[Federal Register Volume 63, Number 156 (Thursday, August 13, 1998)]
[Proposed Rules]
[Pages 43354-43361]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-21640]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 301
[REG-209813-96]
RIN 1545-AU15
Reporting Requirements for Widely Held Fixed Investment Trusts
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
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SUMMARY: This document contains proposed regulations that define widely
held fixed investment trusts, clarify the reporting obligations of the
trustees of these trusts and the middlemen connected with these trusts,
and provide for the communication of necessary tax information to
beneficial owners of trust interests. This document also provides
notice of a public hearing on these proposed regulations.
DATES: Written comments must be received by November 12, 1998. Requests
to speak (with outlines of oral comments) at a public hearing scheduled
for Thursday, November 5, 1998 at 10 a.m. must be submitted by October
15, 1998.
ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-209813-96), room
5228, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. In the alternative, submissions may be hand
delivered between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R
(REG-209813-96), Courier's Desk, Internal Revenue Building, 1111
Constitution Avenue, NW., Washington, DC. Alternatively, taxpayers may
submit comments electronically via the Internet by selecting the ``Tax
Regs'' option on the IRS Home Page, or by submitting comments directly
to the IRS Internet site at http://www.irs.ustreas.gov/prod/tax__regs/
comments.html. The public hearing will be held in room 2615, Internal
Revenue Building, 1111 Constitution Avenue, NW., Washington, DC.
FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Faith
Colson, (202) 622-3060; concerning submissions and the hearing, LaNita
Van Dyke, (202) 622-7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in this notice of proposed
rulemaking has been submitted to the Office of Management and Budget
for review in accordance with the Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)). Comments on the collection of information should be
sent to the Office of Management and Budget, Attn: Desk Officer for the
Department of Treasury, Office of Information and Regulatory Affairs,
Washington, DC 20503, with copies to the Internal Revenue Service,
Attn: IRS Reports Clearance Officer, OP:FS:FP, Washington, DC 20224.
Comments on the collection of information should be received by October
13, 1998. Comments are specifically requested concerning:
Whether the proposed collection of information is necessary for the
proper performance of the functions of the Internal Revenue Service,
including whether the information will have practical utility;
The accuracy of the estimated burden associated with the proposed
collection of information (see below);
How the quality, utility, and clarity of the information to be
collected may be enhanced;
How the burden of complying with the proposed collection of
information may be minimized, including through the application of
automated collection techniques or other forms of information
technology; and
Estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of service to provide information.
The collection of information in these proposed regulations is in
Sec. 1.671-4 of the Income Tax Regulations. This information is
required to enable holders of trust interests to report items of
income, deduction, and credit of a widely held fixed investment trust
under section 671. This information will be used by the IRS to ensure
that those items are reported accurately by beneficial owners of trust
interests. The collection of information is mandatory. The likely
respondents are businesses and other for-profit institutions.
Estimated total annual reporting burden: 2,400 hours.
Estimated average annual burden hours per respondent: 2 hours.
Estimated number of respondents: 1,200.
Estimated annual frequency of responses: Annually (but more often
for a trust providing information to certain persons on request).
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a valid
control number assigned by the Office of Management and Budget.
Books or records relating to the 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 proposed amendments to the Income Tax
Regulations (26 CFR part 1) under section 671. The proposed amendments
are to be issued under the authority of sections 671, 6034A,
6049(d)(7), and 7805.
A fixed investment trust is an arrangement classified as a trust
under Sec. 301.7701-4(c). Beneficial interests in these trusts are
divided into units. The Service treats these trusts as grantor trusts
under section 671 and the owners of the beneficial interests, or units,
as the grantors. See Rev. Rul. 84-10 (1984-1 C.B. 155); Rev. Rul. 70-
545 (1970-2 C.B. 7); Rev. Rul. 70-544 (1970-2 C.B. 6); Rev. Rul. 61-175
(1961-2 C.B. 128). Under the proposed regulations, a widely held fixed
investment trust is a fixed investment trust in which any interest is
held by a middleman. For this purpose, the term middleman includes, but
is not limited to, a custodian of a person's account, a nominee, and a
broker holding an interest for a customer in street name. The IRS and
[[Page 43355]]
Treasury request comments on the application and scope of these
definitions, including the appropriateness of a de minimis rule as to
the number of middlemen.
Interests in widely held fixed investment trusts are often held in
the street name of a middleman, who holds such interests on behalf of
the beneficial owners. Thus, trustees frequently do not know the
identity of the beneficial owners and are not in a position to
communicate necessary tax information directly to such owners.
Currently, there are no tax information reporting rules specifically
providing for the sharing of tax information among trustees, middlemen,
and beneficial owners of these trusts.
On December 21, 1995, final regulations (TD 8633) under section
671, relating to the information reporting requirements of grantor
trusts, were published in the Federal Register (60 FR 66085). See
Sec. 1.671-4. While drafting the final regulations, the IRS and
Treasury concluded that special reporting requirements were needed for
widely held fixed investment trusts but that such guidance fell outside
the scope of the final regulations. The preamble to the final
regulations stated that the IRS and Treasury anticipated providing
guidance for these trusts in a separate project and invited comments
from interested taxpayers and practitioners regarding such guidance.
