[Federal Register Volume 75, Number 200 (Monday, October 18, 2010)]
[Rules and Regulations]
[Pages 64072-64105]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-25504]
[[Page 64071]]
-----------------------------------------------------------------------
Part III
Department of the Treasury
-----------------------------------------------------------------------
Internal Revenue Service
-----------------------------------------------------------------------
26 CFR Parts 1, 31, 301 et al.
Basis Reporting by Securities Brokers and Basis Determination for
Stock; Final Rule
Federal Register / Vol. 75 , No. 200 / Monday, October 18, 2010 /
Rules and Regulations
[[Page 64072]]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 31, 301, and 602
[TD 9504]
RIN 1545-BI66
Basis Reporting by Securities Brokers and Basis Determination for
Stock
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final regulations on broker reporting
of sales of securities and on the basis of securities. These final
regulations reflect amendments under the Energy Improvement and
Extension Act of 2008 that require brokers to report a customer's
adjusted basis in sold securities and classify gain or loss as long-
term or short-term, and that allow taxpayers to compute the basis of
certain stock by averaging. The regulations affect brokers and
custodians that make sales or transfer securities on behalf of
customers, issuers of securities, and taxpayers that purchase or sell
securities. The regulations also reflect amendments that provide
brokers and others until February 15 to furnish certain information
statements to customers.
DATES: Effective Date: These regulations are effective on October 18,
2010.
Applicability Date: For dates of applicability, see Sec. Sec.
1.1012-1(c)(10), 1.1012-1(e)(12), 1.6045A-1(d), and 1.6045B-1(g).
FOR FURTHER INFORMATION CONTACT: Concerning the regulations under
sections 408, 6039, 6042, 6044, 6045, 6045A, 6045B, 6049, 6051, 6721,
and 6722, Stephen Schaeffer of the Office of Associate Chief Counsel
(Procedure and Administration) at (202) 622-4910; concerning the
regulations under section 1012, Edward C. Schwartz of the Office of
Associate Chief Counsel (Income Tax and Accounting) at (202) 622-4960
(not toll-free numbers).
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 (OMB) 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 Sec. Sec.
1.6045-1(c)(3)(xi)(C) and 1.6045A-1 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)).
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a valid
control number assigned by the Office of Management and Budget.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law.
Background
This document contains amendments to the Income Tax Regulations (26
CFR part 1), the Regulations on Employment Tax and Collection of Income
Tax at the Source (26 CFR part 31), and the Regulations on Procedure
and Administration (26 CFR part 301).
On December 17, 2009, the Treasury Department and the IRS published
in the Federal Register (74 FR 67010) proposed regulations (REG-101896-
09) relating to information reporting by brokers, transferors, and
issuers of securities under sections 6045, 6045A, and 6045B of the
Internal Revenue Code (Code), and the computation of basis under
section 1012. Written and electronic comments responding to the notice
of proposed rulemaking were received, and a public hearing was held on
February 17, 2010.
After considering the comments, the proposed regulations are
adopted as amended by this Treasury decision. The comments and
revisions are discussed in the preamble.
Summary of Comments and Explanation of Revisions
1. Effective Date
Commentators requested a delay in the effective date of the
reporting requirements to allow adequate time to administratively
implement the rules. The final regulations do not adopt this request as
inconsistent with the statutorily mandated effective dates. However, in
order to promote industry readiness to comply with the reporting
requirements beginning in 2011, a separate notice is being issued with
these final regulations to provide transitional relief from the
transfer reporting requirements under section 6045A (discussed in more
detail later in this preamble). See Notice 2010-67. The notice provides
that the IRS will not assert penalties under section 6722 for a failure
to furnish a transfer statement for any transfer of stock in 2011 that
is not incidental to the stock's purchase or sale. Further, a receiving
broker may treat this stock as a noncovered security. See Sec.
601.601(d)(2). Additionally, the IRS will continue to work closely with
stakeholders to ensure the smooth implementation of the provisions in
these regulations, including the mitigation of penalties in the early
stages of implementation for all but particularly egregious cases.
2. Basis Determination--Average Basis Method
a. Definition of Dividend Reinvestment Plan
i. Acquisition of Stock
Consistent with section 1012(d)(4)(B), the proposed regulations
provided that stock is acquired in connection with a dividend
reinvestment plan (DRP) if the stock is acquired under the DRP or if
the dividends paid on the stock are subject to the DRP. A commentator
stated that DRP classification under the proposed regulations is highly
factual and brokers will have difficulty determining if stock is in a
DRP. The commentator recommended that the final regulations provide
that a broker should be required to treat stock as DRP stock only if
the broker receives documentation that a plan is a DRP and knows or has
reason to know that the stock is subject to the plan. The final
regulations do not adopt this recommendation as unduly restrictive.
ii. Dividend Reinvestment
Section 1012(d)(4)(A) defines a dividend reinvestment plan as an
arrangement under which dividends are reinvested in identical stock.
The proposed regulations provided that a plan qualifies as a DRP if the
written plan documents require that at least 10 percent of every
dividend paid on any share of stock is reinvested in identical stock.
Several commentators recommended eliminating the 10 percent rule
because it will require many existing plans to amend their plan
documents at considerable expense. The commentators suggested that a
plan should qualify as a DRP if the plan documents merely allow the
reinvestment of dividends.
The final regulations do not adopt this comment, which is
inconsistent with the legislative intent that basis averaging is
appropriate when dividends actually are reinvested. If a stock pays
dividends, a plan should be required to reinvest a minimum percentage
of dividends to qualify as a DRP. Ten percent is a reasonable minimum
percentage.
[[Page 64073]]
iii. Definition of Dividend
The proposed regulations did not define the term dividend.
Commentators recommended that the final regulations define dividend
broadly to include any distribution on stock, including ordinary
dividends, capital gains distributions, non-taxable returns of capital,
and cash in lieu of fractional shares.
The final regulations do not define dividend. They provide that
only dividends within the meaning of section 316 are subject to the 10
percent reinvestment requirement. The final regulations also clarify
that a DRP may average the basis of stock acquired by reinvesting
distributions that are not dividends under section 316.
b. Definition of Regulated Investment Company
The proposed regulations did not address the definition of a
regulated investment company (RIC). Under Sec. 1.1012-1(e)(5)(ii), a
unit investment trust (UIT) is treated as a RIC for basis averaging
purposes only if the UIT meets certain requirements. A commentator
suggested that the regulations should delete this provision and allow
all UITs that elect to be treated as RICs to use the average basis
method.
The proposed regulations did not address this issue. Therefore, the
final regulations do not adopt this suggestion. The treatment of UITs
as RICs for purposes of allowing basis averaging may be considered for
future guidance.
c. Definition of Identical Stock
The proposed regulations provided that stock is identical if it has
the same Committee on Uniform Security Identification Procedures
(CUSIP) number, except that stock in a DRP is not identical to stock
not in a DRP. The proposed regulations also provided that stock
acquired in connection with a DRP includes transfers of identical stock
into a DRP. A commentator noted that, if stock in a DRP is not
identical to stock not in a DRP, then a taxpayer could not transfer
identical stock into a DRP.
