provided that
the conditions in (1) through (3) are met.
Section 401(b) provides a period dur-
ing which a plan may be amended retroac-
tively to comply with the Code’s qualifi-
cation requirements.Section 1.401(b)–1
describes “disqualifying provisions” that
may be amended retroactively and the re-
medial amendment period during which
retroactive amendments may be adopted.
Under § 1.401(b)–1(b)(3), the term “dis-
qualifying provisions” includes a plan pro-
vision designated by the Commissioner as
a disqualifying provision that either (1) re-
sults in the failure of the plan to satisfy the
qualification requirements of the Code by
reason of a change in those requirements,
or (2) is integral to a qualification require-
ment of the Code that has been changed.
Section 1.401(b)–1(f) gives the Commis-
sioner the discretion to extend the remedial
amendment period with respect to a dis-
qualifying provision.
Rev. Proc. 2007–44, 2007–2 C.B. 54,
provides guidance regarding the timing of
plan amendments. Section 5.01 of Rev.
Proc. 2007–44 designates as a disqualify-
ing provision any plan provision that (1)
results in the failure of the plan to sat-
isfy the qualification requirements of the
Code by reason of a change in those re-
quirements that is effective after Decem-
ber 31, 2001, or (2) is integral to a qual-
ification requirement of the Code that has
been changed effective after December 31,
2001, but only if the provision is integral
to a plan provision that is a disqualify-
ing provision. Section 5.02 of Rev. Proc.
2007–44 clarifies that, for this purpose, a
change in a qualification requirement in-
cludes a statutory change or a change in
the requirements provided in regulations
or other guidance published in the Internal
Revenue Bulletin. In addition, for this pur-
pose, a disqualifying provision includes
the absence from the plan of a provision
required by or, if applicable, integral to the
applicable change inthe qualification re-
quirements of the Code.
Section 5.05 of Rev. Proc. 2007–44
provides that, when there are statutory or
regulatory changes to the plan qualifica-
tion requirements thatwill affect provi-
sions of the written plan document, the
adoption of an interim amendment gener-
ally will be required by the later of the end
of the plan year in which the change is first
effective or the due date of the employer’s
tax return for the tax year that includes the
date the change is first effective. Section
5.07(2) of Rev. Proc. 2007–44 provides
an exception from the general deadline for
adopting interim amendments. This sec-
tion provides that the deadline for adopting
an interim amendment pursuant to a pro-
vision of PPA ’06 or regulations thereun-
der is a plan’s section 1107 date. This date
is also the deadline for adopting a discre-
tionary amendment (within the meaning of
section 5.05(2) of Rev. Proc. 2007–44)
pursuant to a provision of PPA ’06 or reg-
ulations thereunder.
Pursuant to section 6.02 of Rev. Proc.
2007–44, an interim amendment adopted
timely and in good faith to correct a dis-
qualifying provision as described in sec-
tion 5.01 of Rev. Proc. 2007–44 can itself
be a disqualifying provision as described
in § 1.401(b)–2(b)(1). In this situation, a
remedial amendment to correct this second
disqualifying provision (that is, the interim
amendment which was found to be itself a
disqualifying provision) must be adopted
by the end of the applicable 5- or 6-year
remedial amendment cycle.
Notice 2009–97, 2009–52 I.R.B. 972,
extends the deadline for adopting an in-
terim or discretionary plan amendment
pursuant to certain sections of the Code
that were added or amended by PPA ’06,
including § 401(a)(35), to the last day of
the first plan year that began on or after
January 1, 2010. Continued satisfaction of
the operational compliance requirements
of section 1107 of PPA’06 was required as
a condition of the extension of the deadline
for adopting plan amendments. Section
401(b) does not relieve a plan of the
requirement to satisfy § 411(d)(6) with re-
spect to any amendment. Notice 2009–97
does not provide relief from the require-
ments of § 411(d)(6) for plan amendments
adopted pursuant to § 401(a)(35) by the
extended deadline but after a plan’s sec-
tion 1107 date.
In certain cases, the deadline to adopt an
amendment to satisfy § 401(a)(35) is later
than the last day of the first plan year that
begins on or after January 1, 2010. For
example, assume § 401(a)(35) is first ef-
fective with respectto a single employer
calendar year ESOP on January 1, 2015,
because the employer securities held by
the ESOP first becomereadily tradable on
an established securities market in the last
quarter of 2014. In this case, the deadline
to adopt an amendment to the plan to sat-
isfy § 401(a)(35) is the later of December
31, 2015, or the due date of the employer’s
taxreturnforthetaxyear that includes Jan-
uary 1, 2015. The amendment must also
satisfy the requirements of § 411(d)(6).
III. Relief from the Anti-cutback
Requirements of § 411(d)(6)
In the case of an ESOP that satis-
fies the diversification requirements of
§ 401(a)(28)(B) by distributing a portion
of the participant’s account in accordance
with § 401(a)(28)(B)(ii)(I) and that be-
comes subject to the requirements of
§401(a)(35),aplanamendmenttoelim-
inate the distribution option is adopted
pursuant to a provision of PPA ’06 if the
amendment is effective no earlier than the
effective date of § 401(a)(35) with respect
to the plan. Thus, under section 1107 of
PPA ’06, such an amendment does not
2013–20 I.R.B.1083May 13, 2013

cause the plan to fail to satisfy the require-
ments of § 411(d)(6), provided that the
amendment was adopted by the plan’s sec-
tion 1107 date and the other requirements
ofsection1107ofPPA’06aremet.
The relief from the requirements of
§ 411(d)(6) under section 1107 of PPA ’06
does not apply to amendments adopted
after a plan’s section 1107 date, in-
cluding amendmentsadopted pursuant
to § 401(a)(35), regardless of when
§ 401(a)(35) is first effective with respect
to the plan. The exceptions described in
§ 1.411(d)–4, A–2(d), also do not provide
relief from the requirements of § 411(d)(6)
for such amendments. Thus, without ad-
ditional relief, a sponsor of an ESOP that
is an applicable defined contribution plan
might be prevented from amending the
plan to eliminate a distribution option that
was previously added to the plan to satisfy
a requirement that no longer applies to the
plan.
The Treasury Department and the
Service recognize that additional relief
from the requirements of § 411(d)(6)
is appropriate. Accordingly, pursuant
to § 1.411(d)–4, A–2(d)(4), an amend-
ment to an ESOP that becomes subject
to § 401(a)(35) to eliminate a distribu-
tion option previously provided to satisfy
§ 401(a)(28)(B)(i) does not cause the
plan to fail to satisfy the requirements
of § 411(d)(6) notwithstanding that the
amendment is adopted after the plan’s sec-
tion 1107 date, but only if the amendment
satisfies the conditions for relief under
this notice. An amendment satisfies the
conditions for relief under this notice if
(i) the amendment is both adopted and
put into effect under the plan by the last
day of the first plan year beginning on or
after January 1, 2013, or by the deadline
for adopting an interim amendment to
the plan to satisfy § 401(a)(35), if later,
and (ii) the requirements of section 1107
of PPA ’06 are met with respect to the
amendment (other than the requirement
that the amendment be adopted by the
plan’s section 1107 date). Such an amend-
ment may, in certain cases (such as if the
plan includes elective contributions under
§ 401(k)), be necessary to satisfy other
qualification requirements.
IV. Extension of Deadline for Certain
Amendments
An ESOP that satisfies the diversifi-
cation requirements of § 401(a)(28)(B)
by distributing a portion of the par-
ticipant’s account in accordance with
§ 401(a)(28)(B)(ii)(I) is not prevented
from making the distribution by the rules
under § 401(a) or § 401(k)(2)(B) and
§ 1.401(k)–1(d) that restrict the distribu-
tion of plan benefits. In contrast, an ESOP
that becomes subject to § 401(a)(35),
and that therefore ceases to be subject to
§ 401(a)(28)(B), must comply with the
restrictions on distributions that apply be-
fore termination of employment (in the
case of a pension plan), before the occur-
rence of certain other events (in the case
of a profit-sharing or stock bonus plan),
or before one of the events specified in
§ 401(k)(2)(B)(i) (in the case of amounts
attributable to elective contributions and
certain other amounts under a qualified
cash or deferred arrangement). Thus, with
respect to an ESOP that was subject to the
requirements of § 401(a)(28)(B) and be-
comes an applicable defined contribution
plan that is subject to the requirements of
§ 401(a)(35), a provision of the plan that
allows a distribution to be made before the
termination of employment (in the case of
a pension plan) or before one of the events
specified in § 401(k)(2)(B)(i) (in the case
of amounts attributableto elective contri-
butions and certain other amounts under a
qualified cash or deferred arrangement) is
a disqualifying provision. Under § 401(b)
and this notice, such a disqualifying provi-
sion will not cause a plan to be disqualified
provided that a remedial amendment is
adopted and put into effect under the plan
within the remedial amendment period.
As provided in Rev. Proc. 2007–44
and Notice 2009–97, with respect to
an ESOP subject to the requirements
of § 401(a)(35), an interim amendment
implementing those requirements was re-
quired to be adopted by the last day of
the first plan year that began on or after
January 1, 2010 (unless a later interim
amendment deadline applies to the plan
because § 401(a)(35) is first effective with
respect to the plan after the PPA ’06 ef-
fective date). This notice does not further
extend the remedial amendment period
for adopting such an interim amendment.
However, for a plan that adopted such
an interim amendment and that did not
eliminate the distribution option described
in § 401(a)(28)(B)(ii)(I), section 6.02 of
Rev. Proc. 2007–44 provides that the re-
medial amendment period for the interim
amendment extends until the end of the
applicable 5- or 6-year remedial amend-
ment cycle.
For example, assume the following
facts. An ESOP that includes a quali-
fied cash or deferred arrangement satis-
fies the diversification requirements of
§ 401(a)(28)(B) by distributing a portion
of the participant’s account attributable to
elective contributions in accordance with
§ 401(a)(28)(B)(ii)(I). The ESOP’s reme-
dial amendment cycle is Cycle A. The
ESOP becomes subject to § 401(a)(35) on
January 1, 2007, and is timely amended to
satisfy § 401(a)(35) by the last day of the
firstplanyearbeginningonorafterJan-
uary 1, 2010. The amendment to satisfy
§ 401(a)(35) does not eliminate the distri-
bution option that was provided to satisfy
§ 401(a)(28)(B). Because the plan has
ceased to be subject to § 401(a)(28)(B),
however, the distribution option is prohib-
ited by the rules under § 401(k)(2)(B) and
§ 1.401(k)–1(d) and results in a disqualify-
ingprovision. Undersection6.02ofRev.
Proc. 2007–44, the remedial amendment
period for this disqualifying provision ex-
tends until the end of the applicable 5- or
6-year remedial amendment cycle. In this
case, but for the further extension provided
under the next paragraph of this notice, the
remedial amendment period during which
the ESOP must be amended to eliminate
the prohibited distribution option would
end on January 31, 2012, that is, the end of
the plan’s 5-year cycle (Cycle A) in which
the remedial amendment period would
otherwise expire.
If, as in the preceding example, the re-
medial amendment period with respect to
the interim amendment that implements
the requirements of § 401(a)(35) (i.e.,the
end of the plan’s applicable 5- or 6-year
remedial amendment cycle) expires prior
to the ending date of the § 411(d)(6) relief
granted by this notice for a plan amend-
ment that eliminates the distribution option
described in § 401(a)(28)(B)(ii)(I), this no-
tice provides an extension of the reme-
dial amendment period to enable a plan
to adopt such an amendment for which
§ 411(d)(6) relief is granted. Accordingly,
with respect to a subsequent plan amend-
May 13, 201310842013–20 I.R.B.

