[Federal Register Volume 71, Number 149 (Thursday, August 3, 2006)]
[Proposed Rules]
[Pages 43998-44001]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-6650]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1
[REG-125071-06]
RIN 1545-BF75
Reporting Rules for Widely Held Fixed Investment Trusts
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking by cross-reference to temporary
regulations.
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SUMMARY: In this issue of the Federal Register, the IRS and the
Treasury Department are issuing final and temporary regulations
amending
[[Page 43999]]
Sec. 1.671-5 which provides reporting rules for widely held fixed
investment trusts (WHFITs). The final and temporary regulations clarify
and simplify reporting for trustees and middlemen of non-mortgage
widely held fixed investment trusts (NMWHFITs). The text of those final
and temporary regulations serves, in part, as the text of these
proposed regulations. In addition to the amendments to Sec. 1.671-5
included in the final and temporary regulations, these proposed
regulations provide for the creation of a directory of NMWHFITs and
trustees of widely held mortgage trusts (WHMTs). These regulations also
clarify the reporting rules for market discount under the NMWHFIT safe
harbor for NMWHFITs that hold debt instruments with original issue
discount (OID). The preamble to these regulations also solicits
comments regarding the safe harbor for WHMTs.
DATES: Written or electronic comments and requests for a public hearing
must be received by October 2, 2006.
ADDRESSES: Send submissions to CC:PA:LPD:PR (REG-125071-06), Internal
Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC
20044, or send electronically, via the IRS Internet site at http://www.irs.gov/regs or via the Federal eRulemaking Portal at http://www.regulations.gov (IRS-REG-125071-06).
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Faith Colson, (202) 622-3060 (not a toll-free number); concerning
submission of comments and/or requests for a public hearing, Richard A
Hurst at [email protected].
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
These proposed regulations amend Sec. 1.671-5. The collection of
information contained in these proposed regulations has been previously
reviewed and approved by the Office of Management and Budget in
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507)
under control number 1545-1540. Response to this collection of
information is mandatory. The collection of information in these
proposed regulations is in Sec. 1.671-5. This information is required
to be reported to beneficial owners of trust interests to enable them
to correctly report their share of the items of income, deduction, and
credit of the WHFIT in which they have invested. This information is
also required to be reported to the IRS to enable the IRS to verify
that trustees and middlemen are accurately reporting information to
beneficial owners of trust interests and that beneficial owners are
properly reporting their ownership of a trust interest.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a valid
control number assigned by the Office of Management and Budget.
Books or records relating to a collection of information must be
retained as long as their contents might 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 and Explanation of Provisions
On January 24, 2006, the Internal Revenue Service (IRS) and the
Treasury Department published final regulations (TD 9241) under Sec.
1.671-5 in the Federal Register (71 FR 4002) providing reporting rules
for WHFITs. Final and temporary regulations in this issue of the
Federal Register amend Sec. 1.671-5. These amendments are intended to
clarify and simplify the reporting required by NMWHFITs under Sec.
1.671-5. The text of the final and temporary regulations also serves,
in part, as the text of these proposed regulations. The preamble to
final and temporary regulations explains the final and temporary
regulations and those parts of these proposed regulations that are
included in the final and temporary regulations. These proposed
regulations include proposed amendments to Sec. 1.671-5 in addition to
those provided by the final and temporary regulations. The proposed
amendments to Sec. 1.671-5 that are not included in the final and
temporary regulations are discussed below.
I. Proposed Directory of WHMT Trustees and NMWHFITs and Requirement
That WHMT Trustees Provide a List of WHMTs for Which They Act on an
Internet Web Site
Prior to the publication of the final regulations under Sec.
1.671-5, commentators expressed concern that middlemen would not be
able to identify a client's investment as an investment in a WHFIT and
suggested that the IRS publish a directory or list of WHFITs that would
include the name and CUSIP number of each WHFIT, along with the name,
address and telephone number of the WHFIT's representative.
Commentators noted that a publicly available directory or list would
assist middlemen and brokers in identifying a client's investment as an
investment in a WHFIT and in locating the WHFIT's representative.