In developing these proposed regulations, the IRS and Treasury have
continued to solicit comments from the public. Comments were received
from various industry members and practitioners, and these proposed
regulations take such comments into account. The proposed regulations
are intended to clarify the reporting requirements of trustees and
middlemen and to ensure that beneficial owners of trust interests
receive accurate and timely tax reporting information. The IRS and
Treasury welcome comments on specific instances of industry practice
that differ significantly from the framework of these proposed
regulations and on suggestions to tailor the reporting requirements to
account for those differences.
Explanation of Provisions
A. General Framework of Reporting Rules
The information reporting framework in the proposed regulations is
similar to that for regular interests in a real estate mortgage
investment conduit. See Sec. 1.6049-7.
Under the proposed regulations, the responsibility for information
reporting lies primarily with the person in the ownership chain who
holds a unit interest for a beneficial owner and is, therefore, in the
best position to communicate with, and provide tax information to, the
beneficial owner. Thus, a brokerage firm that holds a unit interest
directly for an individual as a middleman will have the primary
obligation to report to the IRS and to provide tax information to the
individual. Similarly, if a unit interest is held directly by an
individual and not through a middleman, the trustee is to report to the
IRS and to provide tax information to the individual. Information
reporting generally is not required for interests held by exempt
recipients. Middlemen and trustees, however, are to make trust tax
information available upon request to exempt recipients.
Appropriate adjustments may be necessary to other information
reporting rules to make them compatible with these proposed
regulations.
B. Trustee or Middleman to Report To the IRS on Form 1099
Under proposed Sec. 1.671-4(j)(2)(i)(A), a trustee must report to
the IRS, on the appropriate Forms 1099, the gross amount of trust
income (determined in accordance with proposed Sec. 1.671-4(j)(6)(i))
attributable to a unit interest holder who holds an interest in the
trust directly and not through a middleman. Similarly, under proposed
Sec. 1.671-4(j)(2)(i)(B), a middleman must report for any unit interest
holder on whose behalf or account the middleman holds an interest. (To
comply with this requirement, middlemen may request the necessary tax
information from the trustee. See the discussion below.) In addition,
the trustee or middleman is to report on the appropriate Form 1099 the
gross proceeds from the sale or other disposition of a trust asset that
is attributable to the unit interest holder. Forms 1099 are not
required for any unit interest holder who is an exempt recipient, as
defined in proposed Sec. 1.671-4(j)(1).
C. Statements To Be Furnished to the Beneficial Owners of Unit
Interests
Every middleman or trustee required to file with the IRS a Form
1099 under these proposed regulations for a unit interest holder must
furnish to the unit interest holder a written statement providing the
holder with necessary tax reporting information including: (1) the
items of income (determined in accordance with proposed Sec. 1.671-
4(j)(6)(i)), deduction, and credit of the trust attributable to the
unit interest holder; (2) if any trust asset has been sold or otherwise
disposed of during the calendar year, the portion of the gross proceeds
relating to the trust asset which is attributable to the unit interest
holder, the date of sale or disposition of the trust asset, and the
percentage of that trust asset that has been sold or disposed of; and
(3) any other information necessary for the unit interest holder to
accurately report the income, deductions, and credits of the trust
attributable to the unit interest as required under section 671.
In addition, to enable unit interest holders to calculate gain or
loss on the disposition of a trust asset, if a trust sells or disposes
of a trust asset during a particular calendar year, the proposed
regulations require the trustee or middleman to include, with the
statement to the holder, a schedule showing the portion (expressed as a
percentage) of the total fair market value of all the assets held by
the trust that the trust asset sold or disposed of represented as of
the last day of each quarter that the asset was held by the trust. It
is contemplated that, in the absence of more accurate information, this
information may be used by the unit interest holder to determine the
percentage of the holder's basis in its unit interest that the disposed
asset represents, so that the holder may calculate its gain or loss on
the disposition of the asset.
The IRS and Treasury welcome comments on whether the approach taken
in the proposed regulations to communicate information to enable the
holder of a unit interest to calculate its basis in a trust asset is
effective, or whether a different approach, which continues to be
consistent with the taxation of grantor trusts, would be more
effective. In addition, the IRS and Treasury invite comments on
whether, for trusts consisting of fungible assets, an approach other
than the proposed asset-by-asset approach for reporting sales and
determining basis is administratively feasible or whether an aggregate
approach would be more appropriate and on the manner in which such an
aggregate approach would be applied.
D. Information to be Furnished to Middlemen by Trusts
In general, information reporting is not required for unit
interests held by exempt recipients. To enable such persons to receive
necessary trust information, however, Sec. 1.671-4(j)(3)(iii) of the
proposed regulations provides that middlemen, exempt recipients, and
certain other persons may request from the trust tax information for a
calendar quarter, computed as of the last day of
[[Page 43356]]
the quarter specified, or for a calendar year, computed as of December
31 of the year specified. The tax reporting information the trust is to
make available includes: (1) all items of income (determined in
accordance with proposed Sec. 1.671-4(j)(6)(i)), deduction, and credit
of the trust for the period specified; (2) if any trust asset has been
sold or otherwise disposed of during the period specified, the gross
proceeds received by the trust for the trust asset, the date of sale or
disposition, and the percentage of that trust asset that has been sold
or disposed of; (3) the number of units outstanding on the last
business day of the period specified; and (4) any other information
necessary for the unit interest holder to accurately report the income,
deductions, and credits attributable to the portion of the trust
treated as owned by the holder, as required under section 671. In
addition, if a trust asset is sold or otherwise disposed of during the
period specified, the trust must provide a schedule showing the portion
(expressed in terms of a percentage) of the total fair market value of
all the assets held by the trust that the asset sold or disposed of
represented as of the last day of each calendar quarter that the trust
held the asset.