To address this comment, the final regulations delete from the
definition of identical stock the rule that stock in a DRP is not
identical to stock not in a DRP. Because this rule served to limit the
average basis method to stock in a DRP, the final regulations provide
that, for purposes of computing the average basis of identical stock,
stock in a DRP is not identical to stock with the same CUSIP number
that is not in a DRP.
d. Time and Manner of Making the Average Basis Method Election
i. Requirement for Affirmative Election
A commentator requested clarification on whether a taxpayer is
treated as electing the average basis method if the taxpayer fails to
affirmatively elect a basis determination method and the average basis
method is the broker's default method. In response to this comment, the
final regulations clarify that a taxpayer's failure to notify a broker
that the taxpayer elects a basis determination method is not an
election of a method. Thus, a taxpayer that fails to affirmatively
elect the average basis method has not made an election that the
taxpayer may revoke. If the average basis method is the broker's
default method, the taxpayer may change from that method prospectively.
ii. Scope of Average Basis Method Election
The proposed regulations required a taxpayer to elect the average
basis method separately for each account holding stock that is a
covered security for which the method is permissible. A commentator
suggested that the final regulations permit one average basis method
election to encompass all eligible accounts with a custodian or agent,
as well as future accounts with that custodian or agent. The final
regulations adopt this comment. The final regulations also clarify that
the average basis method election must identify each account and the
stock in the account to which the election applies.
iii. Written Average Basis Method Election
The proposed regulations provided that a taxpayer must notify a
custodian or agent of the average basis method election in writing. A
commentator stated that this requirement should be eliminated because
it is difficult to implement and confusing to taxpayers who use the
average basis method for RIC stock acquired before 2012. The
commentator opined that the writing requirement will prevent brokers
from using the average basis method as their default method.
The final regulations do not adopt this comment. The writing
requirement ensures that both taxpayers and brokers have a record of
the fact and scope of the election. The requirement applies to a
taxpayer's election to use average basis and does not prevent a broker
from selecting average basis as a default method.
Commentators requested that the final regulations clarify that a
taxpayer may make a written average basis election electronically. The
final regulations adopt this comment.
iv. Transition Rule From Double-Category Method
The proposed regulations provided a transition rule effective on
the publication date of the final regulations for stock for which a
taxpayer uses the double-category method of determining average basis.
A commentator requested that the final regulations delay the effective
date of the transition rule to allow time for programming and
accounting system changes. The final regulations adopt this comment and
provide an April 1, 2011, effective date for the transition rule.
e. Change in Method of Accounting
The proposed regulations stated that a change in basis
determination method is a change in method of accounting requiring the
consent of the Commissioner. A commentator opined that a change to or
from the average basis method is not a change in method of accounting
that requires the consent of the Commissioner. Another commentator
requested that a change to or from the average basis method be allowed
without the Commissioner's consent or that the process be simplified.
The commentator suggested that the final regulations require taxpayers
to notify their custodians or agents of the change.
The final regulations provide rules governing the time and manner
of electing or changing from the average basis method, determining the
basis of stock following a change between the average basis method and
a cost basis method, and identifying stock sold. The regulations permit
taxpayers to elect or change from the average basis method at any time
during a taxable year and to choose a method to identify stock sold on
a sale-by-sale basis. These rules do not involve the elements of
consistency and regularity inherent in methods of tax accounting, which
generally apply on the basis of a taxable year. Therefore, the final
regulations provide that a basis determination method for stock is not
a method of accounting and a change in a method of determining basis
for stock is not a change in method of accounting to which sections 446
and 481 apply.
f. Account by Account Rules
The proposed regulations provided that DRP or RIC stock acquired
before January 1, 2012, is treated as held in a separate account from
DRP or RIC stock acquired on or after that date. The proposed
regulations also provided that
[[Page 64074]]
covered and noncovered securities are treated as held in separate
accounts.
The purpose of the separate account rule is to ensure that covered
securities and noncovered securities are treated as held in separate
accounts. DRP and RIC stock acquired before January 1, 2012, are
noncovered securities. Therefore, the two separate account rules are
duplicative. The final regulations eliminate the separate account rule
for DRP and RIC stock based on the date the stock is acquired and
retain the separate account rule for covered and noncovered securities
because this rule is more precise.
g. Single-Account Election
i. Identity of Account Ownership
A commentator requested clarification on whether a single-account
election may apply to an account owned by a taxpayer singly and an
account a taxpayer owns jointly with another party. In response to this
comment, the final regulations clarify that a single-account election
applies only to accounts with the same ownership.
ii. Effect on the Single-Account Election of Revoking or Changing From
the Average Basis Method
The proposed regulations provided that a RIC, DRP, or broker may
make an irrevocable election to treat as held in a single account
identical RIC stock or DRP stock held or treated as held in separate
accounts for which the taxpayer has elected to use the average basis
method. The proposed regulations also allowed a taxpayer to revoke an
average basis method election by the earlier of one year from the date
of the election or the first disposition of the stock. The basis of
stock to which a revocation applies is its basis before averaging.
After the revocation period expires, a taxpayer may change from the
average basis method to another method prospectively. The basis of
stock to which a change applies is the basis immediately before the
change.
Commentators asked how a taxpayer's revocation of or change from
the average basis method affects a single-account election. In response
to this comment, the final regulations provide that a taxpayer's
revocation of an average basis method election for a particular stock
voids the single-account election for that stock. Thus, taxpayers and
brokers must retain pre-election basis information for averaged shares
for as long as the taxpayer may revoke the average basis method
election. Stock that becomes a covered security only as a result of a
single-account election no longer is a covered security after the
single-account election is voided.
After a taxpayer changes from, rather than revokes, the average
basis method, the shares that were treated as held in a single account
before the change continue to be covered securities and treated as held
in a single account, and the basis of each share of stock remains the
same as the basis immediately before the change.
iii. Accurate Basis Information Requirement
Under the proposed regulations, a RIC, DRP, or broker may make a
single-account election only for stock for which it has accurate basis
information, which is information that the RIC, DRP, or broker neither
knows nor has reason to know is inaccurate.
Commentators suggested eliminating the accuracy requirement for the
single-account election because it is subjective and increases
uncertainty. A commentator noted that the accuracy requirement may
deter RICs from making a single-account election because of uncertainty
over whether basis determination practices in earlier years satisfy the
standard. A commentator suggested permitting the use of any data that
has been maintained to determine the basis of noncovered stock included
in the single-account election. A commentator recommended that brokers
be permitted to use taxpayer-provided information to determine the
basis of noncovered stock in making the single-account election. A
commentator requested penalty relief if a broker lacks actual knowledge
that information is inaccurate.
The final regulations retain the accuracy requirement and the
``neither knows nor has reason to know'' standard as striking an
appropriate balance between the need for accuracy and flexibility. The
``neither knows nor has reason to know'' test is consistent with
existing standards familiar to brokers for demonstrating reasonable
cause for penalty relief under section 6724.
3. Other Basis Determination Issues
a. Use of Agent To Select Basis Determination Method
Commentators suggested that the final regulations explicitly allow
a taxpayer's agent, such as an asset manager, investment advisor, or
introducing broker, to select a basis determination method for a
taxpayer. The final regulations do not adopt this comment. However, a
taxpayer may authorize an agent to select a basis determination method
under general agency principles.
b. Cost Basis of Multiple Lots Purchased on One Day
Commentators suggested that the final regulations allow brokers to
average the basis of identical stock purchased or sold on the same day.
In response to this comment, the final regulations provide that a
taxpayer must determine the basis of identical stock by averaging the
basis of each share if the stock is purchased at separate times on the
same calendar day in executing a single trade order and the broker
executing the trade provides a single confirmation that reports an
aggregate total cost or an average cost per share. However, a taxpayer
may determine the basis of the stock by the actual cost per share if
the taxpayer notifies the broker in writing of this intent. The
taxpayer must notify the broker by the earlier of the date of the sale
of any of the stock for which the taxpayer received the confirmation or
one year after the date of the confirmation. A broker may extend the
one-year period but the taxpayer must notify the broker no later than
the date of sale of any of the stock.
c. Identification of Securities Sold
i. Standing Orders
The proposed regulations stated that a standing order for the
specific identification of stock is treated as an adequate
identification. A commentator suggested that the final regulations
clarify that brokers are not required to accept standing orders. The
proposed regulations allowed standing orders to serve as an adequate
identification but did not require taxpayers or brokers to use or
accept them. Therefore, the final regulations do not adopt this
comment.
ii. Confirmation of Sales
The proposed regulations retained the rule that brokers or other
agents must supply written confirmation of a taxpayer's specific
identification following a sale or transfer. A commentator stated that
the final regulations should eliminate this requirement and opined that
the Form 1099-B, ``Proceeds From Broker and Barter Exchange
Transactions,'' provides a sufficient confirmation of the transaction.