ment that eliminates the distribution op-
tion described in § 401(a)(28)(B)(ii)(I), the
remedial amendment period provided un-
der section 6.02 of Rev. Proc. 2007–44
is hereby extended until the last day of the
first plan year beginning on or after Jan-
uary 1, 2013, if that remedial amendment
period would otherwise expire at an ear-
lier date. Thus, pursuant to this notice,
with respect to an ESOP that is subject
to § 401(a)(35), a plan provision that pro-
vides for a distribution option described
in § 401(a)(28)(B)(ii)(I) will not cause the
plan to be disqualified if a plan amendment
eliminating the distribution option is both
adopted and effective by the last day of the
first plan year beginning on or after Jan-
uary 1, 2013 (or, if later, by the deadline
for adopting an interim amendment to the
plan to satisfy § 401(a)(35)).
If the remedial amendment period
with respect to the interim amendment
that implements the requirements of
§ 401(a)(35) expires after the ending date
of the § 411(d)(6) relief granted by this
notice for a plan amendment that elim-
inates the distribution option described
in § 401(a)(28)(B)(ii)(I), the amendment
must be both adopted and effective by
the end of the period during which the
§ 411(d)(6) relief applies.
Drafting Information
The principal author of this notice
is James P. Flannery of the Employee
Plans, Tax Exempt and Government
Entities Division. Questions regarding
this notice may be sent via e-mail to
retirementplanquestions@irs.gov.
Beginning of Construction for
Purposes of the Renewable
Electricity Production Tax
Credit and Energy Investment
Tax Credit
Notice 2013–29
SECTION 1. PURPOSE
Under the American Taxpayer Relief
Act of 2012, Pub. L. No. 112–240, 126
Stat. 2313 (ATRA), a qualified facility
(as described in section 45(d) of the Inter-
nal Revenue Code) will be eligible to re-
ceive the renewable electricity production
tax credit (PTC) under section 45, or the
energy investment tax credit (ITC) under
section48inlieuofthePTC,ifconstruc-
tion of such facility begins before January
1, 2014. This notice provides guidelines
and a safe harbor to determine when con-
struction has begun on such a facility.
SECTION 2. BACKGROUND
A taxpayer can claim a PTC with re-
spect to electricity produced at a “quali-
fied facility” within the meaning of section
45(d). If the taxpayer makes an election
under section 48(a)(5), the taxpayer may
instead claim an ITC with respect to that
facility. Prior to ATRA, to be a qualified
facility, a facility was required to be placed
in service before January 1, 2014, except
for qualified wind facilities, which had
to be placed in service before January 1,
2013. Section 407 of ATRA modified sec-
tion 45 by extending the PTC for wind fa-
cilities through 2013. ATRA also modified
the definition of qualified facility by re-
placing the requirement to place a facility
in service before January 1, 2014, with the
requirement to begin construction of a fa-
cility before January 1, 2014. For purposes
of sections 45(d) and 48(a)(5), qualified fa-
cilities include wind facilities, closed-loop
biomass facilities, open-loop biomass fa-
cilities, geothermal facilities, landfill gas
facilities, trash facilities, hydropower fa-
cilities, and marine and hydrokinetic facil-
ities.
SECTION 3. METHODS FOR
ESTABLISHING BEGINNING OF
CONSTRUCTION
This notice provides two methods that
a taxpayer may use to establish that con-
struction of a qualified facility has begun.
A taxpayer may establish the beginning of
construction by starting physical work of
a significant nature as described in section
4. Alternatively, a taxpayer may establish
the beginning of construction by meeting
the safe harbor provided in section 5 (Safe
Harbor). Although a taxpayer may satisfy
both methods, a taxpayer need only satisfy
one method to establish that construction
of a facility has begun for the purpose of
qualifying for the PTC or ITC.
SECTION 4. PHYSICAL WORK
.01In general. Construction of a qual-
ified facility begins when physical work
of a significant nature begins. Work
performedbythetaxpayerandworkper-
formed for the taxpayer by other persons
under a binding written contract that is
entered into prior to the manufacture, con-
struction, or production of the property
for use by the taxpayer in the taxpayer’s
trade or business (or for the taxpayer’s
production of income) is taken into ac-
count in determining whether construction
has begun. Whether a taxpayer has begun
construction of a facility before January
1, 2014, will depend on the relevant facts
and circumstances. The Internal Revenue
Service will closely scrutinize a facility,
and may determine that construction has
not begun on a facility before January
1, 2014, if a taxpayer does not maintain
a continuous program of construction as
determined under section 4.06.
.02Physical work of a significant na-
ture. Both on-site and off-site work (per-
formed either by the taxpayer or by an-
other person under a binding written con-
tract) may be taken into account for pur-
poses of demonstrating that physical work
of a significant nature has begun. For ex-
ample, in the case of a facility for the pro-
duction of electricityfrom a wind turbine,
on-site physical workof a significant na-
ture begins with the beginning of the exca-
vation for the foundation, the setting of an-
chor bolts into the ground, or the pouring
of the concrete pads of the foundation. If
the facility’s wind turbines and tower units
are to be assembled on-site from compo-
nents manufactured off-site by a person
other than the taxpayer and delivered to the
site, physical work of a significant nature
begins when the manufacture of the com-
ponents begins at the off-site location, but
only if (i) the manufacturer’s work is done
pursuant to a binding written contract (as
described in section 4.03(1)) and (ii) these
components are not held in the manufac-
turer’s inventory (as described in section
4.02(2)). If a manufacturer produces com-
ponents for multiple facilities, a reasonable
method must be used to associate individ-
ual components with particular facilities.
(1)Preliminary activities. Physical
work of a significant nature does not in-
clude preliminary activities, even if the
cost of those preliminary activities is prop-
2013–20 I.R.B.1085May 13, 2013

erly included in the depreciable basis of
the facility. Preliminary activities include
planning or designing, securing financing,
exploring, researching, obtaining permits,
licensing, conducting surveys, environ-
mental and engineering studies, clearing a
site, test drilling of a geothermal deposit,
test drilling to determine soil condition, or
excavation to change the contour of the
land (as distinguished from excavation for
footings and foundations). Removal of
existing turbines and towers is preliminary
work and, therefore, does not constitute
physical work of a significant nature with
respect to the facility.
(2)Inventory. Physical work of a sig-
nificant nature does not include work (per-
formed either by the taxpayer or by another
person under a binding written contract) to
produce property that is either in existing
inventory or is normally held in inventory
by a vendor.
.03Construction by contract. For prop-
erty that is manufactured, constructed, or
produced for the taxpayer by another per-
son under a binding written contract (as de-
scribed in section 4.03(1)), the work per-
formed under the contract is taken into ac-
count in determining when physical work
of a significant nature begins, provided the
contract is entered into prior to the work
taking place.
(1)Binding written contract.Acon-
tract is binding only if it is enforceable un-
der local law against the taxpayer or a pre-
decessor and does not limit damages to a
specified amount (for example, by use of
a liquidated damages provision). For this
purpose, a contractual provision that limits
damages to an amount equal to at least five
percent of the total contract price will not
be treated as limiting damages to a speci-
fied amount. For additional guidance re-
garding the definition of a binding con-
tract, see § 1.168(k)–1(b)(4)(ii)(A)–(D).
(2)Master contract. If a taxpayer enters
into a binding written contract for a spe-
cific number of components to be manu-
factured, constructed, or produced for the
taxpayer by another person under a bind-
ing written contract (a “master contract”),
and then through a new binding written
contract (a “project contract”) the taxpayer
assigns its rights to certain components to
an affiliated special purpose vehicle that
will own the facility for which such prop-
erty is to be used, work performed with re-
spect to the master contract may be taken
into account in determining when physical
work of a significant nature begins with re-
spect to the facility.
.04Facility—(1)In general. A facil-
ity (within the meaning of section 45(d))
generally includes all components of prop-
erty that are functionally interdependent.
Components of property are functionally
interdependent if the placing in service of
each of the components is dependent upon
the placing in service of each of the other
components in order to generate electric-
ity. For example, on a wind farm for the
production of electricity from wind energy,
an electricity-generating wind turbine, its
tower, and its supporting pad comprise a
single facility. Each such facility can be
separately operated and metered and can
begin producing electricity separately.See
Rev. Rul. 94–31, 1994–1 C.B. 16.
(2)Single project. Solely for purposes
of determining whether construction of a
facility has begun for purposes of sections
45 and 48, multiple facilities that are oper-
ated as part of a single project (along with
any property, such as a computer control
system, that serves some or all such fa-
cilities) will be treated as a single facility.
Whether multiple facilities are operated as
part of a single project will depend on the
relevant facts and circumstances. Factors
indicating that multiple facilities are oper-
ated as part of a single project include, but
are not limited to:
(a) The facilities are owned by a single
legal entity;
(b) The facilities are constructed on
contiguous pieces of land;
(c) The facilities are described in a com-
mon power purchase agreement or agree-
ments;
(d) The facilities have a common inter-
tie;
(e) The facilities share a common sub-
station;
(f) The facilities are described in one
or more common environmental or other
regulatory permits;
(g) The facilities were constructed pur-
suant to a single master construction con-
tract; and
(h) The construction of the facilities
was financed pursuant to the same loan
agreement.
(3)Example. X is developing a wind
farm that will consist of 50 turbines, their
associated towers, their supporting pads, a
computer system thatmonitors and con-
trols the turbines, and associated power
conditioning equipment. The entire wind
farm will be connected to the power grid
through a single intertie, and power gen-
erated by the wind farm will be sold to a
local utility through a single power pur-
chase agreement. In 2013, for 10 of the
50 turbines, X excavates the site for the
foundations of the wind turbines and pours
concrete for the supporting pads. There-
after, X completes the construction of all
50 turbines and related facilities pursuant
to a continuous program of construction
(as determined under section 4.06). For
purposes of sections 45 and 48, the entire
wind farm is a single project that will be
treated as a single facility, and X has per-
formed physical work of a significant na-
ture that constitutes the beginning of con-
struction of that facility in 2013.
.05Property integral to the facility
—(1)In general. Only physical work
of a significant nature on tangible per-
sonal property and other tangible property
used as an integral part of the activity
performed by the facility will be consid-
ered for purposes of determining whether
a taxpayer has begun construction of a
facility. This includes property integral
to the production of electricity, but does
not include property used for electrical
transmission. Thus, physical work on a
transmission tower located at the site is
not physical work of a significant nature
because the transmission is not an inte-
gral part of the activity performed by the
facility. However, physical work on a cus-
tom-designed transformer that steps up the
voltage of electricityproduced at the facil-
ity to the voltage needed for transmission
is physical work of a significant nature
with respect to the facility because power
conditioning equipment is an integral part
of the activity performed by the facility.
(2)Roads. Roads that are integral to
the facility are integral to the activity per-
formed by the facility; these include onsite
roads that are used for moving materials to
be processed (for example, biomass) and
roads for equipment to operate and main-
tain the qualified facility. Starting con-
struction on these roads constitutes phys-
ical work of a significant nature with re-
spect to the facility. Roads primarily for
access to the site, or roads used primarily
for employee or visitor vehicles are not in-
tegral to the activity performed by the fa-
cility; physical work of a significant nature
May 13, 201310862013–20 I.R.B.