E. Special Rules
A beneficial owner of a unit interest must report trust items
consistent with the owner's method of accounting. See, e.g., Rev. Rul.
84-10. For administrative convenience, and with the intent of being
consistent with industry practice, however, the proposed regulations
require a trust to provide tax information as if the trust were a
taxpayer using the cash receipts and disbursements method of tax
accounting (cash method). Although a trust must provide tax information
to unit holders as if the trust were a cash method taxpayer, the trust
must provide information necessary for such holders to comply with the
original issue discount rules and other provisions requiring the
inclusion of accrued amounts regardless of the holder's method of
accounting. The IRS and Treasury are continuing to study, and welcome
comments on, whether to require trusts to provide tax reporting
information to accommodate the different methods of accounting used by
the beneficial owners of a trust.
In the case of a widely held fixed investment trust that holds a
pool of debt instruments subject to section 1272(a)(6)(C)(iii), the
proposed regulations require that middlemen, unit interest holders,
exempt recipients, and noncalendar-year taxpayers be provided with
certain additional information that is necessary for compliance with
the market discount rules and, where applicable, section 1272(a)(6) (as
amended by section 1004 of the Taxpayer Relief Act of 1997, Public Law
105-34, 111 Stat. 788, 911 (1997)). This additional information
includes information necessary to compute (1) the accrual of market
discount, including the type of information required under Sec. 1.6049-
7(f)(2)(i)(G) in the case of a REMIC regular interest or a
collateralized debt obligation not issued with original issue discount;
and (2) the accrual of original issue discount and market discount,
including the type of information required under Sec. 1.6049-
7(f)(2)(ii)(E), (F), (I), and (K) in the case of a REMIC regular
interest or a collateralized debt obligation that is issued with
original issue discount. The IRS and Treasury request comments on
whether similar information reporting requirements, for example,
reporting of information necessary to compute the accrual of market
discount, should be extended to widely held fixed investment trusts
that hold instruments (or pools of instruments) not subject to section
1272(a)(6)(C).
To enable a beneficial owner to comply fully with section 671 and
section 67 (where applicable), Sec. 1.671-4(j)(6)(i) of the proposed
regulations requires the amount of trust income to be reported by the
trustee to be the gross amount of income generated by the trust assets
(other than from the sale or other disposition of trust assets). Thus,
in the case of a trust that receives a payment net of an expense, the
payment must be grossed up to reflect the deducted expense. Trustees
must also have, and make available, information regarding the trust's
affected expenses (as defined in Sec. 1.67-2T(i)(1)) for the calendar
year. In addition, in the case of a unit interest holder that is an
affected investor (as defined in Sec. 1.67-2T(h)(1)), the trustee or
middleman must provide such unit interest holder with information
regarding the holder's proportionate share of the trust's affected
expenses for the calendar year.
The proposed regulations also require the trust to separately state
any other item that, if taken into account separately by any unit
interest holder, could result in an income tax liability for that unit
interest holder different from that which would result if the unit
interest holder did not take the item into account separately. The IRS
and Treasury request comments on whether this requirement is
administratively feasible in the context of a widely held fixed
investment trust or whether a different approach, also consistent with
the taxation of grantor trusts, would be more appropriate.
F. Coordination With Backup Withholding Rules
Section 1.671-4(j)(7) of the proposed regulations contains
provisions to coordinate these regulations with the backup withholding
rules.
Proposed Effective Date
These regulations are proposed to apply to calendar years beginning
on or after the date that final regulations are published in the
Federal Register.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in EO 12866. Therefore,
a regulatory assessment is not required. It is hereby certified that
these regulations will not have a significant economic impact on a
substantial number of small entities. This certification is based on
the fact that the regulations generally clarify existing reporting
obligations and are expected, for the most part, to have a minimal
impact on industry practice. Thus, the regulations will not result in a
significant economic impact on any entity subject to the regulations.
Further, the reporting burdens in these regulations will fall primarily
on large brokerage firms, large banks, and other large entities acting
as trustees or middlemen, most of which are not small entities within
the meaning of the Regulatory Flexibility Act (5 U.S.C. chapter 6).
Thus, a substantial number of small entities will not be affected.
Therefore, a Regulatory Flexibility Analysis under the Regulatory
Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to
section 7805(f) of the Internal Revenue Code, this notice of proposed
rulemaking will be submitted to the Chief Counsel for Advocacy of the
Small Business 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) that are submitted timely (in the manner
described in the ADDRESSES caption) to the IRS. All comments will be
available for public inspection and copying.
A public hearing has been scheduled for Thursday, November 5, 1998
at 10 a.m., in room 2615, Internal Revenue Building, 1111 Constitution
Avenue, NW., Washington, DC. Because of access
[[Page 43357]]
restrictions, visitors will not be admitted beyond the Internal Revenue
Building lobby more than 15 minutes before the hearing starts.