In response to these comments, the final regulations require a
trustee to identify the WHFIT as either a WHMT or a NMWHFIT when
providing trust information. The preamble to the final WHFIT
regulations provides that the IRS and the Treasury Department are
studying whether a directory or list of WHFITs can be compiled by the
IRS and expressed concern that such a directory was not feasible
because of the large number of WHMTs. In the preamble, the IRS and the
Treasury Department requested additional comments from middlemen
regarding the type of WHFITs that should be included in any directory,
the type of information needed by middlemen (especially middlemen
holding WHMT interests), and the format of a directory that would be
most helpful. Trustees were also asked to comment regarding how the IRS
could obtain the trust information needed for the directory from the
trustees in the least burdensome manner.
Since the publication of the final regulations, the IRS has
received additional comments regarding the need for a directory of
WHFITs. Commentators indicated that such a directory would
significantly improve a middleman's ability to comply with Sec. 1.671-
5 and suggested that the IRS provide a directory of WHMT trustees and
NMWHFITs, with each WHMT trustee maintaining a list of the WHMTs for
which the trustee acts at an Internet Web site available to middlemen.
In response to these comments, the IRS proposes to expand
Publication 938, ``Real Estate Investment Conduits (REMICs) Reporting
Information (and other Collateralized Debt Obligations (CDOs)),'' or
create a separate publication to list WHMT trustees and NMWHFITs. The
IRS currently intends to list NMWHFITs in this directory by trustee
(listed in alphabetical order) with the NMWHFITs for which the trustee
acts listed by CUSIP number, followed by any NMWHFITs, listed in
alphabetical order by name which do not have CUSIP numbers. NMWHFIT
trustees will be required to file Form 8811, ``Information Return for
REMICs and Issuers of CDO's,'' or a similar form to provide the IRS
with the information it needs to list NMWHFITs in the directory.
The directory will also alphabetically list WHMT trustees and
provide the address of the Internet Web site that lists the WHMTs for
which the trustee acts. WHMT trustees will be required to file Form
8811, or similar form, to identify themselves to the IRS as a
[[Page 44000]]
WHMT trustee and provide an Internet Web site that lists the WHMTs for
which the trustee acts. The IRS and Treasury Department continue to
request comments on the need for the directory and the format to be
used for the directory, as well as comments regarding how to obtain
information from trustees in the least burdensome manner.
II. Clarification of Market Discount Information Required To Be
Reported Under the NMWHFIT Safe Harbor
Commentators also noted the need for amendments to the information
required to be reported under the NMWHFIT safe harbor with respect to
market discount. If a NMWHFIT does not qualify for the reduced
reporting in Sec. 1.671-5(c)(2)(iv)(B), Sec. 1.671-5(f)(1)(viii)
requires the trustee to provide information regarding the portion of
the trust that the assets sold represented. Assuming that a trust
interest holder purchased its interest at a discount, it was
contemplated that the trust interest holder would allocate the same
portion of its discount to the sale as the assets represented to the
NMWHFIT. The trust interest holder would then determine how much of the
discount allocated to the sold assets had accrued since the trust
interest holder purchased its interest using either a ratable or
constant interest method, as appropriate.
After reviewing the comments received after the publication of TD
9241, the IRS and the Treasury Department noted that the information
required to be reported under the safe harbor is incomplete with
respect to a NMWHFIT holding debt instruments with original issue
discount (OID). Under both the general provisions (Sec. 1.671-
5(c)(2)(ii)(A) and (vii)) and the safe harbor (Sec. 1.671-5(f)(1)(vii)
and (viii)), OID information is required to be calculated and provided
separately from market discount. Accordingly, to enable trust interest
holders to determine the amount of market discount the interest holder
is to allocate to a particular sale or disposition of debt instruments
by the NMWHFIT, Sec. 1.671-5(f)(1)(viii)(A) is proposed to be amended
with respect to NMWHFITs that hold debt instruments with OID, to
include a requirement that trustees provide the aggregate adjusted
issue price of the debt instruments held by the NMWHFIT per trust
interest as of the start-up date as well as of January 1 of each
subsequent year of the NMWHFIT. It is contemplated that trust interest
holders will use the January 1 adjusted issue price for the year in
which the trust interest holder purchased its interest to determine
whether a trust interest was acquired with market discount. So as not
to require trustees to calculate information for calendar years prior
to the effective date of the final regulations, the proposed
regulations only apply this requirement to NMWHFITs with a start-up
date (as defined in Sec. 1.671-5(b)(19)) after January 24, 2006.