on these roads is not considered for pur-
poses of determining whether a taxpayer
has begun construction of a facility.
(3)Fencing. Generally, fencing is not
an integral part of the facility because it
is not integral to the activity performed by
the facility.
(4)Buildings. Generally, buildings are
not integral parts of the facility because
they are not integral to the activity of the
facility. However, thefollowing structures
are not treated as buildings for this pur-
pose: (1) a structure that is essentially an
item of machinery or equipment, or (2) a
structure that houses property that is inte-
gral to the activity of the facility if the use
of the structure is so closely related to the
use of the housed property that the struc-
ture clearly can be expected to be replaced
when the property it initially houses is re-
placed.SeeTreas. Regs. § 1.48–1(e)(1).
.06Continuous construction—(1)In
general. A continuous program of con-
struction involves continuing physical
work of a significant nature (as described
in section 4.02). Whether a taxpayer main-
tains a continuous program of construction
will be determined by the relevant facts
and circumstances.
(2)Construction disruptions.Certain
disruptions in the taxpayer’s construction
of a facility that are beyond the taxpayer’s
control will not be considered as indicat-
ing that a taxpayer has failed to maintain
a continuous program of construction. Ex-
amples of such disruptions include, but are
not limited to:
(a) severe weather conditions;
(b) natural disasters;
(c) licensing and permitting delays;
(d) delays at the written request of a
state or federal agency regarding matters
of safety, security, or similar concerns;
(e) labor stoppages;
(f) inability to obtain specialized equip-
ment of limited availability;
(g) the presence of endangered species;
(h) financing delays of less than six
months; and
(i) supply shortages.
SECTION 5. SAFE HARBOR
.01In general. Construction of a facil-
ity will be considered as having begun be-
fore January 1, 2014, if (1) a taxpayer pays
or incurs (within the meaning of Treas.
Reg. § 1.461–1(a)(1) and (2)) five percent
or more of the total cost of the facility, ex-
cept as provided in section 5.01(2), before
January 1, 2014, and (2) thereafter, the tax-
payer makes continuous efforts to advance
towards completion of the facility (as de-
termined under section 5.02).
(1)Total cost of the facility.Allcosts
properly included in the depreciable basis
of the facility are taken into account to de-
termine whether the Safe Harbor has been
met. The total cost of the facility does not
include the cost of land or any property not
integral to the facility, as described in sec-
tion 4.05(1).
(2)Look-through for economic perfor-
mance. Solely for purposes of this notice,
for property that is manufactured, con-
structed, or produced for the taxpayer by
another person under a binding written
contract with the taxpayer, costs incurred
with respect to the property by the other
person before the property is provided to
the taxpayer are deemed incurred by the
taxpayer when the costs are incurred by
the other person under the principles of
section 461.
(3)Example. In 2013, accrual-method
taxpayer W enters into a binding written
contract with A pursuant to which W will
provide a wind turbine to A in June 2015.
In 2013, W pays Y pursuant to a contract
for Y to provide parts in May 2014 for use
in the wind turbine. W’s employees pro-
vide W with services necessary to design
and plan for the production of the wind tur-
bine in 2013 and with services to manufac-
ture (assemble) the wind turbine in 2015.
W incurs the cost to design and plan for
the production of the turbine assembly in
2013, incurs the costs for the parts in May
2014 when Y delivers the parts to W (even
though the parts were paid for in 2013),
and incurs the costs for W’s employees to
manufacture the wind turbine in 2015.See
§ 1.461–4(d) and § 1.446–1(c)(1)(ii). The
costs W incurred in 2013 for its employ-
ees’ performance of turbine design and
planning activities are costs deemed in-
curred by A before January 1, 2014, for
purposes of the Safe Harbor. The other
costs in this example were incurred by W
in 2014 and 2015 and are costs that A in-
cludes in the total cost of the facility, but
these other costs were not deemed incurred
by A before January 1, 2014.
.02Continuous efforts—(1)In gen-
eral. Whether a taxpayer makes contin-
uous efforts to advance towards comple-
tion of the facility will be determined by
the relevant facts and circumstances. Facts
and circumstances indicating continuous
efforts to advance towards completion of
the facility may include, but are not lim-
ited to:
(a) paying or incurring additional
amounts included in the total cost of the
facility;
(b) entering into binding written con-
tracts for components or future work on
construction of the facility;
(c) obtaining necessary permits; and
(d) performing physical work of a sig-
nificant nature (as described in section
4.02).
(2)Disruptions to continuous efforts.
Certain disruptions in the taxpayer’s con-
tinuous efforts to advance towards com-
pletion of the facility that are beyond the
taxpayer’s control will not be considered
as indicating that a taxpayer has failed
to make continuous efforts to advance to-
wards completion of the facility. Exam-
ples of such disruptions include, but are not
limited to:
(a) severe weather conditions;
(b) natural disasters;
(c) licensing and permitting delays;
(d) delays at the written request of a
state or federal agency regarding matters
of safety, security, or similar concerns;
(e) labor stoppages;
(f) inability to obtain specialized equip-
ment of limited availability;
(g) the presence of endangered species;
(h) financing delays of less than six
months; and
(i) supply shortages.
.03Cost overruns—(1)Single project.
If the total cost of a facility that is a sin-
gle project comprised of multiple facilities
(as described in section 4.04(2)) exceeds
its anticipated total cost, so that the amount
a taxpayer actually paid or incurred with
respect to the facility before January 1,
2014, is less than five percent of the to-
tal cost of the facility at the time the facil-
ity is placed in service, the Safe Harbor is
not fully satisfied. However, the Safe Har-
bor will be satisfied and the PTC or ITC
may be claimed with respect to some, but
not all, of the individual facilities (as de-
scribed in section 4.04(1)) comprising the
single project, as long as the total aggre-
gate cost of those individual facilities is
not more than twenty times greater than
the amount the taxpayer paid or incurred
2013–20 I.R.B.1087May 13, 2013

before January 1, 2014 (see Example 1 in
section 5.03(3)(a)).
(2)Single facility. If the total cost of a
single facility that is not a single project
comprised of multiple facilities (as de-
scribed in section 4.04(2)), and cannot be
separated into smaller facilities, exceeds
its anticipated total cost so that the amount
a taxpayer actually paid or incurred with
respect to the facility before January 1,
2014, is less than five percent of the total
cost of the facility at the time the facility
is placed in service, then the taxpayer will
not satisfy the Safe Harbor with respect to
any portion of the facility.
(3)Examples—(a)Example 1.A
taxpayer incurs $25,000 in costs in 2013
constructing a five-turbine wind farm that
will be operated as a single project (as
described in section 4.04(2)), anticipating
that each turbine (including its own tower
and pad) will cost $100,000 for a total cost
for the facility of $500,000. Thereafter,
the taxpayer makes continuous efforts to
advance towards completion of the facil-
ity. At the time the taxpayer places the
wind farm in service, the actual total cost
of the facility amounts to $600,000, with
each turbine costing$120,000. Although
the taxpayer did not pay or incur five per-
cent of the actual total cost of the facility
before January 1, 2014, the taxpayer will
be treated as satisfyingtheSafeHarbor
with respect to four of the turbines, as their
actual total cost of $480,000 is not more
than twenty times greater than the $25,000
in costs incurred by the taxpayer in 2013.
Thus, the taxpayer may claim the PTC on
electricity produced from four of the tur-
bines, or the ITC based on $480,000, the
cost of four of the turbines. Alternatively,
if construction of the facility began (within
the meaning of section 4.01) before Jan-
uary 1, 2014, the taxpayer may be able to
claim the PTC or the ITC with respect to
the entire facility (all five turbines).
(b)Example 2. A taxpayer incurs
$25,000 in costs in 2013 in constructing
an open-loop biomass facility, anticipating
that the total cost of the facility, includ-
ing one boiler and one turbine generator,
will be $500,000. The boiler and turbine
generator are functionally interdependent.
Thereafter, the taxpayer makes continuous
efforts to advance towards completion of
the facility. At the time the taxpayer places
the facility in service,its actual total cost
amounts to $600,000.Because the boiler
and turbine generator are a single facility
that is not a single project comprised of
multiple facilities (as described in section
4.04(2)), the taxpayer will not satisfy the
Safe Harbor. However, if construction of
the facility began (within the meaning of
section 4.01) before January 1, 2014, the
taxpayer may be able to claim the PTC or
the ITC with respect to the entire facility.
SECTION 6. DRAFTING
INFORMATION
The principal author of this notice
is Brian J. Americus of the Office of
Associate Chief Counsel (Passthroughs
& Special Industries).For further
information regarding this notice contact
Brian J. Americus on (202) 622–3110 (not
a toll-free call).
May 13, 201310882013–20 I.R.B.

Part IV. Items o
fGeneralInterest
Notice of Prop
osed
Rulemaking an
dNoticeof
Public Hearin
g
American Jobs
Creation
Act Modifica
tions to Section
6708, Failur
etoMaintainList
of Advisees
With Respect to
Reportable
Transactions
REG–160873–04
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Noti
ce of proposed rulemaking
and notice of
public hearing.
SUMMARY: This document contains pro-
posed regulations relating to the penalty
under section 6708 of the Internal Rev-
enue Code for failing to make available
lists of advisees withrespect to reportable
transactions. Section 6708 imposes a
penalty upon material advisors for the
failure to make available to the Secretary,
upon written request, lists required by
section 6112 within the time prescribed
by section 6708(a)(1). These proposed
regulations reflect changes to section 6708
made by the American Jobs Creation Act
of 2004 and provide guidance regarding
the imposition of the section 6708 penalty
on material advisors who are required to
maintain lists of advisees pursuant to sec-
tion 6112. This document also provides
notice of a public hearing on these pro-
posed regulations.
DATES: Written or electronic comments
must be received by June 6, 2013. Re-
quests to speak and outlines of topics to be
discussed at the public hearing scheduled
for July 2, 2013 at 10:00 A.M. must be re-
ceived by June 10, 2013.
ADDRESS
ES: Send submissions to:
CC:PA:L
PD:PR(REG–160873–04),
room 52
03, Internal Revenue Service,
PO Box 7
604, Ben Franklin Station,
Washin
gton, DC 20044. Submissions may
be hand
delivered Monday through Friday
betwee
n the hours of 8 a.m. and 4 p.m.
to: CC
:PA:LDP:PR (REG–160873–04),
Courier’s Des
k, Internal Revenue
Service, 1111
Constitution Avenue, N.W.,
Washington, D
C, or sent electronically,
viatheFedera
leRulemaking
Portal atwww.
regulations.gov(IRS
REG–160873–
04). The public hearing
will be held i
n the IRS Auditorium,
Internal Rev
enue Building, 1111
Constitutio
n Avenue, N.W., Washington,
DC.
FOR FURTHER I
NFORMATION
CONTACT: Con
cerning the proposed
regulation
s, Emily M. Lesniak at (202)
622–4910; c
oncerning submission of
comments, t
he hearing, or to be placed
on the build
ing access list to attend the
hearing, O
luwafunmilayo (Funmi) Taylor
at (202) 62
2–7180 (not toll-free numbers).
SUPPLEMEN
TARY INFORMATION:
Paperwork R
eduction Act
The collect
ion of information contained
in this noti
ce of proposed rulemaking has
been submit
ted to the Office of Manage-
ment and Bu
dget for review in accordance
with the Pa
perwork Reduction Act of 1995
(44 U.S.C.
3507(d)). Comments on the
collectio
n of information should be sent to
theOffice
of Management and Budget,
Attn: Desk
Officer for the Department
of the Tre
asury, Office of Information
and Regul
atory Affairs, Washington,
DC 20503,
with copies to theInternal
Revenue S
ervice, Attn: IRS Reports
Clearan
ce Officer, SE:CAR:MP:T:T:SP,
Washing
ton, DC 20224. Comments on
the coll
ection of information should be
receive
d by May 7, 2013. Comments are
specifi
cally requested concerning:
Whether
the proposed collection of
informa
tion is necessary for the proper
perfor
mance of the Internal Revenue Ser-
vice, i
ncluding whether the information
will ha
ve practical utility;
The acc
uracy of the estimated burden
associ
ated with the proposed collection
of info
rmation or of the certification con-
tained
under the heading “Special Analy-
ses”;
How the
quality, utility, and clarity of
the in
formation to be collected may be en-
hance
d;
How the burden
of complying with the
proposed coll
ectionofinformationmaybe
minimized; an
d
Estimates of c
apital or start-up costs
and costs of op
eration, maintenance, and
purchases of s
ervice to provide informa-
tion.
The collecti
on of information
in this propo
sed regulation is in
§301.6708–1
(c)(3)(ii). This information is
required for
the IRS to determine whether
good cause ex
ists to allow a person af-
fected by the
se regulations an extension
of the legis
latively established 20-busi-
ness-day pe
riod to furnish a lawfully
requested l
ist to the IRS. The collection of
informatio
n is voluntary to obtain a ben-
efit. The l
ikely respondents are persons
(individu
als and entities) who qualify as
material a
dvisors, as defined in section
6111, who a
re unable to respond to a valid
and statu
torily authorized section 6112 list
request w
ithin the statutory period of time
provided
by section 6708.
Estimate
d total annual reporting bur-
den: 200 h
ours.
Estimate
d average annual burden hours
per respo
ndent: 8 hours.
Estimate
d number of respondents: 25.
Estimate
d annual frequency of re-
sponses:
on occasion.
An agency
may not conduct or sponsor,
and a pers
on is not required to respond to, a
collecti
on of information unless it displays
avalidc
ontrol number assigned by the Of-
fice of M
anagement and Budget.
Books or
records relating to a collection
of infor
mation must be retained as long
as their
contents may become material in
the admi
nistration of any internal revenue
law. Gen
erally, tax returns and tax return
inform
ation are confidential, as required
by 26 U.
S.C. 6103.
Backgr
ound
This do
cument contains proposed
amendm
ents to 26 CFR part 301 relating
to the s
ection 6708 penalty for failing to
make av
ailable, as required by section
6112, l
ists of advisees with respect to
repor
table transactions. Section 6112 re-
quire
s material advisors to maintain lists
of adv
isees and other information with
respe
ct to reportable transactions and to
2013–20 I.R.B.1089May 13, 2013