The rules of 26 CFR 601.601(a)(3) apply to the hearing.
Persons that wish to present oral comments at the hearing must
submit written comments by November 12, 1998 and submit an outline of
the topics to be discussed and the time to be devoted to each topic
(signed original and eight (8) copies) by October 15, 1998.
A period of 10 minutes will be allotted to each person for making
comments.
An agenda showing the scheduling of the speakers will be prepared
after the deadline for receiving outlines has passed. Copies of the
agenda will be available free of charge at the hearing.
Drafting Information. The principal author of these regulations is
Faith Colson, Office of Assistant Chief Counsel (Passthroughs and
Special Industries). However, other personnel from the IRS and Treasury
Department participated in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements
26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements
Proposed Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 301 are 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 as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.671-4 also issued under 26 U.S.C. 671, 26 U.S.C. 6034A,
and 26 U.S.C. 6049(d)(7).
Par. 2. Section 1.671-4 is amended by revising paragraph (a) and
adding paragraph (j) to read as follows:
Sec. 1.671-4 Method of reporting.
(a) Portion of trust treated as owned by the grantor or another
person. Except as otherwise provided in paragraphs (b) and (j) of this
section, items of income, deduction, and credit attributable to any
portion of a trust which, under the provisions of subpart E (section
671 and following), part I, subchapter J, chapter 1 of the Internal
Revenue Code, is treated as owned by the grantor or another person are
not reported by the trust on Form 1041, but are shown on a separate
statement to be attached to that form. Paragraph (j) of this section
provides special reporting rules for widely held fixed investment
trusts. Section 301.7701-4(e)(2) of this chapter provides guidance on
how the reporting rules in this paragraph (a) apply to an environmental
remediation trust.
* * * * *
(j) Special rules applicable to widely held fixed investment
trusts. The reporting rules contained in this paragraph (j) apply to
any widely held fixed investment trust.
(1) Definitions. For purposes of this paragraph (j):
Affected expenses. The term affected expenses has the meaning given
that term by Sec. 1.67-2T(i)(1).
Affected investor. The term affected investor has the meaning given
that term by Sec. 1.67-2T(h)(1).
Exempt recipient. An exempt recipient is any person described in
paragraphs (j)(2)(iv)(A) through (R) of this section.
Middleman. A middleman is any person who holds an interest in an
arrangement classified as a trust under Sec. 301.7701-4(c) of this
chapter, and subject to subpart E, part I, subchapter J, chapter 1 of
the Internal Revenue Code, on behalf of, or for the account of, another
person, or who otherwise acts in a capacity as an intermediary for the
account of another person, at any time during the calendar year. A
middleman includes, but is not limited to--
(i) A custodian of a person's account, such as a bank, financial
institution, or brokerage firm acting as custodian of an account;
(ii) A nominee, including the joint owner of an account or
instrument except if the joint owners are husband and wife; and
(iii) A broker (as defined in section 6045(c)(1) and Sec. 1.6045-
1(a)(1)) holding an interest for a customer in street name.
Requesting person. A requesting person is a person specified in
paragraph (j)(3)(iii)(A) of this section who is entitled to request
from the trustee the information specified in paragraph (j)(3)(ii) of
this section.
Trustee. Trustee means the trustee of a widely held fixed
investment trust.
Unit interest holder. A unit interest holder is any person who
holds a direct or indirect interest, including a beneficial interest,
in a widely held fixed investment trust at any time during the calendar
year.
Widely held fixed investment trust. A widely held fixed investment
trust is an arrangement classified as a trust under Sec. 301.7701-4(c)
of this chapter, and subject to subpart E, part I, subchapter J,
chapter 1 of the Internal Revenue Code, in which any interest is held
by a middleman.
(2) Form 1099 requirement for trustees and middlemen--(i)
Obligation to file Form 1099 with the Internal Revenue Service. Except
as provided in paragraph (j)(2)(iv) of this section--
(A) Every trustee must file with the Internal Revenue Service the
appropriate Forms 1099 reporting the information specified in paragraph
(j)(2)(ii) of this section with respect to any unit interest holder who
holds an interest in the trust directly and not through a middleman;
and
(B) Every middleman must file with the Internal Revenue Service the
appropriate Forms 1099, reporting the information specified in
paragraph (j)(2)(ii) of this section with respect to any unit interest
holder on whose behalf or account the middleman holds an interest in
the trust or acts in a capacity as an intermediary.
(ii) Information to be reported. The following information must be
reported to the Internal Revenue Service on the appropriate Forms
1099--
(A) The name, address, and taxpayer identification number of the
unit interest holder;
(B) The name, address, and taxpayer identification number of the
person required to file the form;
(C) The amount of trust income (determined in accordance with
paragraph (j)(6)(i) of this section) attributable to the unit interest
holder for the calendar year for which the return is made;
(D) In the case of the sale or other disposition of a trust asset
during the calendar year, the portion of the gross proceeds relating to
the trust asset that is attributable to the unit interest holder; and
(E) Any other information required by the Forms 1099.
(iii) Time and place for filing Forms 1099. The Forms 1099 required
to be filed with the Internal Revenue Service by trustees or middlemen
pursuant to paragraph (j)(2)(i) of this section must be filed on or
before February 28 of the year following the year for which the Forms
1099 are being filed. The returns must be filed with the appropriate
Internal Revenue Service Center, at the address listed in the
instructions for the Forms 1099. For extensions of time for filing
returns under this section, see Sec. 1.6081-1. For magnetic media
filing requirements, see Sec. 301.6011-2 of this chapter.