Alternatively, the commentator suggested eliminating the confirmation
requirement if the stock was identified by standing order. Another
commentator suggested that a periodic customer account statement should
qualify as a written confirmation.
The final regulations retain the requirement for written
confirmation of all sales and transfers of specifically identified
stock as a reasonable
[[Page 64075]]
safeguard that specific identification orders are properly executed.
However, in response to these comments, the final regulations provide
that account statements or other documents a broker or agent
periodically provides to a taxpayer may serve as written confirmation
if provided to the taxpayer within a reasonable time after the sale or
transfer.
iii. Application of FIFO Rule Account by Account
The proposed regulations provided that if a taxpayer sells or
transfers stock and does not adequately identify the stock sold or
transferred, the shares of stock deemed sold or transferred are the
earliest acquired shares (FIFO rule). A commentator suggested that the
final regulations clarify that the FIFO rule applies on an account by
account basis.
The account by account rule in section 1012(c)(1) relates to stock
eligible for the average basis method. This rule overrides the earlier
requirement that taxpayers must apply the average basis method across
accounts and does not mandate similar treatment for cost basis stock.
Incorporating an account by account requirement into the FIFO rule
creates unnecessary complexity. Therefore, the final regulations do not
adopt this comment.
4. Returns of Brokers
a. Form and Manner of Broker Reporting Requirements
The proposed regulations provided that brokers must report on Form
1099-B adjusted basis and whether any gain or loss is long-term or
short-term for a covered security. A commentator suggested that the
final regulations allow long-term and short-term sales to be reported
on the same return to improve reconciliation between the broker's Form
1099-B and the customer's Schedule D, ``Capital Gains and Losses.'' The
final regulations do not adopt the suggestion. As noted by another
commentator, brokers that use substitute statements may already
segregate long-term sales from short-term sales on the same statement
in the same manner as on Schedule D, which segregates long-term
transactions from short-term transactions.
Consistent with the rule for aggregating the cost basis of multiple
lots purchased on one day (discussed earlier in this preamble), the
final regulations provide that a broker must report the basis of
purchased stock and the gross proceeds of sold stock by averaging the
basis or proceeds of each share if the stock is purchased or sold at
separate times on the same calendar day in executing a single trade
order and the broker executing the trade provides a single confirmation
to the taxpayer that reports an aggregate total price or an average
price per share. However, the final regulations do not permit a broker
to average the basis or proceeds of stock if the customer timely
notifies the broker in writing of an intent to determine the basis or
proceeds by the actual cost or proceeds per share. A notification of an
intent to determine the basis by the actual cost per share is timely if
made in accordance with Sec. 1.1012-1(c)(1)(ii). A notification of an
intent to determine the proceeds by the actual proceeds per share is
timely if the broker receives the notification by January 15 of the
calendar year following the year of the sale. A broker may extend the
January 15 deadline but not beyond the due date for filing Form 1099-B.
The proposed regulations moved the modifier ``for cash'' in the
definition of sale to clarify that Form 1099-B reporting is required
under section 6045 for a sale only when and to the extent cash proceeds
are paid to the seller. Commentators suggested further clarifying that
this limitation applied to all disposition events listed in the
definition. The final regulations adopt this request.
Currently, sales of fractional shares of less than $20 are exempted
from broker reporting. Commentators recommended expanding this
exception to sales of fractional shares of less than $100. The final
regulations do not adopt this request.
b. Identification of a Security as Stock
Under section 6045(g)(3)(C), the reporting requirements before 2013
apply only to stock. The proposed regulations provided that, for basis
reporting purposes, any security an issuer classifies solely as stock
is treated as stock. If an issuer has not classified the security, the
security is not treated as stock unless the broker knows, or has reason
to know, that the security reasonably is classified as stock under
general tax principles.
Commentators suggested that issuers should be required to classify
securities and that a security should be classified as stock only if
the issuer has classified it as stock. The final regulations do not
adopt these suggestions. It is appropriate to require a broker to
report basis if the broker knows the security is stock for Federal tax
purposes even if the issuer has not classified the security.
Commentators suggested that the IRS create and maintain a list of
every security classified as stock. The final regulations do not adopt
this comment.
Commentators requested that brokers only treat securities as stock
if they know that the security is reasonably classified as stock under
general tax principles instead of when they have reason to know. The
final regulations adopt this comment.
Commentators requested guidance addressing when an issuer fails to
classify a security and brokers disagree whether the security is stock
for Federal tax purposes. The final regulations clarify that a broker
is not bound by another broker's classification. As long as the issuer
has not classified the security as stock, a broker is not required to
treat a security as stock despite another broker's classification
unless the broker knows that the security is stock for Federal tax
purposes.
The proposed regulations treated any share of stock in a
corporation described in Sec. 301.7701-2(b) as stock for basis
reporting purposes. Commentators asked whether interests in a real
estate investment trust (REIT) or exchange-traded fund (ETF) are
treated as stock under that definition. The final regulations clarify
that any share of stock or any interest treated as stock in an entity
organized as, or treated for Federal tax purposes as, a corporation
(foreign or domestic) is stock for basis reporting purposes. Therefore,
interests treated as stock in REITs and ETFs are treated as stock for
basis reporting purposes if the issuers are taxable as corporations
under the Code.
Commentators also asked whether a depositary receipt representing
shares of stock in a foreign corporation (an ADR) is treated as stock.
The final regulations clarify that an ADR is stock for basis reporting
purposes.
c. Covered Securities
The proposed regulations defined covered security to include a
specified security acquired through a sale transaction. Commentators
asked whether stock acquired through a stock split, the exercise of
rights distributed by an issuer, the grant of restricted stock by an
employer, and other scenarios constituted acquisitions through sale
transactions. In response to these comments, the final regulations
eliminate the sale-transaction rule and define covered security to
include a specified security acquired for cash. Therefore, stock
acquired through the exercise of rights distributed by an issuer is a
covered security while restricted stock granted by an employer is not a
covered security because the former is acquired for cash and the latter
[[Page 64076]]
is not. The final regulations also treat a security acquired due to a
stock dividend, stock split, reorganization, redemption, stock
conversion, recapitalization, corporate division, or other similar
action as if it were acquired for cash and, therefore, as a covered
security if the basis of the new security is determined from the basis
of a covered security.
The proposed regulations treated all stock acquired in 2011 as
covered securities except RIC stock and DRP stock, which are not
covered securities unless acquired in 2012 or later. Commentators
suggested that stock acquired in 2011 no longer be a covered security
if placed into a DRP. In response to this comment, the final
regulations provide that stock acquired in 2011 no longer is a covered
security if transferred to a DRP in 2011, but remains a covered
security if transferred to a DRP after 2011.
The final regulations also clarify that a security acquired by a
foreign person that Sec. 1.6045-1(g)(1)(i) exempts from Form 1099-B
reporting at the time of acquisition is not a covered security even if
the customer later loses this exemption, unless the broker knows or
should have known (including by reason of information that the broker
is required to collect under section 1471 or 1472) that the customer is
not a foreign person when the security is acquired.