make that information available to the
Secretary upon written request.
Section 6708 was added to the Internal
Revenue Code by the Deficit Reduction
Act of 1984 (Public Law 98–369, 98 Stat.
680). At that time, section 6708 imposed
a penalty on each organizer or seller of a
potentially abusive tax shelter who failed
to meet the requirements of section 6112
unless the person showed that the failure
occurred as a result of reasonable cause
and not as a result of willful neglect. The
amount of the penalty was $50 for each
person who was sold an interest in a tax
shelter and whose name (or other required
information) was not listed or maintained
pursuant to the requirements of section
6112. The maximum penalty imposed was
$50,000 for each tax shelter for a calendar
year. Treasury Reg. §301.6708–1T was
issued shortly after section 6708 became
law. Subsequently, the Tax Reform Act
of 1986 (Public Law 99–514, 100 Stat.
2090) increased the maximum calendar
year penalty to $100,000.
The American Jobs Creation Act of
2004, Public Law 108–357, 118 Stat.
1418 (AJCA), was enacted on October
22, 2004. AJCA section 817 amended
section 6708, significantly increasing the
amount of the penalty and eliminating
the maximum calendar-year limit on the
penalty. As amended by the AJCA, sec-
tion 6708 imposes a penalty on a person
required to maintain a list under section
6112 (a “material advisor”) who fails to
make the list available to the IRS upon
written request. Under section 6708(a)(1),
if a material advisor fails to comply with
awrittenrequestforthesection6112list
within 20 business days after the request is
made, the material advisor is subject to a
penalty in the amount of $10,000 for each
day of the failure after the 20th business
day. Under section 6708(a)(2), the penalty
will not be imposed on any day that the
failure is due to reasonable cause. There
is no statutory limitation to the amount
of the penalty that can be imposed under
section 6708. Section 6708(b) provides
that the penalty imposed under section
6708(a) shall be in addition to any other
penalty provided by law. Section 6708, as
amended, is effective for requests made
after October 22, 2004, and it encom-
passes requests made for lists required to
be maintained under section 6112 before
section 6112 was amended by the AJCA.
To implement the pertinent provisions
of the AJCA, the Treasury Department and
IRS issued Notice 2004–80, 2004–2 C.B.
963 (see §601.601(d)(2)(ii)(b)), which
provided interim guidance relating to sec-
tion 6708, as well as section 6112. With
respect to section 6708, Notice 2004–80
provides that the 20-business-day period
within which a person must provide the list
required to be maintained under section
6112 shall begin on the first business day
following the earlier of the date that the
IRS: (1) mails a request for the list by cer-
tified or registered mail to the last known
address of the material advisor required to
maintain the list; or (2) hand-delivers the
written request in person. The Treasury
Department and IRS also issued interim
guidance relating to section 6112 in No-
tice 2005–17, 2005–1 C.B. 606; Notice
2005–22, 2005–1 C.B. 756; and Notice
2006–6, 2006–1 C.B. 385. On July 31,
2007, the Treasury Department and IRS
issued final regulations under section 6112
(TD 9352) replacing the interim guidance
relating to section 6112. The Treasury
Department and IRS have received vari-
ous comments and questions regarding the
application of section 6708 as amended by
the AJCA. Consequently, after considera-
tion of these comments and questions, the
Treasury Department and IRS are publish-
ing proposed rules reflecting the AJCA
amendments to section 6708.
Explanation of Provisions
Proposed §301.6708–1(a) provides
that, in general, section 6708 imposes a
penalty of $10,000 per day for the fail-
ure of a person required to maintain a list
undersection6112tofurnishthelistto
the IRS, upon written request, within 20
business days after the date of the request,
absent reasonable cause.
Proposed §301.6708–1(b) provides that
the20-business-dayperiodbeginsonthe
first business day following the earlier of
the date that the IRS: (1) mails the request
for the section 6112 list by certified or reg-
isteredmailtothepersonrequiredtomain-
tain the list; (2) hand delivers the request
for the section 6112 list directly to the per-
son; or (3) leaves the request for the sec-
tion 6112 list at the last and usual place of
abode or usual place of business of the per-
son. Proposed §301.6708–1(c) provides
that the person may make the requested list
available to the IRS as required by section
6112 by delivering it to the IRS by either
hand delivery, the U.S. mail, a private de-
livery service, or by arranging with the IRS
to produce the list by another agreed-upon
method within the 20-business-day period
following the list request.
The Treasury Department and the IRS
believe that there are situations in which
it is necessary to permit an extension of
the 20-business-day response period. Pro-
posed §301.6708–1(c)(3) permits the IRS
to grant an extension, at its discretion,
if prior to the expiration of the 20-busi-
ness-day period, the person establishes
that the person cannot reasonably meet the
20-business-day deadline despite diligent
efforts to maintain the materials constitut-
ing a list and to make that list available to
the IRS in the time and manner required
by the Secretary under section 6112. The
proposed regulations explain how to re-
quest an extension and discuss the various
factors that the IRS will consider in de-
termining whether to grant the person’s
extension request. The IRS may, in its
discretion, grant the person’s extension
request in full or in part. The failure of the
IRS to grant the person’s extension request
in full or in part may not be reviewed in
any judicial proceeding.
The conference report accompanying
the enactment of the AJCA amendments
to section 6708 describes the penalty as a
“time-sensitive penalty,” and, accordingly,
no extensions will be granted where the
IRS determines that a significant reason
for the extension request is to delay pro-
duction of the list. See H.R. Rep. No.
108–755, 108th Cong., 2d Sess., at 597.
In this regard, §301.6708–1(c)(3)(ii) of
the proposed regulations requires persons
seeking extensions to affirmatively state
that the extension request is not made
for purposes of avoiding the person’s
list maintenance obligations imposed by
section 6112 and its corresponding reg-
ulations. The Treasury Department and
IRS believe that the time-sensitive nature
of the penalty, in addition to the IRS’s
need for the section 6112 information in a
timely manner, supports the position that
extensions, when granted, will generally
be granted for a short time period. Persons
who are required to maintain a list under
section 6112 are required and expected
to maintain the list in a readily accessible
form. See Treas. Reg. §301.6112–1(d).
May 13, 201310902013–20 I.R.B.

Accordingly, the Treasury Department
and the IRS do not expect that exten-
sions should be routinely requested or
granted. The grant of an extension of the
20-business-day response period will be
warranted only in situations when the per-
son requesting the extension establishes
to the satisfaction of the IRS good cause
for why the deadline cannot be reasonably
met despite diligent efforts to comply with
section 6112. The IRS will adhere to the
guidance in these proposed regulations
regarding extensions pending the publi-
cation of final regulations addressing the
matter.
The conference report accompanying
the AJCA modifications to the section
6708 penalty provides that the “penalty
applies to a person who fails to maintain
a list, maintains an incomplete list, or has
in fact maintained a list but does not make
the list available to the Secretary.” H.R.
Rep. No. 108–755, 108th Cong., 2d Sess.,
at 598. Consistent with the legislative
history of the AJCA, a failure to furnish
the list that triggers the imposition of the
section 6708 penalty may take various
forms. Proposed §301.6708–1(d) provides
that a failure for purposes of section 6708
includes the failure to furnish a list in a
timely manner and in the form required
under section 6112 and its corresponding
regulations. Regarding the determina-
tion of whether the list is furnished in the
form required under section 6112 and its
corresponding regulations, the Treasury
Department and the IRS recognize that
they have issued several regulations under
section 6112 and that the description of the
required contents of a list maintained un-
der section 6112 has varied over time. The
Treasury Department and the IRS intend
that the description of the contents of the
list that is used for purposes of this penalty
is the description required by section 6112
(and any corresponding regulations) that
was in effect on the date the material ad-
visor’s list preparation and maintenance
requirement arose with respect to the re-
portable transaction.
The IRS will make reasonable efforts
to review responses submitted under sec-
tion 6112 and inform the person of any
potential or identified failures in the per-
son’s response on a timely basis. If the
person’s response is determined to be
incomplete, or untimely, the IRS may im-
pose the section 6708 penalty on a daily
basis, consistent with section 6708(a)
and proposed §301.6708–1(e). Proposed
§301.6708–1(e) provides that the section
6708 penalty accrues on a daily basis,
absent reasonable cause, beginning on the
first calendar day after the expiration of
the 20-business-day period following a
written list request, and continues for each
calendar day until, and including, the day
the person furnishes a list that complies
with the requirements of section 6112 and
its corresponding regulations. If the IRS
grants an extension of the 20-business-day
period, proposed §301.6708–1(e)(2) pro-
vides that the section 6708 penalty accrues
on a daily basis, absent reasonable cause,
beginning on the first calendar day after
the expiration of the extension period, and
continues each calendar day thereafter
until, and including, the day the person
furnishes a list that complies with the
requirements of section 6112 and its cor-
responding regulations.
Proposed §301.6708–1(e)(3) provides
guidance on the obligations of, and assess-
ment of penalties against, a material advi-
sor when more than one material advisor
provided advice on a particular transaction
and the material advisors are parties to a
designation agreement pursuant to section
6112 and its corresponding regulations.
The section 6708 penalty will not be im-
posed for any day for which the material
advisor establishes that there was reason-
able cause for the failure to make the list
available. Proposed §§301.6708–1(g) and
(h) describe reasonable cause for purposes
of the section 6708 penalty. Reasonable
cause is determined on a day-by-day and
case-by-case basis, taking into account all
the relevant facts and circumstances. The
material advisor against whom the penalty
is imposed has the burden of proving that
reasonable cause exists for a specific day
or days. Facts and circumstances relevant
to a material advisor’s reasonable cause
for failing to provide the list on a specific
day include facts and circumstances aris-
ing subsequent to the request for the list
and the material advisor’s response to the
request. Thus, if the material advisor es-
tablishes reasonable cause, the IRS will
abate the penalty completely or for the pe-
riod to which the established reasonable
cause relates, which may be for a specific
day, days, or the entire period. Proposed
§301.6708–1(g)(6) provides examples in-
volving reasonable cause.
Because reasonable cause can be shown
to exist in situations involving a variety
of facts and circumstances, the proposed
regulations include a nonexclusive list of
categories of reasonable cause factors that
the IRS will consider. Pursuant to pro-
posed §301.6708–1(g)(2), the most impor-
tant factors in a reasonable cause analysis
are those that reflect the extent of the ma-
terial advisor’s good-faith efforts to timely
and fully comply with section 6112. Pro-
posed §301.6708–1(g)(3) provides that the
exercise of ordinary business care by a
material advisor may constitute reasonable
cause, but only where the material advi-
sor shows that it took immediate steps to
correct any failure upon its discovery. A
material advisor’s failure to take immedi-
ate steps to correct a failure shall be a fac-
tor weighing against a finding that the ma-
terial advisor exercised ordinary business
care.
Proposed §301.6708–1(g)(4) provides
that reasonable cause may exist if a failure
is due solely to a supervening event, such
as illness, theft, fire, flood, storm, or other
similar, unexpected event that is beyond
the material advisor’s control and that pre-
vents the material advisor from making the
list available pursuant to the requirements
of section 6112.
Proposed §301.6708–1(g)(5) provides
that reasonable cause may be established
if the material advisor relied on the advice
of an “independent tax professional” as de-
fined in the proposed regulations. The pro-
posed regulations explain that the reliance
on an independent tax professional’s ad-
vice must be reasonable and in good faith,
and will be viewed in light of all the rel-
evant facts and circumstances. In addi-
tion to other factors described in the reg-
ulations, the advice must be received by
the person prior to the time that the list
is required to be furnished to the IRS. If
the person received advice from an inde-
pendent tax professional, the person’s re-
liance on that advice will be considered
reasonable only if the independent tax pro-
fessional expressed a reasonable belief that
it is more likely than not that the person
is compliant with section 6112 or does
not have an obligation imposed by sec-
tion 6112. Advice from a nonindependent
tax professional may be considered in con-
junction with all other relevant facts and
circumstances but by itself is not sufficient
to establish reasonable cause.
2013–20 I.R.B.1091May 13, 2013