[[Page 43358]]
(iv) Forms 1099 not required. A Form 1099 is not required for a
unit interest holder that is an exempt recipient. However, if the
trustee or middleman backup withholds under section 3406 on payments
made to a unit interest holder (because, for example, the unit interest
holder has failed to furnish a Form W-9 on request), then the trustee
or middleman is required to make a return under this section, unless
the trustee or middleman refunds the amount withheld in accordance with
Sec. 31.6413(a)-3 of this chapter. An exempt recipient is generally
exempt from information reporting without filing a certificate claiming
exempt status unless the provisions of this paragraph (j)(2)(iv)
require the unit interest holder to file a certificate. A trustee or
middleman may in any case require a unit interest holder not otherwise
required to file a certificate under this paragraph (j)(2)(iv) to file
a certificate in order to qualify as an exempt recipient. See
Sec. 31.3406(h)-3(a)(1)(iii) and (c)(2) of this chapter for the
certificate that a unit interest holder must provide if a trustee or
middleman requires the certificate in order to treat the unit interest
holder as an exempt recipient under this paragraph (j)(2)(iv). A
trustee or middleman may treat a unit interest holder as an exempt
recipient based upon a properly completed form as described in
Sec. 31.3406(h)-3(e)(2) of this chapter, its actual knowledge that the
unit interest holder is a person described in this paragraph
(j)(2)(iv), or the indicators described in this paragraph (j)(2)(iv).
Any unit interest holder who ceases to be an exempt recipient shall, no
later than 10 days after such cessation, notify the trustee or
middleman in writing when it ceases to be an exempt recipient. For
purposes of this paragraph (j)--
(A) Corporation. A corporation, as defined in section 7701(a)(3),
whether domestic or foreign, is an exempt recipient. In addition, for
purposes of this paragraph (j)(2)(iv), the term corporation includes a
partnership all of whose members are corporations described in this
paragraph (j)(2)(iv), but only if the partnership files with the
trustee or middleman a properly completed form as described in
Sec. 31.3406(h)-3(e)(2) of this chapter. Absent actual knowledge
otherwise, a trustee or middleman may treat a unit interest holder as a
corporation (and, therefore, as an exempt recipient) if one of the
requirements of paragraph (j)(2)(iv)(A)(1), (2), (3), or (4), is met at
the time a unit interest holder acquires an interest in the trust.
(1) The name of the unit interest holder contains an unambiguous
expression of corporate status (that is, Incorporated, Inc.,
Corporation, Corp., P.C., (but not Company or Co.)) or contains the
term insurance company, indemnity company, reinsurance company, or
assurance company, or its name indicates that it is an entity listed as
a per se corporation under Sec. 301.7701-2(b)(8)(i) of this chapter.
(2) The trustee or middleman has on file a corporate resolution or
similar document clearly indicating corporate status. For this purpose,
a similar document includes a copy of Form 8832, filed by the unit
interest holder to elect classification as an association under
Sec. 301.7701-3(c) of this chapter.
(3) The trustee or middleman receives a Form W-9 which includes an
EIN and a statement from the unit interest holder that it is a domestic
corporation.
(4) The trustee or middleman receives a withholding certificate
described in Sec. 1.1441-1(e)(2)(i), that includes a certification that
the person whose name is on the certificate is a foreign corporation.
(B) Tax exempt organization. Any organization that is exempt from
taxation under section 501(a) is an exempt recipient. A custodial
account under section 403(b)(7) shall be considered an exempt recipient
under this paragraph. A trustee or middleman may treat an organization
as an exempt recipient under this paragraph (j)(2)(iv)(B) without
requiring a certificate if the organization's name is listed in the
compilation by the Commissioner of organizations for which a deduction
for charitable contributions is allowed, if the name of the
organization contains an unambiguous indication that it is a tax-exempt
organization, or if the organization is known to the trustee or
middleman to be a tax-exempt organization.
(C) Individual retirement plan. An individual retirement plan as
defined in section 7701(a)(37) is an exempt recipient. A trustee or
middleman may treat any such plan of which it is the trustee or
custodian as an exempt recipient under this paragraph (j)(2)(iv)(C)
without requiring a certificate.
(D) United States. The United States Government and any wholly-
owned agency or instrumentality thereof are exempt recipients. A
trustee or middleman may treat a person as an exempt recipient under
this paragraph (j)(2)(iv)(D) without requiring a certificate if the
name of such person reasonably indicates it is described in this
paragraph (j)(2)(iv)(D).
(E) State. A State, the District of Columbia, a possession of the
United States, a political subdivision of any of the foregoing, a
wholly-owned agency or instrumentality of any one or more of the
foregoing, and a pool or partnership composed exclusively of any of the
foregoing are exempt recipients. A trustee or middleman may treat a
person as an exempt recipient under this paragraph (j)(2)(iv)(E)
without requiring a certificate if the name of such person reasonably
indicates it is described in this paragraph (j)(2)(iv)(E) or if such
person is known generally in the community to be a State, the District
of Columbia, a possession of the United States or a political
subdivision or a wholly-owned agency or instrumentality or any one or
more of the foregoing (for example, an account held in the name of
``Town of S'' or ``County of T'' may be treated as held by an exempt
recipient under this paragraph (j)(2)(iv)(E)).