A commentator requested that a broker selling stock owned by a
domestic partnership be exempted from basis reporting if the broker
also prepared the customer's Form 1065, ``U.S. Return of Partnership
Income,'' because the partnership return also reports the basis of
securities sold by the partnership. The final regulations do not adopt
this request. The commentator also requested that a broker selling
stock owned by a foreign partnership be exempted from basis reporting
when reporting the sale directly to U.S. partners under Sec. 1.6049-
5(d)(3)(ii) because any cost basis information reported by the broker
would be erroneous. The final regulations adopt this request.
d. Foreign Intermediaries
The proposed regulations included in the definition of broker non-
U.S. payors and non-U.S. middlemen to the extent provided in a
withholding agreement described in Sec. 1.1441-1(e)(5)(iii) between a
qualified intermediary and the IRS. Commentators requested that the
regulations instead exempt all foreign qualified intermediaries from
basis reporting. In response to these comments, the final regulations
do not adopt the proposed changes to the definition of broker. Thus, a
qualified intermediary that is not a U.S. payor or U.S. middleman as
described in Sec. 1.6049-5(c)(5) will not be treated as a broker with
respect to sales effected at an office outside the United States. The
Treasury Department and the IRS also note that the recently enacted
provisions of chapter 4 of Subtitle A of the Code will impose certain
information reporting requirements on foreign financial institutions
that enter into an agreement with the IRS under section 1471(b). The
Treasury Department and the IRS intend to issue future guidance
coordinating the reporting requirements under section 6045 with the
reporting requirements under section 1471. In addition, section 1471
allows a person who has entered into an agreement under section 1471(b)
to elect to report certain information required under sections 6041,
6042, 6045, and 6049. The Treasury Department and IRS anticipate that,
if a foreign financial institution that has entered into an agreement
under section 1471(b) makes such an election, the agreement would
specify the extent of such person's reporting obligations with respect
to information required to be reported under section 6045.
Commentators requested that the regulations also exempt
nonqualified intermediaries from basis reporting, even if the
nonqualified intermediary is treated as a broker under Sec. 1.6045-1
(for example, where the nonqualified intermediary effects the sale
within the United States). The regulations do not adopt this request as
contrary to the purposes of the statute.
e. Treatment of Foreign Securities
Commentators requested that a security issued by a non-U.S. issuer
be excluded from the definition of a covered security. The commentators
questioned whether foreign issuers will comply with section 6045B and
report the U.S. tax consequences of their corporate actions. The final
regulations do not adopt this comment because section 6045 does not
distinguish between U.S. and non-U.S. issuers of securities. The
regulations permit but do not require a broker to adjust basis for
unreported corporate actions.
f. Determination of Basis and Whether Gain or Loss on the Sale Is Long-
Term or Short-Term
The proposed regulations required brokers to adjust the reported
basis to reflect information received on a transfer statement or issuer
return (discussed in more detail later in this preamble) but otherwise
do not require brokers to consider transactions, elections, or events
occurring outside the account. Commentators asked whether brokers must
apply certain Code provisions in determining reported basis.
i. Regulated Investment Companies and Real Estate Investment Trusts
Under sections 852(b)(4)(A) and 857(b)(8), a loss on the sale of
RIC or REIT shares held 6 months or less is long-term to the extent of
capital gain dividends (distributed and undistributed) on the shares.
One commentator asked whether brokers are required to adjust the
character of the loss for the effects of sections 852(b)(4)(A) or
857(b)(8). Under section 852(b)(4)(B), if a shareholder in a RIC sells
shares at a loss and held the shares for six months or less, the loss
is disallowed to the extent the shareholder received a tax-exempt
dividend. One commentator asked whether brokers are required to adjust
the amount of the loss for the effects of section 852(b)(4)(B). The
final regulations clarify that adjustments under sections 852(b)(4)(A),
857(b)(8), and 852(b)(4)(B) are not required because the payment of
tax-exempt dividends and the existence of capital gain dividends
(distributed and undistributed) may or may not occur in the same
account as the sale. Further, requiring adjustments would also
necessitate requiring brokers to include information on transfer
statements about whether and when these types of dividends have been
received or reported.
A commentator requested the IRS to exercise its authority under
section 852(b)(4)(E) to shorten the holding period under section
852(b)(4) to 31 days. This request is outside the scope of the current
project and may be considered for future guidance.
A commentator requested limiting the application of section 852(f),
relating to load charges on the purchase of RIC stock, to reinvestments
in securities with the same CUSIP consistent with proposed legislation
that would limit section 852(f) to reinvestments by January 31st of the
year following the disposition of the load-paying shares. The final
regulations do not adopt this suggestion.
ii. Straddles and Hedging Transactions
Several commentators asked whether brokers are required to adjust
their determination of holding period for securities in a single
account if the securities are part of a hedging transaction, as defined
in Sec. 1.1221-2(b), or a straddle, as defined in section 1092. They
also asked whether the provisions of section 1233(b) must be applied to
[[Page 64077]]
adjust the holding period or character of gain of a security when a
customer has, in a single account, sold short some securities and holds
or later acquires substantially identical securities. The fact patterns
that fall under sections 1092 and 1233(b) and Sec. 1.1221-2(b) include
situations when the CUSIPs of the positions may not be identical as
well as situations when the CUSIPs of the positions are identical.
Regardless, under the final regulations, brokers are not required to
adjust the holding period or character of gain under sections 1092 and
1233(b) and Sec. 1.1221-2(b).
iii. Events Occurring Outside the Account
The proposed regulations required a broker to take into account in
determining basis any corporate action reported by an issuer of the
security. Commentators requested clarification on how to determine
basis after a corporate action that results in different treatment for
minority shareholders than for a majority shareholder. The final
regulations permit a broker to treat all customers after a corporate
action as minority shareholders of the corporation unless the broker
knows that the customer is a majority shareholder and the issuer
reports the action's effect on the basis of majority shareholders.
The proposed regulations did not permit brokers to apply section
1259 (regarding constructive sales) and section 475 (regarding the
mark-to-market method of accounting) when reporting adjusted basis and
whether any gain or loss on the sale of a security is long-term or
short-term. A commentator requested that reporting adjustments be
permitted under these sections even if not required. The final
regulations adopt this request. Another commentator asked whether
brokers must apply section 1296 (regarding mark-to-market accounting
for marketable stock in a passive foreign investment company). The
final regulations provide that these adjustments are not required. A
broker should inform customers of any non-required adjustments so that
customers will not duplicate these adjustments.
iv. Basis Determination Method
The proposed regulations required brokers to report basis using the
basis determination method a customer elects. Commentators requested
that brokers be permitted to offer limited basis reporting methods even
if this practice would force a customer that wanted a different method
to move his or her account to a broker that offered reporting under
that method. The final regulations do not adopt this request because
section 1012 permits customers to report basis by a different
permissible method than the default method selected by the broker and
section 6045 requires brokers to follow instructions from customers
regarding this selection.
v. Long-Term or Short-Term Gain or Loss
Section 1222 defines long-term or short-term gain or loss by
reference to whether a taxpayer has held a capital asset for more than
one year. A commentator noted that accounting standards may define a
year in different ways and requested that the final regulations adopt a
uniform definition of a year for reporting purposes, such as 360 or 365
days. The final regulations do not adopt this comment. The rules for
determining whether a taxpayer has held an asset for more than one year
are well established. No good justification exists for adopting a
different rule solely for broker reporting purposes.
vi. Commissions and Options Proceeds
The proposed regulations required brokers to adjust basis for
commissions and transfer taxes incurred from a purchase and, if not
subtracted from gross proceeds, commissions charged for a sale and
transfer taxes incurred on a sale. Commentators requested that the
final regulations expand the definition of gross proceeds to explicitly
permit adjustments for transfer taxes incurred on sale. The final
regulations incorporate this suggestion.
The proposed regulations did not alter the current rule under which
some brokers report proceeds reduced by sales commissions and inform
customers of this fact through a flag in Box 2 on Form 1099-B. Instead,
in requiring brokers to account for sales commissions, the proposed
regulations permitted brokers to either reduce the reported proceeds or
increase the reported basis by the amount of the sales commissions.