Proposed §301.6708–1(h) describes
additional reasonable cause factors that
are applicable in limited factual circum-
stances. Proposed §301.6708–1(h)(1)
provides that if a material advisor dis-
solves, is liquidated, or is otherwise no
longer in existence, the IRS will consider
facts surrounding the winding up of the
business of the material advisor as well as
any efforts made by the material advisor
to comply with section 6112 prior to its
dissolution or liquidation when consider-
ing whether a successor material advisor
has reasonable cause for any failure.
If the material advisor establishes that
it acted in good faith (within the mean-
ing of proposed §301.6708–1(g)(2)) in its
efforts to fully comply with the require-
ments of section 6112, the material advisor
will have reasonable cause for the days be-
tween when the material advisor provided
the list to the IRS and when the IRS re-
views the list. If the material advisor does
not establish that it acted in good faith, the
IRS will not consider the time taken by the
IRS to review a list or inform a material
advisor of identified failures as a factor in
determining whether the material advisor
has reasonable cause for that period.
Proposed §301.6708–1(h)(3) provides
examples to illustrate when a material ad-
visor has acted in good faith.
Proposed Effective Date
The regulations, as proposed, apply to
all written requests made after the date of
publication of a Treasury decision adopt-
ing these rules as final regulations in the
Federal Registerfor lists required to be
maintained under section 6112, including
lists persons were required to maintain un-
der section 6112(a) as in effect before Oc-
tober 22, 2004, the date of enactment of
theAJCA.Therulesintheseproposedreg-
ulations may be relied upon by persons
required to maintain a list under section
6112 regarding list requests made before
the publication of the Treasury decision.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in Exec-
utive Order 12866, asamended by Exec-
utive Order 13563. Therefore, a regula-
tory assessment is not required. It also has
been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regu-
lations. It is hereby certified that the col-
lection of information in these regulations
will not have a significant economic im-
pact on a substantial number of small en-
tities. This certification is based on the
fact that the collection of information de-
scribed above under the heading “Paper-
work Reduction Act” only affects persons
who qualify as material advisors as de-
fined in section 6111, who are statutorily
requiredbysection6112tomaintainand
furnish the underlying documents and in-
formation upon which the collection of in-
formation is based, and who are unable to
meet the section 6708 statutorily provided
period of time for furnishing these docu-
ments and information. Moreover, requir-
ing those persons to report the information
described above imposes only a minimal
burden in time or expense. Therefore, a
Regulatory Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C. chap-
ter 6) is not required. Pursuant to section
7805(f) of the Internal Revenue Code, this
regulation will be submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on its
impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written comments
(a signed original and eight (8) copies)
or electronic commentsthat are submitted
timely to the IRS. The Treasury Depart-
ment and IRS specifically request com-
ments on the clarity of the proposed regu-
lations and on how they can be made easier
to understand. All comments submitted by
the public will be made available for pub-
lic inspection and copying.
A public hearing has been scheduled
for July 2, 2013, beginning at 10:00 A.M.
in the Auditorium (7
th
Floor) of the Inter-
nal Revenue Building, 1111 Constitution
Avenue, N.W., Washington, DC. Due to
building security procedures, visitors must
enter at the Constitution Avenue entrance.
In addition, all visitors must present photo
identification to enter the building. Be-
cause of access restrictions, visitors will
not be admitted beyond the immediate en-
trance area more than 30 minutes before
the hearing starts. For information about
having your name placed on the building
access list to attend the hearing, see the
“FOR FURTHER INFORMATION CON-
TACT” section of this preamble.
The rules of 26 CFR 601.601(a)(3) ap-
ply to the hearing. Persons who wish to
present oral comments at the hearing must
submit electronic or written comments by
June 6, 2013 and an outline of the topics
to be discussed and the time to be devoted
to each topic (signed original and eight (8)
copies) by June 10, 2013. A period of 10
minutes will be allotted to each person for
making comments. An agenda showing
the schedule of the speakers will be pre-
pared after the deadline for receiving out-
lines has passed. Copies of the agenda will
be available free of charge at the hearing.
Drafting Information
The principal author of these regula-
tions is Lawrence E. Mack, Office of the
Associate Chief Counsel (Procedure and
Administration).
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 301 is pro-
posed to be amended as follows:
PART 301 — PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 is amended by adding an entry in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 301.6708–1 also issued under
26U.S.C.6708***
Par. 2. Section 301.6708–1 is added to
read as follows:
§301.6708–1 Failure to maintain lists
of advisees with respect to reportable
transactions.
(a)In general. Any person who is re-
quired to maintain a list under section 6112
who, upon written request for the list, fails
to make the list available to the Secretary
within 20 business days after the date of
the request shall be subject to a penalty
in the amount of $10,000 for each sub-
sequent calendar day on which the per-
son fails to furnish a list containing the
May 13, 201310922013–20 I.R.B.

information and in the form required by
section 6112 and its corresponding regu-
lations. The penalty will not be imposed
on any particular day or days for which the
person establishes that the failure to com-
ply on that day is due to reasonable cause.
(b)Calculation of the 20-business-day
period. The 20-business-day period shall
begin on the first business day after the
earliest of the date that the IRS —
(1) Mails a request for the list required
to be maintained under section 6112(a) by
certified or registered mail to the person
required to maintain the list;
(2) Hand delivers the written request to
the person required to maintain the list; or
(3) Leaves the written request at the last
and usual place of abode or usual place of
business of the person required to maintain
the list.
(c)Making a list available—(1) A per-
son who is required to maintain a list re-
quired by section 6112 may make the list
available by mailing or delivering it to the
IRS within 20 business days after the date
of the list request. Section 7502 and the
regulations thereunder shall apply to this
section.
(2) A person who is required to main-
tain a list required by section 6112 may
also make the list available to the IRS
by making it available for inspection dur-
ing normal business hours, as provided by
section 6112, or by another agreed-upon
method, on an agreed upon date that falls
within the 20-business-day period follow-
ing the list request.
(3)Extension.(i)In general.Upon
a showing of good cause by the person
prior to the expiration of the 20-business-
day period following a list request, the
IRS may, in its discretion, agree to ex-
tend the period within which to make all
or part of the list available. For purposes
of this paragraph, “good cause” is shown if
the person establishes that the 20-business-
day deadline cannot reasonably be met de-
spite diligent efforts by the person to main-
tain the materials constituting a list and to
make that list available to the IRS in the
time and manner required by the Secretary
under section 6112.
(ii)Requesting an extension.Anyre-
quest for an extension of the 20-business-
dayperiodmustbemadeinwritingto
the person at the IRS who requested the
list. The person requesting an extension
must briefly describe the information and
documents that comprise the list as re-
quired by section 6112, explain the cir-
cumstances that would warrant additional
time,proposeascheduleforthecomple-
tion of the production of the list, state that
to the best of the person’s knowledge all
information and records relating to the list
under the possession, custody, or control of
the person have been maintained in accor-
dance with procedures and policies that are
consistent with sections 6001 and 6112 of
the Internal Revenue Code, and state that
the extension request is not being made
for purposes of avoiding the person’s list
maintenance obligations imposed by sec-
tion 6112 and its corresponding regula-
tions. The IRS may, in its discretion, grant
the person’s extension request in full or in
part. The IRS will consider whether grant-
inganextensionmayimpairitsabilityto
make a timely assessment against any of
the participants in the transaction associ-
ated with the requested list. No exten-
sions will be granted if the IRS determines
that a significant reason for the extension
request is to delay production of the list.
The failure of the IRS to grant the per-
son’s extension request in full or in part
may not be reviewed in any judicial pro-
ceeding. A pending extension request by
itself does not constitute reasonable cause
for purposes of section 6708.
(4)Example. The following example
illustrates paragraph (c)(3)(i) and (ii) of
this section:
Example. Firm A is a large law firm that is a
material advisor. Firm A conducts annual sessions
to educate its professionals about reportable transac-
tions and the obligations of the firm related to those
reportable transactions. Firm A instructs its profes-
sionals to provide information on tax engagements
that involve reportable transactions and to provide the
documents required to be maintained under section
6112 to Firm A’s compliance officer for list mainte-
nance purposes. Firm A’s policy provides that, for
each engagement involving a reportable transaction,
one firm professional will send an email to the firm’s
compliance officer about the engagement and then di-
rect a subordinate to send the documents required to
be maintained to the firm’s compliance officer.
Firm A receives a request from the IRS for a sec-
tion 6112 list. In compiling its list to turn over to
the IRS during the 20-business-day period following
the list request, Firm A discovers that, with respect
to one reportable transaction, a subordinate did not
provide the documentation required by Firm A’s pol-
icy. In addition, Firm A experiences difficulty locat-
ing the required documents as both the professional
and the subordinate who worked on the matter are no
longer employed by Firm A, requiring the firm to un-
dertake an extensive search of its storage facility for
the documents responsive to the list request. Firm
A also seeks the materials from the firm’s clients,
but they are unable to respond timely to the request.
Firm A notifies the IRS, in writing, of the difficul-
ties it is experiencing, and provides all other required
list information to the IRS, together with a descrip-
tion of the documents that are being searched for at
the storage facility, a proposed schedule of produc-
tion of the documents within 10 business days, and
all statements required by these regulations, within
the 20-business-day period while it locates the docu-
ments for this one engagement.
Under these circumstances, Firm A demonstrated
that it could not reasonably make the portion of the
list relating to the one engagement, including the doc-
uments in the storage facility, available within the
20-business-day period and thus qualified for an ex-
tension. Firm A had established procedures reason-
ably designed and implemented to ensure compliance
with the requirements of section 6112. The facts indi-
cate that Firm A made diligent efforts to maintain the
materials constituting the list in a readily accessible
form and as otherwise required by the Secretary un-
der section 6112. Based on the above, the IRS should
grant a 10-business-day extension with respect to the
portion of the list including the documents that are lo-
cated at the storage facility.
(d)Failure to make list available.A
failure to make the list available includes
any failure to furnish the requested list to
the IRS in a timely manner and in the form
required under section 6112 and its corre-
sponding regulations. Examples of fail-
ures to make a list available include in-
stances in which a person fails to furnish
any list; furnishes an incomplete list; or
furnishes a list, whether or not complete,
after the time required by this section.
(e)Computation of penalty—(1)In gen-
eral. The penalty imposed by section 6708
accrues daily, beginning on the first calen-
dar day after the expiration of the 20-busi-
ness-day period following a written list
request, and continues for each calendar
day thereafter until, and including, the day
the person’s failure to furnish a list in the
form required by section 6112 and its cor-
responding regulations ends.
(2)Computation of penalty after grant
of extension.If the IRS grants an extension
of the 20-business-day period pursuant to
paragraph (c)(3) of this section, the penalty
imposed by section 6708 accrues daily,
beginning on the first calendar day after
the expiration of the extension period, and
continues for each calendar day thereafter
until, and including, the day the person’s
failure to furnish a list in the form required
by section 6112 and its corresponding reg-
ulations ends.
(3)Designation agreements and con-
current application of penalty. If ma-
terial advisors with respect to the same
2013–20 I.R.B.1093May 13, 2013