(F) Foreign government. A foreign government, a political
subdivision of a foreign government, and any wholly-owned agency or
instrumentality of either of the foregoing are exempt recipients. A
trustee or middleman may treat a foreign government or a political
subdivision thereof as an exempt recipient under this paragraph
(j)(2)(iv)(F) without requiring a certificate provided that its name
reasonably indicates that it is a foreign government or provided that
it is known to the trustee or middleman to be a foreign government or a
political subdivision thereof (for example, an account held in the name
of the ``Government of V'' may be treated as held by a foreign
government).
(G) International organization. An international organization and
any wholly-owned agency or instrumentality thereof are exempt
recipients. The term international organization shall have the meaning
ascribed to it in section 7701(a)(18). A trustee or middleman may treat
a unit interest holder as an international organization without
requiring a certificate if the unit interest holder is designated as an
international organization by executive order (pursuant to 22 U.S.C.
288 through 288f).
(H) Foreign central bank of issue. A foreign central bank of issue
is an exempt recipient. A foreign central bank of issue is a bank which
is by law or government sanction the principal authority, other than
the government itself, issuing instruments intended to circulate as
currency. See Sec. 1.895-1(b)(1). A trustee or middleman may treat a
person as a foreign central bank of issue (and, therefore, as an exempt
recipient) without requiring a certificate
[[Page 43359]]
provided that such person is known generally in the financial community
as a foreign central bank of issue or if its name reasonably indicates
that it is a foreign central bank of issue.
(I) Securities and commodities dealer. A dealer in securities,
commodities, or notional principal contracts that is registered as such
under the laws of the United States or a State or under the laws of a
foreign country is an exempt recipient. A trustee or middleman may
treat a dealer as an exempt recipient under this paragraph
(j)(2)(iv)(I) without requiring a certificate if the person is known
generally in the investment community to be a dealer meeting the
requirements set forth in this paragraph (j)(2)(iv)(I) (for example, a
registered broker-dealer or a person listed as a member firm in the
most recent publication of members of the National Association of
Securities Dealers, Inc.).
(J) Real Estate Investment Trust. A real estate investment trust,
as defined in section 856 and Sec. 1.856-1, is an exempt recipient. A
trustee or middleman may treat a person as a real estate investment
trust (and, therefore, as an exempt recipient) without requiring a
certificate if the person is known generally in the investment
community as a real estate investment trust.
(K) Entity registered under the Investment Company Act of 1940. An
entity registered at all times during the taxable year under the
Investment Company Act of 1940, as amended (15 U.S.C. 80a-1), (or
during such portion of the taxable year that it is in existence), is an
exempt recipient. An entity that is created during the taxable year
will be treated as meeting the registration requirement of the
preceding sentence provided that such entity is so registered at all
times during the taxable year for which such entity is in existence. A
trustee or middleman may treat such an entity as an exempt recipient
under this paragraph (j)(2)(iv)(K) without requiring a certificate if
the entity is known generally in the investment community to meet the
requirements of the preceding sentence.
(L) Common trust fund. A common trust fund, as defined in section
584(a), is an exempt recipient. A trustee or middleman may treat the
fund as an exempt recipient without requiring a certificate provided
that its name reasonably indicates that it is a common trust fund or
provided that it is known to the trustee or middleman to be a common
trust fund.
(M) Financial institution. A financial institution such as a bank,
mutual savings bank, savings and loan association, building and loan
association, cooperative bank, homestead association, credit union,
industrial loan association or bank, or other similar organization,
whether organized in the United States or under the laws of a foreign
country is an exempt recipient. A financial institution also includes a
clearing organization defined in Sec. 1.163-5(c)(2)(i)(D)(8) and the
Bank for International Settlements. A trustee or middleman may treat
any person described in the preceding sentence as an exempt recipient
without requiring a certificate if the person's name (including a
foreign name, such as ``Banco'' or ``Banque'') reasonably indicates the
unit interest holder is a financial institution described in the
preceding sentence.
(N) Trust. A trust which is exempt from tax under section 664(c)
(i.e., a charitable remainder annuity trust or a charitable remainder
unitrust) or is described in section 4947(a)(1) (relating to certain
charitable trusts) is an exempt recipient. A trustee or middleman which
is a trustee of the trust may treat the trust as an exempt recipient
without requiring a certificate.
(O) Middlemen. A middleman, as defined in paragraph (j)(1) of this
section, is an exempt recipient.
(P) Brokers. A broker, as defined in section 6045(c) and
Sec. 1.6045-1(a)(1), is an exempt recipient.
(Q) Real estate mortgage investment conduit. A real estate mortgage
investment conduit, as defined in section 860D(a), is an exempt
recipient.
(R) A widely held fixed investment trust. A widely held fixed
investment trust, as defined in paragraph (j)(1) of this section, is an
exempt recipient.