III. Request for Comments on the Expansion of the WHMT Safe Harbor
The final regulations include safe harbor reporting rules for
WHMTs. Section 1.671-5(g)(1)(ii)(B) provides that, to be eligible to
report under the WHMT safe harbor, all interests in the WHMT must
represent the right to receive an equal pro-rata share of both the
income and the principal payments received by the WHMT on the mortgages
it holds and that, for example, a WHMT that holds or issues trust
interests that qualify as stripped interests under section 1286 may not
report under the safe harbor. Further, a WHMT that holds an interest in
another WHFIT is not eligible to report under the WHMT safe harbor. See
Sec. 1.671-5(b)(11) (limiting the definition of a mortgage to exclude
an interest in another WHFIT) and Sec. 1.671-5(g)(1)(ii)(E)(1)
(providing that only WHMTs that directly hold mortgages may use the
safe harbor). Since the publication of the final regulations, a
commentator has requested that safe harbor reporting rules be developed
for WHMTs that hold or issue stripped interests and for WHMTs that hold
interests in other WHMTs. The IRS and the Treasury Department will
consider this request in connection with further action on this
proposed regulation and request additional comments regarding the need
for additional WHMT safe harbor reporting rules, the nature of the
arrangements for which the additional safe harbors are needed, the safe
harbor reporting suggested and how such reporting is consistent with
substantive law.
Effective Date
The IRS and the Treasury Department expect to take prompt action to
finalize the proposed regulations so that certain of the provisions
that are only included in the proposed regulations can be made
effective as of January 1, 2007 (see Sec. 1.671-5(m)) as though the
provisions were included in TD 9241. The IRS and Treasury Department
invite recommendations regarding the effective date of proposed
paragraphs (c)(3) (requiring trustees to file an information return
with the IRS and requiring WHMT trustees to provide an Internet Web
site listing the WHMTs for which they act) and (c)(5) (providing for
middlemen to refer to a directory created by the IRS), that may require
some lead time for their implementation.
Special Analysis
It has been determined that these proposed regulations are not a
significant regulatory action as defined in Executive Order 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 will not to have a significant
economic impact on small entities because 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 are not expected to 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 Code,
these regulations will be submitted to the Chief Counsel for Advocacy
of the Small Business Administration for comment on their impact on
small business.
Comments and Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written (a signed original and eight
(8) copies) or electronic comments that are submitted timely to the
IRS. The IRS and the Treasury Department request comments on the
clarity of the proposed rules and how they can be made easier to
understand. All comments will be available for public inspection and
copying. A public hearing will 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 the public hearing
will be published in the Federal Register.
Drafting Information
The principal author of these regulations is Faith Colson, Office
of Associate Chief Counsel (Passthroughs & Special Industries).
However, other personnel from the IRS and the Treasury Department
participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
[[Page 44001]]
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read,
in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.671-5 is amended by:
1. Revising paragraphs (b)(5), (b)(8), and (b)(21).
2. Revising paragraph (c)(2)(iv), (v)(C), (vi), and (vii).
3. Revising paragraph (c)(3).
4. Adding paragraph (c)(5)(iv).
5. Revising paragraphs (f)(1)(i)(A) and (viii)(A).
The revisions and addition read as follows:
Sec. 1.671-5 Reporting for widely held fixed investment trusts.
* * * * *
(b) * * *
(5) [The text of proposed Sec. 1.671-5(b)(5) is the same as the
text of Sec. 1.671-5T(b)(5) published elsewhere in this issue of the
Federal Register].
* * * * *
(8) [The text of proposed Sec. 1.671-5(b)(8) is the same as the
text of Sec. 1.671-5T(b)(8) published elsewhere in this issue of the
Federal Register].
* * * * *
(21) [The text of proposed Sec. 1.671-5(b)(21) is the same as the
text of Sec. 1.671-5T(b)(21) published elsewhere in this issue of the
Federal Register].
* * * * *
(c) * * *
(2) * * *
(iv) [The text of proposed Sec. 1.671-5(c)(2)(iv) is the same as
the text of Sec. 1.671-5T(c)(2)(iv) published elsewhere in this issue
of the Federal Register].