Commentators requested that all brokers be required to reduce the
reported proceeds for commissions and transfer taxes from the sale.
This suggestion is not adopted but may be considered in future
guidance.
Commentators requested that brokers be permitted to adjust basis
for option premiums when an option is exercised in purchasing or
selling a security even though this reporting is not mandatory until
2013. The proposed regulations permitted this treatment, which is also
permitted under the final regulations.
vii. Employee Compensation-Related Issues
Section 6045(h) requires certain basis reporting adjustments to
account for income recognized on options granted or acquired beginning
in 2013. Because the option reporting requirements do not take effect
until 2013, the proposed regulations provided that, for stock acquired
in 2011 and 2012 in connection with employee stock purchase plans and
incentive stock options, brokers did not need to adjust basis to
account for the income recognized by the purchaser. Commentators
suggested that this stock be excluded from basis reporting until 2013
because purchasers may improperly rely on the reported basis. The final
regulations do not adopt this suggestion. Purchasers will be assisted
by IRS forms and publications, including Form 3921, ``Exercise of an
Incentive Stock Option Under Section 422(b)'' (in development), and
Form 3922, ``Transfer of Stock Acquired Through an Employee Stock
Purchase Plan Under Section 423(c)'' (in development), in determining
basis for stock acquired in 2011 and 2012.
Commentators also requested that the final regulations not require
basis reporting for stock acquired through an employee stock purchase
plan because Form 3922 will report the exercise price per share and the
fair market value of the stock on both the grant date and the exercise
date. The final regulations do not adopt this comment because Form 3922
must be filed when a purchaser first transfers legal title to the
stock, not necessarily when the purchaser sells the stock, and these
events may occur many years apart. Further, Form 3922 will not identify
which shares are sold and will not reflect stock splits or other
corporate actions between the date of reporting on Form 3922 and the
date of sale.
viii. Payments in a Foreign Currency
The proposed regulations provided that brokers receiving payments
made in foreign currency should report the amounts paid by converting
each payment to a U.S. dollar amount using a spot rate or spot rate
convention determined at the time the broker receives the payment.
Commentators expressed the concern that determining the spot rate on
the payment receipt date treats all sales as if the customer had
elected under section 988 to incorporate the amount of gain or loss on
the currency into the gain or loss on the sale of the security.
However, the section 988(d) election is only relevant in the context of
certain hedges. In the non-hedging context, long-standing
[[Page 64078]]
rules provide that investors must always compute gain or loss by
determining adjusted basis using the spot rate as of the payment
receipt date. See Rev. Rul. 54-105 (1954-1 CB 12). Even in the hedging
context, investors must compute gain or loss under these same rules
unless they make the election under section 988. The final regulations
therefore adopt the proposed rule. See Sec. 601.601(d)(2).
Commentators asked whether the payment receipt date is the date the
broker receives payment from the customer or the settlement date of the
purchase. The final regulations continue to treat the payment receipt
date as the date the broker receives payment but clarify that, for
securities traded on an established securities market, the payment
receipt date is the settlement date of the purchase. See Sec. 1.988-
2(a)(2)(iv). The final regulations also clarify that the same foreign
currency reporting rules apply to transfer statements.
g. Customer Identification of Securities
The proposed regulations required brokers to report the sales of
securities on a first-in, first-out basis within an account unless the
customer notified the broker by means of making an adequate and timely
identification of the securities to be sold. Commentators asked that,
for reporting purposes, brokers be permitted to rely on customers'
standing orders or instructions for the sale or transfer of shares of
stock. The proposed rule by cross reference to Sec. 1.1012-1(c)
already permitted standing orders to serve as an adequate
identification for both sales and transfers of stock. Therefore, the
final regulations adopt the proposed rule.
Commentators asked how to apply the first-in, first-out reporting
rule when the broker does not know the acquisition date of some shares
of the security within the account. The final regulations clarify that
brokers must report the sale of any shares or units of a security in
the account with unknown acquisition dates first. Customers are
expected to report basis consistently with broker reporting.
h. Reporting of Wash Sales
Section 6045(g)(2)(B)(ii) requires that, except as otherwise
provided by the Secretary, a broker must apply the wash sale rules of
section 1091 when reporting the adjusted basis of a covered security if
the purchase and sale transactions resulting in a wash sale occur in
the same account and are for identical securities (rather than
substantially identical securities). A commentator objected to limiting
broker reporting of wash sales to instances in which the purchase and
sale transactions occur in the same account and are for identical
securities. The final regulations retain these two statutory
limitations but do not prohibit brokers from reporting wash sales
across accounts or for substantially identical securities.
A commentator asked whether brokers must report wash sales when the
purchase and sale transactions are initiated in different accounts but
the purchased shares are later transferred into the account of the sold
shares. The final regulations clarify that brokers need not report wash
sales in these circumstances because the purchase and sale transactions
do not occur in the same account.
Another commentator asked whether brokers must report wash sales
when the purchase and sale transactions occur in the same account but
the purchased security is transferred out of the account prior to the
wash sale. The commentator opposed applying the wash sale reporting
rules in this scenario because the rules would require a broker to
adjust basis for a security no longer in the broker's custody. The
final regulations clarify that brokers do not need to report a wash
sale if the purchased security is transferred to another account before
the wash sale.
Commentators asked whether brokers must report wash sales when
stock is treated as held in a separate account under the basis method
determination rules of Sec. 1.1012-1. The final regulations clarify
that the account limitation for wash sale reporting applies to stock
treated as held in separate accounts. Thus, a broker is not required to
report a wash sale involving a covered security and a noncovered
security unless a single-account election is in effect. Similarly, a
broker is not required to report a wash sale involving stock in a DRP
and identical stock that is not in a DRP.
Commentators requested exclusions from broker reporting of wash
sales for de minimis amounts, sales of fractional shares, automatic
dividend reinvestments, or compensation-related acquisitions. The final
regulations do not adopt these proposals because, as other commentators
noted, the substantive wash sale rules under section 1091 do not
exclude these items. Creating additional exclusions solely for broker
reporting purposes would introduce further discrepancies between broker
reporting and customer reporting of wash sales.
Commentators requested an exclusion from broker reporting of wash
sales for customers that have made valid and timely mark-to-market
accounting method elections under section 475 or, in the alternative,
for customers that execute 10,000 trades in a single year. Other
commentators stated that excluding these customers may be more
burdensome than reporting wash sales for these accounts. The final
regulations permit brokers to exclude from wash sales reporting a
customer that has informed the broker in writing that the customer has
made an election under section 475(f)(1). The exclusion only applies to
the accounts identified by the customer as solely containing securities
subject to the election. The final regulations also clarify that a
taxpayer that is not a trader in securities within the meaning of
section 475(f)(1) does not become a trader in securities, or create an
inference that it is a trader in securities, by notifying a broker that
it has made a valid and timely election under section 475(f)(1).
Commentators asked that Form 1099-B and the transfer statement
indicate whether the holding period of a security has been adjusted to
reflect a wash sale. The final regulations do not adopt this
suggestion. The rules require the holding period reported on Form 1099-
B and transfer statements to reflect any wash sale adjustments.