reportable transaction enter into a des-
ignation agreement pursuant to section
6112(b)(2) and §301.6112–1(f), separate
penalties shall be imposed upon desig-
nated material advisors and nondesignated
material advisors who are parties to the
designation agreement for their respective
periods of failure or noncompliance with
a list request. A penalty shall continue
to accrue against a material advisor who
is a party to a designation agreement un-
til such time when a list complying with
the requirements of section 6112 and its
corresponding regulations is furnished by
that material advisor or any other material
advisor who is a party to the designation
agreement.
(4)Example. The following example il-
lustrates paragraphs (b) through (e) of this
section.
Example. The IRS hand delivers a written re-
quest for the list required to be maintained under sec-
tion 6112 to Firm B, a material advisor, on Friday,
March 4, 2011. Firm B must make the list avail-
able to the IRS on or before Friday, April 1, 2011,
the 20th business day after the request was hand de-
livered. If Firm B fails to make the list available to
the IRS by that day, absentreasonable cause or the
IRS grant of an extension for the response time, the
$10,000-per-day penalty begins on Saturday, April
2, 2011. The $10,000 per day penalty will continue
for each subsequent calendar day until Firm B makes
the complete list available, except for those days for
which Firm B demonstrates reasonable cause. If Firm
B hand delivers a complete copy of the requested list
to the IRS on the morning of Tuesday, April 5, 2011,
absent reasonable cause or the IRS prior grant of an
extension for the response time, a penalty of $40,000
will be imposed upon Firm B. See paragraphs (g) and
(h) of this section for an explanation of reasonable
cause.
(f)Definitions. For purposes of this sec-
tion, the following definitions apply:
(1)Material advisormeans a per-
son described in section 6111 and
§301.6111–3(b).
(2)Business daymeans every calendar
day other than a Saturday, Sunday, or le-
gal holiday within the meaning of section
7503.
(3)Reportable transactionmeans
a transaction described in section
6707A(c)(1) and section 1.6011–4(b)(1).
(4)Listed transactionmeans a transac-
tion described in section 6707A(c)(2) and
§1.6011–4(b)(2) of this chapter.
(g)Reasonable cause – general appli-
cability—(1)Overview. The section 6708
penalty will not be imposed for any day or
days for which the person shows that the
failure to make a complete list available to
the IRS was due to reasonable cause. The
determination of whether a person had rea-
sonable cause is made on a case-by-case
and day-by-day basis, taking into account
all the relevant facts and circumstances.
Facts and circumstances relevant to a ma-
terial advisor’s reasonable cause for failing
to provide the list on a specific day include
facts and circumstances arising subsequent
to the request for the list. The showing
of reasonable cause made by the person
should relate to each specific day or days
for which the person failed to provide the
requested list. Reasonable cause includes,
but is not limited to, factors identified in
paragraphs (g) and (h) of this section.
(2)Good-faith factors.Themostim-
portant factors to establish reasonable
cause are those that reflect the extent of
the person’s good-faith efforts to comply
with section 6112. The following factors,
which are not exclusive, will be consid-
ered in determining whether a person has
made a good-faith effort to comply with
the requirements of section 6112:
(i) The person’s efforts to determine or
assess its status as a material advisor as
defined by section 6111;
(ii) The person’s efforts to determine
the information and documentation re-
quired to be maintained under section
6112;
(iii) The person’s efforts to meet its
obligations to maintain a readily-pro-
ducible list as required by section 6112;
(iv) The person’s efforts to make the list
available to the IRS within the 20-busi-
ness-day period (or extended period) fol-
lowing the list request; and
(v) The person’s efforts to ensure that
the list that is furnished to the IRS is accu-
rate and complete.
(3)Ordinary business care. The exer-
cise of ordinary business care may consti-
tute reasonable cause. To show ordinary
business care, the person may, for exam-
ple, show that it established, and adhered
to, procedures reasonably designed and
implemented to ensure compliance with
the requirements of section 6112. In all
instances when ordinary business care is
claimed as constituting reasonable cause,
a person must show that it took imme-
diate steps to correctany failure relating
to the list upon its discovery. The failure
of a person to take immediate steps to
correct a failure related to the list upon
thediscoveryofthefailureshallbea
factor weighing against a conclusion that
the person exercised ordinary business
care. Notwithstanding the occurrence of
an isolated and inadvertent failure, a per-
son still may be able to demonstrate that
the person exercised ordinary business
care, considering all the relevant facts
and circumstances, but only if the person
had established and adhered to procedures
reasonably designed and implemented to
ensure compliance with the requirements
of section 6112.
(4)Supervening events. A person may
establish reasonable cause for one or more
days for which, considering all the rele-
vant facts and circumstances, the failure to
timely furnish the list required by section
6112 was due solely to a supervening event
beyond the person’s control. Events be-
yond a person’s control may include fire,
flood, storm, or other casualty; illness;
theft; or other similarly unexpected event
that damages or impairs the person’s rel-
evant business records or system for pro-
cessing and providing these records, or that
affects the person’s ability to maintain the
section 6112 list or make it available to the
IRS. Reasonable cause may be established
only for the period that a person who exer-
cised ordinary business care would need to
provide the list from alternative records in
existence, or make the list available, under
the specific facts and circumstances.
(5)Reliance on opinion or advice.(i)
In general. Apersonmayrelyonthe
advice of an independent tax professional
to establish reasonable cause. The re-
liance, however, must be reasonable and
in good faith, in light of all the other facts
and circumstances. For a person to be
considered to have relied on the advice,
the advice must have been received by
the person prior to the date upon which
that person would otherwise have failed
to make the list available as required by
section 6112 and these regulations. If
the person received advice from an in-
dependent tax professional, the person’s
reliance on that advice will be considered
reasonable only if the independent tax
professional expressed a reasonable belief
that it is more likely than not that the per-
son does not have an obligation imposed
by section 6112. For example, this advice
may conclude that the person is not a ma-
terial advisor; that the transaction upon
which the person provided material aid,
assistance, or advice is not a reportable
May 13, 201310942013–20 I.R.B.

transaction for which a list was required to
be maintained as of the date of the advice;
that the information and documents to be
produced constitute the required list; or
that the information or documents with-
heldbythepersonarenotrequiredtobe
produced. The advice must also take into
account and consider all relevant facts and
circumstances, not rely on unreasonable
legal or factual assumptions, not rely on
or take into account the possibility that
a list request may not be made, and not
rely on unreasonable representations or
statements of the person seeking the ad-
vice. Advice from a nonindependent tax
professional may be considered in the de-
termination of reasonable cause in light of
andinrelationtoallthe other facts and cir-
cumstances, but by itself is not sufficient
to establish reasonable cause.
(ii)Independent tax professional.For
purposes of this section, an independent
tax professional is a person who is knowl-
edgeable in the relevant aspects of Federal
tax law and who is not a material advisor
with respect to the specific transaction that
is the subject of the list request. For ad-
vice related to a listed transaction, a person
who is a material advisor with respect to
any transaction that is the same as or sub-
stantially similar to the type of transaction
that is the subject of the list request will
not be considered an independent tax pro-
fessional.
(6)Examples. The following exam-
ples illustrate this paragraph (g). These
examples are intended to illustrate how
the facts and circumstances in paragraphs
(g)(2) through (g)(5) of this section may
apply; however, in any given case, all of
the facts and circumstances must be ana-
lyzed.
Example 1. On August 11, 2011, the IRS sends a
list request via certified mail to Firm C, a material ad-
visor. Firm C consists of a sole practitioner, X, who
is away from the office on vacation on this date. X
has arranged for a colleague, Y, to review Firm C’s
mail, email, and telephone messages daily during his
absence. X returns to the office the day after his va-
cation ends, on September 2, 2011, and immediately
contacts the IRS to notify it of his absence. Firm C
provides a complete list to the IRS on September 19,
2011, 10 business days after he has returned from va-
cation. Firm C establishes that X was on vacation at
the time the list request was sent to Firm C, and Firm
C promptly provided the requested list in a manner
and time period reflecting ordinary business care and
prudence upon X’s return to the office. Under these
circumstances, Firm C isconsidered to have made
a good-faith effort to comply with the requirements
of section 6112. Firm C has established reasonable
cause for the entire period between the expiration of
the 20-business-day period following the list request
and the date the list was provided to the IRS. See para-
graphs (g)(2) and (3) of this section.
Example 2. On March 3, 2011, the IRS hand de-
livers to Firm D, a material advisor, a list request re-
lated to a transaction believed by the IRS to have been
implemented in November 2008 by a group of Firm
D’s clients (the advisees). Firm D’s involvement in
the transaction included implementing the transaction
on behalf of some but not all of the advisees. Firm D
timely provides the requested list to the IRS. Upon
review, the IRS determines that the information pro-
vided by Firm D appears to be accurate, but the IRS
believes that some of the information is incomplete
because it does not contain information about certain
individuals who were identified through other inves-
tigative means as clients of Firm D who may have en-
gaged in the transaction. In response to a follow-up
inquiry by the IRS, Firm D establishes, however, that
it is not a material advisor with respect to these tax-
payers. Under these circumstances, Firm D has fur-
nished the list as required by section 6112. Because
the list was complete when furnished, Firm D need
not make a showing of reasonable cause. See para-
graph (g)(1) of this section.
Example 3. The IRS sends a list request by certi-
fied mail to Firm E, a material advisor. Firm E main-
tains the materials responsive to the list request in a
CD-ROM format. Under Firm E’s established pro-
cedures for maintaining section 6112 lists, once the
transaction is completed, the documents are scanned
and saved to a CD-ROM. After the scanning process
is completed, the paper copies of the documents are
sent to an off-site storage facility. Three days prior to
the 20th business day following the date of the writ-
ten request, Firm E’s office is damaged in a building
fire and the CD-ROM is destroyed. Firm E contacts
the IRS representative listed as a contact person on
the section 6112 list request to advise him that the
relevant records were damaged by fire. Under these
circumstances, Firm E has reasonable cause for the
period of time that Firm E cannot respond to the list
request due to circumstances out of Firm E’s control.
The reasonable cause exception, however, will only
be available to Firm E for the period of time that a per-
son who exercises ordinary business care would need
to obtain the paper copies of the documents from the
off-site storage facility and provide the list to the IRS.
See paragraphs (g)(3) and (4) of section.
Example 4. On February 1, 2011, the IRS hand
delivers a list request to Firm F, a material advisor.
Firm F filed with the IRS the disclosure statement re-
quired by section 6111 for the reportable transaction
that is the subject of the list request but did not main-
tain the section 6112 list documentation in a readily
accessible format after the filing of the section 6111
statement. On March 2, 2011, the 20th business day
after the list request is provided to Firm F, Firm F calls
the IRS to ask for additional time to comply with the
list request, stating that it could not gather the list in-
formation together in 20 business days. Because Firm
F is not able to show that it made diligent efforts to
maintain the materials constituting the list in a readily
accessible form, the IRS should not grant Firm F an
extension of time. See paragraph (c)(3) of this sec-
tion. Further, Firm F does not have reasonable cause
because it has demonstrated a lack of a good faith ef-
fort to comply with the requirements of section 6112
and a lack of ordinary business care. See paragraphs
(g)(2) and (3) of this section.
Example 5. On August 11, 2011, the IRS sends a
list request, via certified mail, to Firm G, a material
advisor. Firm G, consisting of a sole practitioner, P,
maintains the materials responsive to the list request
in a CD-ROM format. Generally, once the transaction
is completed, the documents are scanned and then
saved to a CD-ROM. The hard copies of the docu-
ments are sent to off-site storage. P is aware of the
list request but ignores it. On September 22, 2011,
the 13th calendar day after the 20-business-day pe-
riod following the list request, P suffers a temporary
but debilitating illness that lasts 22 days. Following
the illness, P immediately returns to work. After re-
turning to work, P continues to ignore the list request.
In this situation, the facts and circumstances indicate
that Firm G does not have reasonable cause for any
day in which there was a failure to make the list avail-
able to the IRS, because the failure was not due solely
to the supervening event occurring on September 22,
2011, that lasts for 22 days. Firm G did not make
a good-faith effort to make the list available to the
IRS prior to the occurrence of the supervening event.
Firm G is liable for the $10,000 per day penalty from
the first day following the expiration of the 20-busi-
ness-day period until a complete list is provided to the
IRS. See paragraphs (g)(2) and (4) of this section.
Example 6. On August 11, 2011, the IRS sends a
list request, via certified mail, to Firm H, a material
advisor. Firm H, consisting of a sole practitioner, P,
maintains the materials responsive to the list request
in a CD-ROM format. Generally, once the transaction
is completed, the documents are scanned and then
saved to a CD-ROM. The hard copies of the docu-
ments are sent to off-site storage. P is aware of the
list request and begins compiling the documents to
respond to the IRS within the 20-business-day period
ending on September 9, 2011. Prior to responding to
the list request, P suffers a temporary but debilitat-
ing illness on September 3, 2011, that lasts through
September 20, 2011. Upon returning to work on
September 21, 2011, P contacts the IRS to explain
that P experienced a temporary but debilitating ill-
ness from September 3, 2011, through September 20,
2011, and that P has returned to the office and intends
to provide the list response to the IRS within a short
period of time. Firm H provides the list response to
the IRS on September 23, 2011. In this situation,
the facts and circumstances indicate that Firm H has
reasonable cause for the period from September 10,
2011 until September 23, 2011, attributable to P’s ill-
ness. The failure to furnish the list in a timely fashion
was solely attributable to the supervening event oc-
curring on September 3, 2011, and Firm H promptly
provided the requested list in a manner and time pe-
riod reflecting ordinary business care upon P’s return
to the office. Firm H is considered to have made
a good-faith effort to comply with the requirements
of section 6112. Firm H has established reasonable
cause for the entire period between the expiration of
the 20-business-day period following the list request
and the date the list was provided to the IRS. See para-
graphs (g)(2) and (4) of this section.
Example 7. Firm I receives a list request for trans-
actions that are the same or substantially similar to
the listed transaction described in Notice 2002–21,
2002–1 C.B. 730. Firm I will be considered a ma-
terial advisor with respect to a particular transaction
2013–20 I.R.B.1095May 13, 2013