(3) Trustee's requirement to furnish information to middlemen,
exempt recipients, and noncalendar-year taxpayers--(i) In general. The
trustee must cause to be printed in a publication generally read by and
available to requesting persons, the name, address, and telephone
number of a representative or official of the trust who will provide
the information specified in paragraph (j)(3)(ii) of this section to
such persons. The trustee must provide the information in the time and
manner prescribed in paragraph (j)(3)(iii)(C) of this section to
requesting persons who request the information in the manner prescribed
in paragraph (j)(3)(iii)(B) of this section.
(ii) Information required to be reported. For each calendar quarter
or calendar year specified, the trustee must have available and
provide, upon request, the following information computed as of the
last day of the quarter, or computed as of December 31 of the year
specified--
(A) The name of the trust, the name and address of the trustee of
the trust, and the employer identification number of the trust;
(B) The Committee on Uniform Security Identification Procedure
(CUSIP) number, account number, serial number or other identifying
number of the trust;
(C) All items of income (determined in accordance with paragraph
(j)(6)(i) of this section), deduction, and credit of the trust,
expressed both as a total dollar amount for the trust and as a dollar
amount per unit outstanding on the last day of the period requested;
(D) If any trust asset has been sold or otherwise disposed of
during the period requested, the gross proceeds received by the trust
for the trust asset, the date of sale or disposition of the trust
asset, and the percentage of that trust asset that has been sold or
disposed of. The trust must also provide a schedule showing the portion
(expressed in terms of a percentage) of the total fair market value of
all the assets held by the trust that the asset sold or disposed of
represented as of the last day of the quarter for each quarter that the
asset was held by the trust;
(E) The amount of affected expenses of the trust expressed both as
a total dollar amount and as a dollar amount per unit outstanding on
the last day of the period requested;
(F) In the case of a widely held fixed investment trust that holds
a pool of debt instruments subject to section 1272(a)(6)(C)(iii), the
information required by paragraph (j)(6)(ii) of this section;
(G) The number of units outstanding on the last business day of the
period requested; and
(H) Any other information necessary for a unit interest holder that
is the beneficial owner of a trust interest to properly report the
income, deductions, and credits attributable to the portion of the
trust treated as owned by the unit interest holder under section 671.
For this purpose, the trustee shall separately state any trust item
that, if taken into account separately by a unit interest holder, could
result in an income tax liability for that unit interest holder
different from that which would result if the unit interest holder did
not take the item into account separately.
(iii) Providing and requesting trust information--(A) Requesting
persons. The following persons that hold an interest in a trust may
request the information specified in paragraph (j)(3)(ii) of this
section from that trust--
(1) Any middleman;
[[Page 43360]]
(2) Any broker who holds a unit interest on its own behalf;
(3) Any other exempt recipient who holds an interest directly and
not through a middleman;
(4) Any noncalendar-year unit interest holder who holds a trust
interest directly and not through a middleman; and
(5) A representative or agent for a person specified in paragraphs
(j)(3)(iii)(A) (1) through (4) of this section.
(B) Manner of requesting information from the trust. A requesting
person may request the information specified in paragraph (j)(3)(ii) of
this section in writing or by telephone. The request must specify the
calendar quarters or years for which the information is needed.
(C) Time and manner of furnishing information--(1) Manner of
furnishing information. The information specified in paragraph
(j)(3)(ii) of this section may be furnished as follows--
(i) By telephone;
(ii) By written statement sent by first class mail to the address
provided by the requesting person;
(iii) By causing it to be printed in a publication generally read
by and available to requesting persons and by notifying the requesting
person in writing or by telephone of the publication in which it will
appear, the date on which it will appear, and, if possible, the page on
which it will appear; or
(iv) By any other method agreed to by the parties.
(2) Time for furnishing the information. The trustee must furnish,
or cause to be furnished, the information specified in paragraph
(j)(3)(ii) of this section on or before the later of--
(i) The 30th day after the close of the period for which the
information was requested; or
(ii) The day that is 2 weeks after the receipt of the request.
(4) Requirement of furnishing statement to unit interest holder--
(i) In general. Every trustee or middleman required to file appropriate
Forms 1099 under paragraph (j)(2)(i) of this section with respect to a
particular unit interest holder must furnish to that unit interest
holder (the person whose identifying number is required to be shown on
the form) a written statement showing the information required by
paragraph (j)(4)(ii) of this section.
(ii) Information required to be provided on written statement. The
written statement must specify for the calendar year for which the
return is made the following information--
(A) The name of the trust and the CUSIP number, account number,
serial number, or other identifying number for the trust or unit
interest;
(B) The name, address, and taxpayer identification number of the
person required to send the statement;
(C) All items of income (determined in accordance with paragraph
(j)(6)(i) of this section), deduction, and credit of the trust
attributable to the unit interest holder;
(D) If any trust asset is sold, or otherwise disposed of during the
calendar year, the portion of the gross proceeds relating to the trust
asset that is attributable to the unit interest holder, the date of
sale or disposition of the trust asset, and the percentage of that
trust asset that has been sold or otherwise disposed of. A schedule
showing the portion (expressed in terms of a percentage) of the total
fair market value of all the assets held by the trust that the asset
sold or disposed of represented as of the last day of the quarter for
each quarter that the asset was held by the trust must be included with
the statement;
(E) In the case of a unit interest holder that is an affected
investor, the affected expenses that are attributable to the unit
interest holder;
(F) In the case of a widely held fixed investment trust that holds
a pool of debt instruments subject to section 1272(a)(6)(C)(iii), the
information required by paragraph (j)(6)(ii) of this section;
(G) Any other information necessary for a unit interest holder to
properly report the income, deductions, and credit attributable to the
unit interest holder under section 671. For this purpose, the trustee
or middleman, as the case may be, shall separately state any trust item
that, if taken into account separately by any unit interest holder,
could result in an income tax liability for that unit interest holder
different from that which would result if the unit interest holder did
not take the item into account separately; and
(H) A statement that the items of income, deduction, and credit and
other information shown on the statement must be taken into account in
computing the taxable income and credits of the unit interest holder on
the income tax return of the unit interest holder.