Commentators asked how the holding period rules such as section
1223(3) apply to wash sales. One commentator asked about the proper
treatment of a wash sale when the sale and purchase transactions occur
over a period of time and a corporate event occurs during that period
that causes one pre-event share to not be economically equivalent to
one post-event share. These and other comments requesting guidance on
how the wash sale reporting rule applies to various types of activity
within an account relate to the substantive rules under section 1091
and are outside the scope of these regulations.
i. Reporting of Short Sales
Beginning in 2011, section 6045(g)(5) requires gross proceeds and
basis reporting for short sales for the year in which the short sale is
closed rather than, as under the present law rule for gross proceeds
reporting, the year in which the short sale is opened. The proposed
regulations included a transition rule requiring brokers to report all
short sales opened on or after January 1, 2010, for the year in which
the short sale is closed. Commentators asked that this transition rule
be modified to permit 2010 reporting of all short sales opened in 2010
even if the short sale remained open at the end of
[[Page 64079]]
2010. The final regulations adopt this request.
Commentators requested that, for short sales opened before 2011 and
closed in 2011 or later years, the regulations permit brokers to report
the short sale for both the year the short sale is opened and the year
the short sale is closed. The final regulations do not adopt this
suggestion because no penalty is imposed for filing a nonrequired
return.
Reportable payments on securities sales under section 6045 are
subject to backup withholding as provided in section 3406(b)(3)(C).
When backup withholding applies to a short sale, current regulations at
Sec. 31.3406(b)(3)-2(b)(4) require backup withholding when the short
sale is opened but permit a broker to delay withholding until the short
sale is closed if, at the time the short sale is opened, the broker
expects that the amount of gain realized upon the closing of the short
sale will be determinable from the broker's records. The proposed
regulations required backup withholding only when the short sale was
closed and the short sale became subject to reporting under section
6045(g)(5). Commentators asked that backup withholding on short sales
continue to be permitted when the short sale is opened because the
broker has cash proceeds from the sale on which to withhold. The final
regulations adopt this comment and leave in place the current rule
permitting a broker to perform backup withholding when the short sale
is opened or closed. The proposed amendment to Sec. 31.3406(b)(3)-
2(b)(4) is therefore not adopted.
As a result of retaining the current backup withholding rule, a
broker may perform backup withholding in a year before the short sale
is closed. Current regulations at Sec. 31.6051-4 require the broker to
report the withholding on a Form 1099-B for the year of the withholding
in addition to reporting the sale for the year the short sale is
closed. The final regulations amend Sec. 31.6051-4 to permit the IRS
to determine whether to require gross proceeds to be reported only when
the short sale is closed.
j. Reporting of Sales by S Corporations
Currently, no broker reporting on Form 1099-B is required for
customers that are corporations, including S corporations. Section
6045(g)(4) requires brokers to begin Form 1099-B reporting for S
corporations (other than a financial institution) for sales of covered
securities acquired on or after January 1, 2012. The proposed
regulations accordingly removed corporations for which an election
under section 1362(a) is in effect from the list of exempt Form 1099-B
recipients for sales of covered securities acquired beginning in 2012.
Commentators requested that the regulations instead refer to the
definition of S corporation at section 1361(a). The final regulations
adopt this comment for all references to an S corporation.
Also, for sales of covered securities acquired beginning in 2012,
the proposed regulations eliminated the so-called ``eyeball test''
allowing brokers to rely solely on the name of the customer to
determine whether the customer is a corporation exempt from reporting.
The proposed regulations retained the actual knowledge rule so that a
broker does not need to obtain an exemption certificate for a customer
that the broker knows is exempt. Commentators asked that the final
regulations retain the eyeball test because brokers otherwise may be
required to seek a certification from all corporate customers. The
regulations do not adopt this comment because brokers generally cannot
determine from a customer's name alone whether the customer is taxed as
an S corporation or C corporation. The final regulations retain a
limited eyeball test for insurance companies and foreign corporations,
however, because insurance companies and foreign corporations are
ineligible to be S corporations.
Commentators requested that the final regulations retain current
rules that allow brokers to determine that a customer is a foreign
corporation by relying upon the name of the customer or upon a
certification on a Form W-8 such as Form W-8BEN, ``Certificate of
Foreign Status of Beneficial Owner for United States Tax Withholding.''
These current rules were not retained in the proposed regulations. The
final regulations adopt the suggestion to retain these current rules.
A commentator requested that brokers be permitted to rely on Form
8832, ``Entity Classification Election,'' to determine that a customer
is a C corporation if the customer has elected on Form 8832 to be
classified as an association taxable as a corporation. According to the
commentator, reliance on Form 8832 is appropriate because the form's
instructions provide that an entity that is separately filing an
election to be classified as an S corporation need not file Form 8832.
The final regulations do not adopt the suggestion because an S
corporation may still file Form 8832 or may have filed Form 8832 before
electing to be classified as an S corporation.
Commentators requested that accounts opened by S corporations
before 2012 be excepted from reporting. The regulations do not adopt
this request as contrary to the statute.
k. Reporting to Trust Interest Holders in a WHFIT
The proposed regulations provided that, with respect to a widely
held fixed investment trust (WHFIT), the requirements of section
6045(g), to the extent applicable, are met by compliance with the WHFIT
reporting rules in Sec. 1.671-5. One commentator noted that Sec.
1.671-5(d)(2)(ii)(H) requires that a trustee or middleman filing a Form
1099 for an interest in a WHFIT provide, in addition to the items
listed in Sec. 1.671-5(d)(2)(ii), any other information required by
the Form 1099. The commentator noted that this requirement could create
confusion for reporting basis information to the extent the Form 1099-B
is modified to require basis information. In response, the final
regulations continue to provide that the requirements of section
6045(g) are met by compliance with the WHFIT rules. The IRS intends to
address the commentator's concern in the instructions to the Form 1099-
B.
l. Due Date for Payee Statements Furnished in a Consolidated Reporting
Statement
Section 6045(b) extended the due date to furnish payee statements
to customers from January 31 to February 15, effective for statements
required to be furnished after December 31, 2008. Section 6045(b) also
provides that this February 15 due date applies to any other statement
required to be furnished on or before January 31 of the same year if
furnished in a consolidated reporting statement with a statement
required under section 6045.
The proposed regulations defined consolidated reporting statement
as a grouping of statements that includes a required section 6045
statement and is furnished to the same customer or group of customers
on the same date. The proposed regulations also permitted a broker to
treat any customer as receiving a required section 6045 statement if
the customer had an account for which section 6045 would require a
statement if a sale occurred during the year. In response to a request
from a commentator, the final regulations clarify that a customer may
be treated as receiving a required section 6045 statement under this
rule even if the customer's account holds only cash or shares of money
market funds.
Commentators requested that the definition of consolidated
reporting
[[Page 64080]]
statement include all statements a broker sends to a customer, whether
or not the broker includes a required section 6045 statement to that
customer, if the broker includes a required section 6045 statement to
one of its customers. Other commentators supported the rule in the
proposed regulations requiring brokers to continue to furnish in
January pension statements and other statements to customers that hold
only nontaxable accounts. The final regulations do not adopt the
suggestion to broaden the definition of consolidated reporting
statement. The suggested definition is inconsistent with statutory
intent to limit the extended due date to statements that are or can be
provided with other required section 6045 reporting.
A commentator also requested that the rules for consolidated
reporting by brokers refer to ``reporting entities'' instead of
``brokers'' because custodians for individual retirement accounts
(IRAs) may not stand ready to effect sales to be made by others and,
therefore, may not be considered brokers under section 6045. The final
regulations do not adopt this comment because an entity that is not
considered a broker under section 6045 may not furnish a consolidated
reporting statement.
5. Reporting Required in Connection With Transfers of Securities
a. Scope of Transfer Reporting
The proposed regulations identified brokers, persons acting as
custodians of securities in the ordinary course of a trade or business,
issuers of securities, and their agents as applicable persons required
to furnish a transfer statement. Commentators asked whether agents of
an issuer such as a transfer agent or administrator of an employee
stock purchase plan are applicable persons. The final regulations
clarify that agents of an issuer are applicable persons required to
furnish transfer statements and provide additional examples to
illustrate these agency arrangements.