for which it provided advice if the transaction is the
same as or substantially similar to the transaction de-
scribed in Notice 2002–21. Firm I, however, is un-
sure whether the transaction is the same as or substan-
tially similar to the transaction described in Notice
2002–21. Therefore, Firm I seeks an opinion from
Firm L, a law firm, on this issue. P, a partner in Firm
L, provided tax advice to clients who invested in other
Notice 2002–21 transactions regarding reporting the
purported tax benefits on their income tax returns,
and Firm L is a material advisor with respect to those
transactions. Because Firm L is a material advisor
with respect to the type of transaction that is the same
as or substantially similar to the transaction described
in Notice 2002–21, Firm L is not considered an inde-
pendent tax professional. Therefore, Firm I cannot
rely on advice provided by Firm L to establish rea-
sonable cause under this section. The IRS may con-
sider Firm L’s advice in the determination of reason-
able cause in light of other facts and circumstances,
but Firm’s L’s advice is not sufficient to establish rea-
sonable cause independently. See paragraph (g)(5) of
this section.
Example 8. Firm J, a law firm, provides advice
to various clients of the firm regarding the poten-
tial tax benefits of a reportable transaction under
§1.6011–4(b)(5) of this chapter (involving a section
165 loss) and is a material advisor with respect to
the transaction. Firm J also provides advice to Firm
M, an accounting firm, regarding the same transac-
tion. Firm M then advises various Firm M clients
regarding this same transaction, and is a material
advisor. The transaction is not a listed transaction.
Firm N, a law firm that is not associated with Firm
J and has not provided advice with respect to the
same transaction to Firm M, has provided advice to
its own clients regarding other transactions subject to
§1.6011–4(b)(5) of this chapter, but not the particular
transaction that was the subject of Firm J’s advice to
Firm M. The IRS hand delivers a list request to Firm
M, the subject of which is the transaction regarding
which Firm J provided advice to Firm M. At a point
prior to the expiration of the 20-business-day period,
Firm M seeks advice from Firm J and Firm N about
the propriety of withholding certain documents re-
lated to the transaction. Because Firm J provided
advice with respect to the particular transaction that
is the subject of the list request, Firm J is not an
independent tax professional. Although Firm N has
provided advice on a transaction that is considered a
reportable transaction under §1.6011–4(b)(5) of this
chapter, Firm N is considered to be an independent
tax professional, because Firm N did not provide
material assistance with respect to the particular
transaction that is the subject of the list request. See
paragraph (g)(5) of this section.
(h)Reasonable cause – special consid-
erations—(1)Material advisor no longer
in existence. If a material advisor has
dissolved, been liquidated, or otherwise
is no longer in existence, the person re-
quired by section 6112 to maintain the list
(the “responsible person”) is subject to the
penalty for failing to make the list avail-
able. In considering whether a responsible
person or successor in interest has reason-
able cause for any failure to timely make
the list available to the IRS, the IRS will
consider all of the facts and circumstances,
including those facts and circumstances re-
lating to the dissolution, liquidation, and
winding up of the business of the origi-
nal material advisor, and any efforts made
by the original material advisor to comply
with the requirements of section 6112 prior
to the dissolution or liquidation. When ap-
propriate or applicable, due diligence, if
any, performed by a responsible person or
successor in interest will be considered,
and due considerationwillbegivenfor
acts taken by that person to minimize the
potential for violation of the section 6112
requirements.
(2)Review by IRS. Whether reasonable
cause exists for a period of time will be
determined based on all the relevant facts
and circumstances, including facts and cir-
cumstances arising subsequent to the re-
quest for the list. If a material advisor es-
tablishes that it acted in good faith, as de-
fined in paragraph (g)(2) of this section, in
its efforts to comply with the provisions of
section 6112 and its corresponding regula-
tions, the material advisor will be deemed
to have reasonable cause for the periods of
timetakenbytheIRStoreviewafurnished
list for compliance with the requirements
of section 6112 and to inform the material
advisor of any identified failures in the list.
If the material advisor does not establish
that it acted in good faith, the IRS will not
consider the time taken by the IRS to re-
view a list or inform a material advisor of
identified failures as a factor in determin-
ing whether the material advisor has rea-
sonable cause for that period.
(3)Examples. The following examples
illustrate paragraph (h)(2) of this section.
Example 1. On February 1, 2011, the IRS hand
delivers a list request to Firm O, a material advisor.
On March 2, 2011, the 20th business day after the
list request is delivered to Firm O, Firm O sends a
list to the IRS that was contemporaneously prepared
after the issuance of advice with respect to the re-
portable transaction and continuously maintained in
accordance with the requirements of section 6112 and
the related regulations. Prior to sending the list, a
supervisor at Firm O carefully reviewed the list to
verify that it was comprehensive and accurate. The
IRS completes its review on March 22, 2011, and de-
termines that the list is not complete because O fur-
nished a draft copy of the tax opinion, rather than
the final document as the final document had been
mistakenly misfiled. After Firm O is notified of the
missing information, Firm O immediately furnishes
a complete copy of the final version of the tax opin-
ion. Firm O made a good-faith effort to comply with
the requirements of section 6112, including its efforts
to ensure that the list that was furnished to the IRS
was accurate and complete. Firm O has reasonable
cause for the entire period between the expiration of
the 20-business-day period following the list request
and the date the complete list was provided to the IRS.
Example 2. On February 1, 2011, the IRS hand
delivers a list request to Firm P, a material advisor.
Firm P’s involvement in the reportable transaction
included implementing the transaction on behalf of
some but not all of Firm P’s clients. On March 2,
2011, the 20th business day after the list request is de-
livered to Firm P, Firm P sends the list to the IRS. The
IRS completes its review on March 22, 2011. The
IRS believes the client list is incomplete because it
does not contain information about certain individ-
uals who were identified through other investigative
means as clients of Firm P who may have engaged in
the transaction. On March 25, 2011, in response to a
follow-up inquiry by the IRS, Firm P establishes that
it is not a material advisor with respect to these tax-
payers. Therefore, the March 2, 2011 list was com-
plete and accurate. Under these circumstances, Firm
P has timely furnished the list as required by section
6112. Because Firm P complied with the require-
ments of section 6112, Firm P does not need to es-
tablish reasonable cause for the period from March 3,
2011, through March 25, 2011.
Example 3. On February 1, 2011, the IRS hand
delivers a list request to Firm Q, a material advisor.
On March 2, 2011, the 20th business day after the list
request is delivered to Firm Q, Firm Q sends the list
to the IRS. Firm Q had not maintained a list contem-
poraneously after the issuance of advice with respect
to the reportable transaction, and during the 20 busi-
ness days prior to providing the list to the IRS, Firm
Q created the list. To meet the 20-business-day dead-
line, a supervisor did not review the final list prior to
sending the list to the IRS. The IRS completes its re-
view on March 22, 2011, and determines that the list
is not complete because the list does not include 15
persons for whom Firm Q acted as a material advi-
sor with respect to the reportable transaction. Firm
Q provides the additional information on March 25,
2011. Because Firm Q is not able to show that it made
diligent efforts to maintain the materials constituting
the list in a readily accessible form and that it made
a reasonable effort to ensure that the list that was fur-
nished to the IRS was accurate and complete, Firm
Q cannot establish that it exhibited a good faith ef-
fort to comply with the requirements of section 6112.
Firm Q does not have reasonable cause for the fail-
ure to furnish the complete list from March 3, 2011,
through March 25, 2011.
Example 4. Within the 20-business-day period
following a list request, Firm R sends four boxes of
documents comprising the required list to the IRS
using a commercial delivery service. The IRS re-
ceives only three of the boxes because Box 4 was
erroneously self-addressed using Firm R’s office ad-
dress. Box 4 arrives at Firm R’s office on January
6, 2012, the 22nd business day after the list request
was made. Firm R immediately recognizes its cleri-
cal error, promptly contacts the IRS, and resends the
original and unopened Box 4, properly addressed, to
the IRS together with documentation supporting the
error. The IRS receives Box 4 on January 9, 2012.
Under these circumstances, Firm R has reasonable
cause for the late delivery of Box 4, because it made
a good-faith attempt to timely comply with the list
May 13, 201310962013–20 I.R.B.

request and immediately corrected an inadvertent er-
ror upon its discovery. As a result, no penalty will
be imposed based on the delay in providing Box 4.
If, after inspection, the IRS determines that the list
is incomplete or defective, even with the contents of
Box 4, Firm R must establish reasonable cause for the
incomplete nature of the list or the defect to avoid im-
position of a penalty for the period beginning January
5, 2012, until the day that a complete list is provided
by Firm R.
(i)Effective/applicability date.This
section applies to all requests for lists
required to be maintained under section
6112, including lists persons were required
to maintain under section 6112(a) as in
effect before October 22, 2004, made on
or after the date of publication of the Trea-
sury decision adopting these rules as final
regulations in theFederal Register.
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on March 7, 2013,
8:45 a.m., and published in the issue of the Federal Register
for March 8, 2013, 78 F.R. 14939)
Notice of Proposed
Rulemaking
Reporting for Premium
REG–154563–12
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
by cross-reference to temporary regula-
tions.
SUMMARY: In this issue of the Bulletin,
the IRS is issuing temporary regulations
relating to the reporting of bond premium
and acquisition premium. The text of those
regulations also serves as the text of these
proposed regulations.
DATES: Written or electronic comments
must be received by July 17, 2013.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR(REG–154563–12),
room 5203, Internal Revenue Service,
PO Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may
be hand-delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to CC:PA:LPD:PR (REG–154563–12),
Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue, N.W.,
Washington, DC, or sent electronically
viatheFederaleRulemaking
Portal atwww.regulations.gov(IRS
REG–154563–12).
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed reg-
ulations, Pamela Lew, (202) 622–3950;
concerning submissions of comments,
Oluwafunmilayo (Funmi) Taylor, (202)
622–7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
Temporary regulations in this issue of
the Bulletin amend the Income Tax Reg-
ulations (26 CFR part 1) relating to sec-
tion 6049. The temporary regulations set
forth information reporting requirements
related to bond premium and acquisition
premium. The text of the temporary regu-
lations also serves as the text of these pro-
posed regulations.
Consideration of Administrative Burdens
Related to Basis Reporting
A number of commenters have indi-
cated that compliance with basis reporting
requirements and the use of basis and other
information reported by brokers will re-
quire considerable resources and effort on
the part of return preparers and informa-
tion recipients. The Treasury Department
and the IRS are continuing to review all as-
pects of the information reporting process
and are exploring ways to reduce the com-
pliance burden for both brokers and for in-
formation recipients.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866, as supplemented by Execu-
tive Order 13563. Therefore, a regulatory
assessment is not required. It also has been
determined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C. chap-
ter 5) does not apply to these regulations,
and because the regulations do not im-
pose a collection of information on small
entities, the Regulatory Flexibility Act (5
U.S.C. chapter 6) does not apply.
Pursuant to section 7805(f) of the In-
ternal Revenue Code, this notice of pro-
posed rulemaking has been submitted to
the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on its impact on small businesses.
Comments and Request for Public
Hearing
Before these proposed regulations
are adopted as final regulations, consid-
eration will be given to any written (a
signed original and eight (8) copies) or
electronic comments that are submitted
timelytotheIRSasprescribedinthe
preamble under the “Addresses” heading.
The Treasury Department and the IRS
welcome comments on the clarity of the
proposed rules and how they can be made
easier to understand. All comments will
be available atwww.regulations.govfor
public inspection and copying. A public
hearing may be scheduled if requested in
writing by any person that timely submits
written comments. If a public hearing is
scheduled, notice of the date, time, and
place for a public hearing will be published
in theFederal Register.
Drafting Information
The principal author of these regula-
tions is Pamela Lew, Office of Associate
Chief Counsel (Financial Institutions and
Products). However, other personnel from
the IRS and the Treasury Department
participated in their development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.6049–9 also issued under 26
U.S.C. 6049(a). * * *
Par. 2. Section 1.6049–9 is added to
read as follows:
2013–20 I.R.B.1097May 13, 2013

§ 1.6049–9 Premium subject to reporting
for a debt instrument acquired on or after
January 1, 2014.
[The text of proposed § 1.6049–9 is the
same as the text of § 1.6049–9T published
elsewhere in this issue of the Bulletin].
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on April 17, 2013,
8:45 a.m., and published in the issue of the Federal Register
for April 18, 2013, 78 F.R. 23183)
Request for Comments on
Voluntary Tip Compliance
Agreements; Correction
Announcement 2013–33
This document contains corrections to
Announcement 2013–29, 2013–18 I.R.B.
1024, regarding “Request for Comments
on Voluntary Tip Compliance Agree-
ments.” On page 1025, under “How to
Submit Comments,” the paragraph reads:
Comments may be submitted on or before
[insert 90 day period].
It should read:
Comments may be submitted on or be-
foreJuly 31, 2013.
If you have any questions, please con-
tact the National Tip Reporting Compli-
ance Program electronically atTIP.Pro-
gram@irs.govor in writing at the follow-
ing IRS office:
Internal Revenue Service
National Tip Reporting Compliance
3251 North Evergreen Dr. NE
Grand Rapids, MI 49525
May 13, 201310982013–20 I.R.B.