(v) * * *
(C) [The text of proposed Sec. 1.671-5(c)(2)(v)(C) is the same as
the text of Sec. 1.671-5T(c)(2)(v)(C) published elsewhere in this
issue of the Federal Register].
(vi) [The text of proposed Sec. 1.671-5(c)(2)(vi) is the same as
the text of Sec. 1.671-5T(c)(2)(vi) published elsewhere in this issue
of the Federal Register].
(vii) [The text of proposed Sec. 1.671-5(c)(2)(vii) is the same as
the text of Sec. 1.671-5T(c)(2)(vii) published elsewhere in this issue
of the Federal Register].
* * * * *
(3) Requirement that trustees file an information return and that
WHMT trustees list WHMTs on an Internet Web site--(i) Information
return identifying a NMWHFIT to the IRS. For each NMWHFIT for which the
trustee acts, the trustee of a NMWHFIT must file the form specified as
the information return to be used for identifying a NMWHFIT to the IRS.
The form must be filed by the due date provided by that form and must
contain the information required to be provided by the form. If,
following the publication of final regulations in the Federal Register,
the IRS issues additional guidance that prescribes another method to be
used to identify and provide information with respect to a NMWHFIT to
the IRS, this method must be used.
(ii) Information return for trustees of WHMTs and the requirement
that the trustee maintain an Internet Web site listing the CUSIP
numbers and names of the WHMTs for which the trustee acts. The trustee
of a NMWHFIT must file the form specified as the information return to
be used for identifying the trustee to the IRS. The form must be filed
by the due date provided by that form and contain the information
required to be provided by the form. In addition, the trustee must
maintain a list of the WHMTs for which the trustee acts on the
trustee's Internet Web site (or another site designated by the trustee
for this purpose). If, following the publication of final regulations
in the Federal Register, the IRS issues additional guidance that
prescribes another method to be used to identify a trustee as a WHMT
trustee and provide information with respect to the WHMTs for which the
trustee acts, this method must be used.
* * * * *
(5) * * *
(iv) Directory of WHMT trustees and NMWHFITs. The IRS provides a
directory of WHMT trustees and NMWHFITs, and WHMT trustees provide an
Internet Web site at which the trustees list the WHMTs for which they
act, to assist requesting persons in locating a representative of a
WHFIT that will provide the information specified in paragraph (c) of
this section. A requesting person may report consistent with this
section for any arrangement identified in the directory as a NMWHFIT or
on a WHMT trustee's Internet Web site as a WHMT provided that the
requesting person does not have actual knowledge that the arrangement
is not a WHFIT.
(f) * * *
(1) * * *
(i) * * *
(A) [The text of proposed Sec. 1.671-5(f)(1)(i)(A) is the same as
the text of Sec. 1.671-5T(f)(1)(i)(A) published elsewhere in this
issue of the Federal Register].
* * * * *
(viii) Reporting market discount information under the safe
harbor--(A) In general--(1) Trustee is required to provide market
discount information. If the trustee is required to provide information
regarding market discount under paragraph (c)(2)(vii) of this section,
the trustee must provide--
(i) The information required to be provided under paragraph
(f)(1)(iv)(A)(1)(iii) of this section; and
(ii) If the NMWHFIT holds debt instruments with OID and the NMWHFIT
has a start-up date on or after January 24, 2006, the aggregate
adjusted issue price of the debt instruments per trust interest
calculated as of the start-up date and as of January 1 for each
subsequent year of the NMWHFIT.
(2) Trustee is not required to provide market discount information.
If the trustee is not required to provide market discount information
under paragraph (c)(2)(vii) of this section (because the NMWHFIT meets
the de minimis test of paragraph (c)(2)(iv)(D)(1) of this section, the
qualified NMWHFIT exception of paragraph (c)(2)(iv)(E) of this section,
or the NMWHFIT final year exception of paragraph (c)(2)(iv)(F) of this
section), the trustee is not required under this paragraph (f) to
provide any information regarding market discount.
* * * * *
Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 06-6650 Filed 7-28-06; 4:15 pm]
BILLING CODE 4830-01-P