A commentator requested that stock transfer agents that do not file
Form 1099-B be excluded from transfer reporting. The final regulations
do not adopt this comment as inconsistent with the statutory purpose of
transfer reporting. A broker selling a transferred security is only
able to report basis if informed of the basis. The regulations properly
place the duty to furnish the transfer statement to the selling broker
on the person transferring custody of the security.
Commentators requested an exclusion for transfers excepted from all
section 6045 reporting (including gross proceeds reporting) at the time
of the transfer. The final regulations adopt this suggestion.
Commentators also requested exclusions for transfers to or from a
nontaxable account. Sales of securities in nontaxable accounts are
always excepted from all reporting under section 6045. The final
regulations accordingly provide an exclusion for transfers to trustees
and custodians of individual retirement plans. However, the exclusion
does not apply to transfers from these accounts to a customer subject
to reporting under section 6045(a).
Commentators requested that transfer statements for securities
distributed from a nontaxable account to an owner or an heir report the
new owner's basis as the fair market value of the security as of the
date of distribution or date of death, whichever applies. The final
regulations do not adopt this comment because securities held in
individual retirement plans generally are treated as noncovered
securities. Transferors of securities from nontaxable accounts need not
report basis although they may choose to do so.
Commentators requested that all trustees or fiduciaries of a trust
or estate be required to furnish transfer statements when assets are
distributed to the beneficiaries or heirs. The final regulations do not
adopt this suggestion. A trustee or fiduciary must furnish a transfer
statement if the trustee is also the broker effecting the transfer. If
a trustee merely distributes securities in a transfer effected by a
separate broker, then the broker must furnish the transfer statement.
Commentators requested an exclusion for securities transferred in
connection with a loan or under a repurchase agreement or securities
collateral agreement because the lender's basis in the securities is
not relevant to the borrower. The final regulations adopt this request
only to the extent that the transferor lends or borrows securities as a
principal (for example, when a customer opens or closes a short sale).
When a transferor otherwise lends or borrows securities for a customer
whose transfers are not otherwise exempt from transfer reporting,
transfer statements will ensure that securities returned to the lender
or collateral provider remain covered securities even if the securities
are returned to a different account. Further, the broker for the
borrower or secured party may not know that the securities it receives
are exempted from reporting under the proposed exclusion and would be
compelled to ask for a transfer statement if none were provided.
Commentators requested an exclusion for money market funds because
brokers do not currently report their sales on Form 1099-B. The final
regulations adopt this comment and also exempt money market funds from
issuer reporting under section 6045B.
b. Information Furnished on a Transfer Statement
The proposed regulations required transfer statements to include
information regarding the ``beneficial owner'' of securities.
Commentators suggested that ``beneficial owner'' is not an appropriate
term because securities are often transferred for accounts titled in
the name of someone other than a beneficial owner, such as an agent of
an undisclosed principal. Accordingly, the final regulations use the
designation ``customer'' instead of ``beneficial owner.''
Commentators asked whether separate transfer statements must be
furnished to identify noncovered securities at the lot level. The final
regulations clarify that the transfer statement need not identify
noncovered securities at the lot level and that a single transfer
statement may report the transfer of multiple noncovered securities.
Commentators requested that transfer statements exclude sensitive
customer information due to privacy concerns. Commentators also
suggested that transfer statements not include the security symbol and
lot number of the transferred security or the date of any previous
transfer statement for the same transfer. In response to these
comments, the final regulations provide that a transfer statement need
not include the taxpayer identification number, address, or phone
number of the customer; the security symbol or lot number of the
transferred security; or the date of any previous transfer statement.
Although the transfer statement must include the customer's name and
account number, this information may be reported in coded format.
Commentators requested that transfer statements not include the
transferor's classification of the security (for example, as stock or
debt) because the receiving broker might classify the security
differently. The final regulations do not adopt this suggestion. The
receiving broker need not accept the transferor's classification unless
it is the same as the issuer's classification. Nonetheless, the
transferor's classification may clarify how the transferor computed
adjustments to the security's basis.
Commentators asked whether the parties to a transfer statement
could agree to substitute a security identifier
[[Page 64081]]
for the CUSIP. The final regulations clarify that the parties may use
codes to substitute for other information, including a security symbol
or other identification number or scheme to substitute for the CUSIP.
Section 1012(c)(2)(B)(ii) provides that all stock for which a
broker or fund has made a single-account election shall be treated as
covered securities regardless of the date of the acquisition of the
stock. Commentators asked whether pre-effective date stock for which a
broker or fund has made the single-account election remains a covered
security when transferred to another broker. Because stock subject to
the single-account election must be treated as a covered security and
reported as a covered security on the transfer statement, it remains a
covered security after the transfer under section 6045(g)(3)(A)(ii),
provided the receiving broker receives a transfer statement.
c. Reporting of Transfers of Gifted and Inherited Securities
Under the proposed regulations, gifted and inherited securities
that were covered securities in the account of the donor or decedent
remained covered securities when transferred to the recipient's account
and accompanied by a transfer statement. Commentators recommended that
transfers of gifted and inherited securities be excluded from the
transfer statement requirement because these transfers are outside the
scope of the statute. Section 6045(g)(3)(A)(ii) provides that the term
``covered security'' includes all transferred securities that are
covered securities in the account from which transferred, provided the
receiving broker receives a transfer statement. Therefore, the final
regulations do not adopt this recommendation.
The proposed regulations required that a transfer statement for
gifted securities indicate that the transfer consists of gifted
securities and state the adjusted basis of the securities in the hands
of the donor (carryover basis) and the donor's original acquisition
date of the securities. The proposed regulations also required that the
transfer statement report the date of the gift (if known when
furnishing the statement) and the fair market value of the gift on that
date (if known or readily ascertainable). The proposed regulations
required that, upon the subsequent sale or other disposition of these
securities, the selling broker apply the relevant basis rules for
gifts, such as rules disallowing loss on the sale of gifted securities
to the extent of built-in loss at the time of the gift.
Commentators requested simplified conventions for reporting the
basis of gifted securities. They asked that the rules require reporting
of carryover basis without regard to rules disallowing loss to the
extent of built-in loss at the time of the gift. They stated that gifts
of depreciated securities were rare and did not justify the burden of
obtaining the fair market value of the securities as of the date of the
gift. They suggested instead that a subsequent sale be identified as a
sale of gifted securities on Form 1099-B to alert the seller that the
reported basis may not be correct. The final regulations do not adopt
these suggestions. The burden on brokers to determine fair market value
in applying the gift basis rules is not excessive. If fair market value
as of the date of the gift is not readily ascertainable, a broker may
substitute gross proceeds on a subsequent sale for this amount in
determining the initial basis and the gain or loss on the subsequent
sale.
Commentators also requested simplified conventions for reporting
the basis of inherited securities. The proposed regulations required
that basis be reported on the transfer statement in accordance with the
instructions and valuations furnished by an authorized representative
of the estate, which the transferor must request before reporting.
Commentators asked that the rules require only reporting of basis equal
to the fair market value of the security on the date of death and
eliminate the requirement to request instructions from the estate
representative. This suggestion was adopted. The final regulations
provide that the transferor must report adjusted basis equal to the
fair market value of the security on the date of death unless the
broker receives different instructions from the estate representative.
If the transferor neither knows nor can readily ascertain the fair
market value of a security on the date of death, the final regulations
provide that the transferor may treat the security as noncovered. If
the transferor cannot identify which securities in a joint account have
been transferred from the decedent, the final regulations require the
transferor to treat each security in the account as if it were a
noncovered security.