(iii) Due date and other requirements with respect to statement
required to be furnished to the unit interest holder. The statement
required to be furnished to the unit interest holder under this
paragraph (j)(4) for a calendar year must be furnished to the holder
after April 30 of that year and on or before March 15 of the year
following the year for which the statement is being furnished. The
person sending the statement must maintain in its records a copy of the
statement furnished to the unit interest holder for a period of 3 years
from the due date for furnishing such statement specified in this
paragraph (j)(4).
(5) Requirement that middlemen furnish information to exempt
recipients and noncalendar-year taxpayers. For each calendar quarter or
calendar year specified, any exempt recipient listed in paragraph
(j)(2)(iv) of this section and any noncalendar-year unit interest
holder may request from the middleman who holds the unit interest on
behalf of, or for the account of, the unit interest holder, the
information listed in paragraph (j)(4)(ii) (A) through (G) of this
section computed as of the last day of the calendar quarter specified,
or computed as of December 31 of the year specified. The middleman must
provide in writing or by telephone the information listed in paragraph
(j)(4)(ii) (A) through (G) of this section to any such requester on or
before the later of the 45th day after the close of the period for
which the information was requested, or that day that is 4 weeks after
the receipt of the request.
(6) Special rules. For purposes of this paragraph (j):
(i) Determination of trust income. Trust income is to be determined
in the following manner--
(A) The trust is to be treated as a calendar year taxpayer using
the cash receipts and disbursements method of accounting; and
(B) The amount of trust income for the calendar year is the gross
amount of income generated by the trust assets (other than from the
sale or other disposition of trust assets). Thus, in the case of a
trust that receives a payment net of an expense, the payment must be
grossed up to reflect the deducted expense.
(ii) Widely held fixed investment trust holding pool of debt
instruments subject to section 1272(a)(6)(C)(iii). In the case of a
widely held fixed investment trust that holds a pool of debt
instruments subject to section 1272(a)(6)(C)(iii), requesting persons,
unit interest holders, exempt recipients, and noncalendar-year
taxpayers must be provided, as required under paragraphs (j)(3)(ii)(F),
(j)(4)(ii)(F), and (j)(5), respectively, of this section, information
necessary to compute--
(A) The accrual of market discount, including the type of
information required under paragraphs Sec. 1.6049-7(f)(2)(i)(G) in the
case of a REMIC regular interest or a collateralized debt
[[Page 43361]]
obligation not issued with original issue discount; and
(B) The accrual of original issue discount and market discount,
including the type of information required under Sec. 1.6049-
7(f)(2)(ii) (E), (F), (I), and (K) in the case of a REMIC regular
interest or a collateralized debt obligation that is issued with
original issue discount.
(7) Backup withholding requirements. Every trustee and middleman
filing a Form 1099 under this section shall be considered a payor
within the meaning of Sec. 31.3406(a)-2 of this chapter. The obligation
of a trustee or middleman as payor to backup withhold shall be
determined pursuant to section 3406 and the regulations promulgated
thereunder.
(8) Penalties for failure to comply. Every trustee and middleman
who has a reporting obligation under this paragraph (j) and who fails
to comply is subject to the penalties provided by sections 6721, 6722,
and any other applicable penalty provisions.
(9) Effective date. Trustees and middlemen must report in
accordance with this paragraph (j) for calendar years beginning on or
after the date that the final regulations are published in the Federal
Register.
Par. 3. Section 1.6049-7 is amended by adding a sentence to the end
of paragraph (f)(4) to read as follows:
Sec. 1.6049-7 Returns of information with respect to REMIC regular
interests and collateralized debt obligations.
* * * * *
(f) * * *
(4) * * * For rules regarding a widely held fixed investment trust
that holds a pool of debt instruments subject to section
1272(a)(6)(C)(iii), see Sec. 1.671-4(j).
* * * * *
PART 301--PROCEDURE AND ADMINISTRATION
Par. 4. The authority citation for part 301 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 5. Section 301.6109-1 is amended by revising the last sentence
of paragraph (a)(2)(i) to read as follows:
Sec. 301.6109-1 Identifying numbers.
(a) * * *
(2) * * * (i) * * * If the trustee has not already obtained a
taxpayer identification number for the trust, the trustee must obtain a
taxpayer identification number for the trust as provided in paragraph
(d)(2) of this section in order to report pursuant to Sec. 1.671-4 (a),
(b)(2)(i)(B), (b)(3)(i), or (j) of this chapter.
* * * * *
Michael P. Dolan,
Deputy Commissioner of Internal Revenue.
[FR Doc. 98-21640 Filed 8-12-98; 8:45 am]
BILLING CODE CODE 4830-01-U