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cases
in litigation, or the outcome of a Service
study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
2013–20 I.R.B.iMay 13, 2013

Numerical Finding List
1
Bulletins 2013–1 through 2013–20
Announcements:
2013-1, 2013-1 I.R.B.251
2013-2, 2013-2 I.R.B.271
2013-3, 2013-2 I.R.B.271
2013-4, 2013-4 I.R.B.440
2013-5, 2013-3 I.R.B.306
2013-6, 2013-3 I.R.B.307
2013-7, 2013-3 I.R.B.308
2013-8, 2013-4 I.R.B.440
2013-9, 2013-4 I.R.B.441
2013-10, 2013-3 I.R.B.311
2013-11, 2013-6 I.R.B.483
2013-12, 2013-11 I.R.B.651
2013-13, 2013-9 I.R.B.532
2013-14, 2013-11 I.R.B.651
2013-15, 2013-11 I.R.B.652
2013-16, 2013-14 I.R.B.738
2013-17, 2013-16 I.R.B.911
2013-19, 2013-14 I.R.B.760
2013-20, 2013-14 I.R.B.761
2013-21, 2013-17 I.R.B.980
2013-22, 2013-17 I.R.B.981
2013-23, 2013-16 I.R.B.940
2013-26, 2013-16 I.R.B.940
2013-27, 2013-17 I.R.B.981
2013-28, 2013-17 I.R.B.982
2013-29, 2013-18 I.R.B.1024
2013-33, 2013-20 I.R.B.1098
Notices:
2013-1, 2013-3 I.R.B.281
2013-2, 2013-6 I.R.B.473
2013-3, 2013-7 I.R.B.484
2013-4, 2013-9 I.R.B.527
2013-5, 2013-9 I.R.B.529
2013-6, 2013-10 I.R.B.540
2013-7, 2013-6 I.R.B.477
2013-8, 2013-7 I.R.B.486
2013-9, 2013-9 I.R.B.529
2013-10, 2013-8 I.R.B.503
2013-11, 2013-11 I.R.B.610
2013-12, 2013-10 I.R.B.543
2013-13, 2013-12 I.R.B.659
2013-14, 2013-13 I.R.B.712
2013-15, 2013-14 I.R.B.739
2013-16, 2013-14 I.R.B.740
2013-18, 2013-14 I.R.B.742
2013-19, 2013-14 I.R.B.743
2013-20, 2013-15 I.R.B.902
2013-21, 2013-15 I.R.B.903
2013-22, 2013-15 I.R.B.904
2013-23, 2013-16 I.R.B.906
Notices— Continued:
2013-24, 2013-16 I.R.B.909
2013-25, 2013-17 I.R.B.978
2013-26, 2013-18 I.R.B.984
2013-27, 2013-18 I.R.B.985
2013-28, 2013-19 I.R.B.1039
2013-17, 2013-20 I.R.B.1082
2013-29, 2013-20 I.R.B.1085
Proposed Regulations:
REG-155929-06, 2013-11 I.R.B.650
REG-106918-08, 2013-13 I.R.B.714
REG-141066-09, 2013-3 I.R.B.289
REG-148873-09, 2013-7 I.R.B.494
REG-102966-10, 2013-10 I.R.B.579
REG-120391-10, 2013-18 I.R.B.1005
REG-132702-10, 2013-19 I.R.B.1042
REG-140649-11, 2013-12 I.R.B.666
REG-118315-12, 2013-14 I.R.B.746
REG-122706-12, 2013-19 I.R.B.1043
REG-122707-12, 2013-5 I.R.B.450
REG-148500-12, 2013-13 I.R.B.716
REG-160873-04, 2013-20 I.R.B.1089
REG-154563-12, 2013-20 I.R.B.1097
Revenue Procedures:
2013-1, 2013-1 I.R.B.1
2013-2, 2013-1 I.R.B.92
2013-3, 2013-1 I.R.B.113
2013-4, 2013-1 I.R.B.126
2013-5, 2013-1 I.R.B.170
2013-6, 2013-1 I.R.B.198
2013-7, 2013-1 I.R.B.233
2013-8, 2013-1 I.R.B.237
2013-9, 2013-2 I.R.B.255
2013-10, 2013-2 I.R.B.267
2013-11, 2013-2 I.R.B.269
2013-12, 2013-4 I.R.B.313
2013-13, 2013-6 I.R.B.478
2013-14, 2013-3 I.R.B.283
2013-15, 2013-5 I.R.B.444
2013-16, 2013-7 I.R.B.488
2013-17, 2013-11 I.R.B.612
2013-18, 2013-8 I.R.B.503
2013-19, 2013-11 I.R.B.648
2013-20, 2013-14 I.R.B.744
2013-21, 2013-12 I.R.B.660
2013-22, 2013-18 I.R.B.985
2013-23, 2013-17 I.R.B.978
Revenue Rulings:
2013-1, 2013-2 I.R.B.252
2013-2, 2013-10 I.R.B.533
2013-3, 2013-8 I.R.B.500
2013-4, 2013-9 I.R.B.520
2013-5, 2013-9 I.R.B.525
Revenue Rulings— Continued:
2013-6, 2013-13 I.R.B.701
2013-7, 2013-11 I.R.B.608
2013-8, 2013-15 I.R.B.763
2013-9, 2013-15 I.R.B.764
2013-11, 2013-20 I.R.B.1059
Tax Conventions:
2013-16, 2013-14 I.R.B.738
Treasury Decisions:
9601, 2013-10 I.R.B.535
9603, 2013-3 I.R.B.273
9605, 2013-11 I.R.B.587
9606, 2013-11 I.R.B.586
9607, 2013-6 I.R.B.469
9608, 2013-3 I.R.B.274
9609, 2013-12 I.R.B.655
9610, 2013-15 I.R.B.765
9611, 2013-13 I.R.B.699
9612, 2013-13 I.R.B.678
9613, 2013-15 I.R.B.900
9614, 2013-17 I.R.B.947
9615, 2013-19 I.R.B.1026
9616, 2013-20 I.R.B.1061
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2012–27 through 2012–52 is in Internal Revenue Bulletin
2012–52, dated December 27, 2012.
May 13, 2013ii2013–20 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2013–1 through 2013–20
Announcements:
2012-42
Obsoleted by
T.D. 9610, 2013-15 I.R.B.765
2013-12
Supplemented by
Ann. 2013-22, 2013-17 I.R.B.981
Notices:
87-64
Obsoleted by
T.D. 9614, 2013-17 I.R.B.947
2000-45
Modified and superseded by
Notice 2013-18, 2013-14 I.R.B.742
2008-10
Obsoleted by
T.D. 9615, 2013-19 I.R.B.1026
2010-60
Obsoleted by
T.D. 9610, 2013-15 I.R.B.765
2011-14
Amplified and supplemented by
Notice 2013-7, 2013-6 I.R.B.477
2011-34
Obsoleted by
T.D. 9610, 2013-15 I.R.B.765
2011-38
Obsoleted by
REG-148873-09, 2013-7 I.R.B.494
2011-53
Obsoleted by
T.D. 9610, 2013-15 I.R.B.765
2012-60
Superseded by
Notice 2013-1, 2013-3 I.R.B.281
2013-1
Modified and superseded by
Notice 2013-16, 2013-14 I.R.B.740
Proposed Regulations:
REG-140668-07
Corrected by
Ann. 2013-6, 2013-3 I.R.B.307
Revenue Procedures:
87-57
Modified by
Rev. Proc. 2013-13, 2013-6 I.R.B.478
2004-66
Modified and superseded by
Rev. Proc. 2013-11, 2013-2 I.R.B.269
2008-35
Modified and superseded by
Rev. Proc. 2013-14, 2013-3 I.R.B.283
2008-50
Modified and superseded by
Rev. Proc. 2013-12, 2013-4 I.R.B.313
2011-14
Modified by
Rev. Proc. 2013-20, 2013-14 I.R.B.744
2011-49
Modified by
Rev. Proc. 2013-6, 2013-1 I.R.B.198
2011-52
Modified and partly superseded by
Rev. Proc. 2013-15, 2013-5 I.R.B.444
2011-55
Amplified and supplemented by
Notice 2013-7, 2013-6 I.R.B.477
2011-61
Superseded by
Rev. Proc. 2013-17, 2013-11 I.R.B.612
2011-62
Superseded by
Rev. Proc. 2013-18, 2013-8 I.R.B.503
2012-1
Superseded by
Rev. Proc. 2013-1, 2013-1 I.R.B.1
2012-2
Superseded by
Rev. Proc. 2013-2, 2013-1 I.R.B.92
2012-3
Superseded by
Rev. Proc. 2013-3, 2013-1 I.R.B.113
2012-4
Superseded by
Rev. Proc. 2013-4, 2013-1 I.R.B.126
2012-5
Superseded by
Rev. Proc. 2013-5, 2013-1 I.R.B.170
2012-6
Superseded by
Rev. Proc. 2013-6, 2013-1 I.R.B.198
Revenue Procedures— Continued:
2012-7
Superseded by
Rev. Proc. 2013-7, 2013-1 I.R.B.233
2012-8
Superseded by
Rev. Proc. 2013-8, 2013-1 I.R.B.237
2012-9
Superseded by
Rev. Proc. 2013-9, 2013-2 I.R.B.255
2012-10
Superseded by
Rev. Proc. 2013-10, 2013-2 I.R.B.267
2012-30
Corrected and clarified by
Ann. 2013-3, 2013-2 I.R.B.271
Updated by
Ann. 2013-10, 2013-3 I.R.B.311
2012-46
Corrected by
Ann. 2013-11, 2013-6 I.R.B.483
2013-1
Corrected by
Ann. 2013-9, 2013-4 I.R.B.441
2013-4
Modified by
Rev. Proc. 2013-22, 2013-18 I.R.B.985
2013-6
Revised by
Ann. 2013-15, 2013-11 I.R.B.652
Corrected by
Ann. 2013-13, 2013-9 I.R.B.532
2013-8
Modified by
Rev. Proc. 2013-22, 2013-18 I.R.B.985
2013-14
Modified by
Rev. Proc. 2013-19, 2013-11 I.R.B.648
Revenue Rulings:
92-19
Supplemented in part by
Rev. Rul. 2013-4, 2013-9 I.R.B.520
Treasury Decisions:
9564
Corrected by
Ann. 2013-4, 2013-4 I.R.B.440
Amended by
Ann. 2013-7, 2013-3 I.R.B.308
9604
Corrected by
Ann. 2013-19, 2013-14 I.R.B.760
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2012–27 through 2012–52 is in Internal Revenue Bulletin 2012–52, dated December 27,
2012.
2013–20 I.R.B.iiiMay 13, 2013

Internal Revenue Service
W
ashington,DC20224
Official Business
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INTERNAL REVENUE BULLETIN
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