A commentator requested that the transfer statement for a
subsequent transfer of an inherited security include the information
necessary to apply section 1223(9), relating to the holding period of
property acquired from a decedent that is sold or otherwise disposed of
within one year after the decedent's death. This suggestion was
adopted. The final regulations require transfer statements for both
initial and subsequent transfers of an inherited security to indicate
that the security is inherited.
d. Other Transfer Reporting Issues
The proposed regulations permitted combined transfer reporting of a
security acquired on different dates or at different prices when the
security's basis is determined using an average basis method and the
security has been held for more than five years. Commentators requested
that combined transfer reporting be permitted for averaged securities
held for more than one year consistent with the two categories of
capital gain (long term and short term). The final regulations do not
adopt this comment. In 2011, absent a statutory change, lower income
tax rates will apply to securities held more than five years.
Commentators asked how a broker determines if a transfer statement
is complete. The final regulations clarify that a statement is complete
if, in the view of the receiving broker, it provides sufficient
information to report the sale of the transferred security as a covered
security (or states that the security is a noncovered security). For
example, if the transfer statement fails to specify whether the
security is stock, the receiving broker may treat the transfer
statement as complete if the receiving broker otherwise has sufficient
information to report the sale of the security as a covered security
(or the transfer statement states that the security is a noncovered
security).
Commentators asked how transfer reporting applies to purchases and
sales of securities involving multiple brokers or to a cash-on-delivery
account. The final regulations clarify that, for a transfer in
connection with a sale, a custodian or other transferor that transfers
custody of a security to a broker in order to effect a sale must
furnish a transfer statement only to the broker that effects the sale.
However, no transfer statement is required if the transferor itself
either effects the sale or is required to report the sale on Form 1099-
B. The final regulations also provide that, for a transfer in
connection with a purchase, a broker that effects a purchase but does
not receive custody of the purchased security must furnish a transfer
statement to the broker that receives custody. However, no transfer
statement is required if the broker effects a purchase solely at the
instruction of the broker receiving custody.
The proposed regulations proposed to exclude ``any person acting
solely as a clearing organization with respect to the transfer'' from
the transfer reporting
[[Page 64082]]
requirements. Commentators asked that the final regulations clarify
what it means to act ``solely as a clearing organization.'' The final
regulations clarify that the exception applies to an organization that
holds and transfers obligations among its members as a service to its
members.
Commentators requested a requirement that all transfer statements
for covered securities reflect the quantitative effect of any
organizational actions on basis reported by issuers under section 6045B
while the transferor holds custody instead of identifying which
corporate action statements are reflected on the transfer statement.
The final regulations adopt this comment.
Commentators requested a default rule requiring transferors to
furnish the transfer statement electronically unless the parties agree
to a different method. The final regulations do not adopt this
suggestion. A consent requirement ensures that both parties have the
ability to submit and receive transfer statements electronically.
6. Reporting by Issuers of Actions Affecting Basis of Securities
Under section 6045B, if an organizational action (such as a stock
split or a merger or acquisition) by an issuer affects the basis of a
specified security, the issuer must file a return with the IRS and
furnish an information statement to each certificate holder or nominee
reporting the quantitative effect on basis. The proposed regulations
required the issuer to assign a sequential number determined separately
by security for each organizational action reported. Several
commentators requested that the final regulations delete the sequential
number requirement. Another commentator requested that the rules create
a standardized number system.
The purpose of the sequential number requirement was to indicate
which basis adjustments for organizational actions are reflected on the
transfer statement. The final regulations require transfer statements
to reflect all organizational actions that occur while the transferor
holds custody. Therefore, the final regulations eliminate the
sequential number requirement.
A commentator asked that a RIC be deemed to comply with issuer
reporting of an organizational action if it follows existing industry
procedures for transmitting information to brokers. The commentator
asserted that reporting under section 6045B would be duplicative and
unnecessary. The final regulations do not adopt this comment as
inconsistent with the statutory reporting requirement.
A commentator asked whether a RIC or REIT must file an issuer
return under section 6045B for undistributed capital gains reported
under section 852(b)(3)(D) or 857(b)(3)(D) on Form 2438,
``Undistributed Capital Gain Tax Return,'' and Form 2439, ``Notice to
Shareholder of Undistributed Long-Term Capital Gains.'' Because these
forms report the information required under Sec. 1.6045B-1, the final
regulations provide that an issuer that files and furnishes both forms
is deemed to meet the requirements under section 6045B for
undistributed capital gains affecting the basis of its stock reported
on the forms. The final regulations also provide that RICs, REITs, and
brokers holding custody of RIC and REIT stock must adjust basis in
accordance with the information reported on the forms.
Commentators asked whether an ADR is subject to issuer reporting
under section 6045B. Because an ADR is a specified security, a foreign
corporation that takes an organizational action that affects the basis
of an ADR that represents stock in the foreign corporation must file an
issuer return. The final regulations clarify that an issuer may use an
agent, including a depositary, to satisfy the requirements of this
section. Nonetheless, the issuer remains liable for penalty for any
failure to comply unless, as under current law, the failure is due to
reasonable cause and not willful neglect.
The proposed regulations permitted issuers to make reasonable
assumptions about facts having a quantitative effect on basis that
could not be determined before the reporting due date and required
corrected reporting within forty-five days of determining the necessary
facts. A commentator asked to what extent an issuer is required to
amend a return with additional facts that may affect taxability once
the facts are known. The final regulations clarify that corrected
reporting is required whenever an issuer determines additional facts
that result in a different quantitative effect on basis from what the
issuer previously reported.
Commentators requested that issuer reporting under section 6045B be
coordinated with reporting under section 6043(c) for certain changes in
corporate control and capital structure. One commentator requested
relief from duplicate reporting of a corporate action under section
6043(c) when reporting the action under section 6045B. This request was
not adopted. Reporting on Form 1099-CAP, ``Changes in Corporate Control
and Capital Structure,'' is specific to each shareholder and includes
each shareholder's name and aggregate value of cash and other property
received by each shareholder. Similarly, reporting on Form 8806,
``Information Return for Acquisition of Control or Substantial Change
in Capital Structure,'' while not shareholder-specific, includes
information not required under section 6045B and permits the issuer to
consent to IRS disclosure of some of the contents of the return.
Section 6045B(e) waives the requirements to file issuer returns and
furnish issuer statements if the issuer makes the information about the
organizational action publicly available in the form and manner
determined by the Secretary. The proposed regulations provided that an
issuer may publicly report by posting a statement with the required
information in a readily accessible format in an area of its primary
public Web site dedicated to this purpose by the same due date for
reporting the organizational action to the IRS and keeps the form
accessible to the public.
Some commentators objected to the public reporting method in the
proposed regulations on the ground that it would be too burdensome for
brokers to monitor issuer Web sites. Commentators suggested that the
IRS permit issuers to consent to public disclosure by the IRS and that
the IRS establish a central repository on its Web site for posting
information statements from issuers that wish to report publicly.
Commentators also suggested that the IRS formally recognize a clearing
facility to serve as a central repository. Other commentators suggested
that the final regulations require issuers to send their public reports
or copies of their returns to clearing organizations, which will
disseminate the information to brokers, holders, and their nominees.
Commentators also suggested that issuers should be required to furnish
a copy of their public report or issuer return to any entity that
requests it. Other commentators supported the public reporting method
in the proposed regulations. The final regulations adopt the public
reporting method in the proposed regulations and do not adopt any of
the suggested changes.
Commentators requested that the regulations limit the time period
for which issuers must keep the public report posted on their Web site.
The final regulations limit the required period to 10 years.
[[Page 64083]]
7. Penalty Provisions
The proposed regulations generally required brokers to adjust basis
of covered securities reported on Form 1099-B to reflect information
from any transfer statement received as well as any issuer reporting
through the date of sale. The proposed regulations provided that any
failure to report correct information that arises solely from reliance
on transfer statements and issuer reporting is deemed to be due to
reasonable cause for purposes of penalties under sections 6721 and
6722. The proposed regulations permitted, but did not require, a broker
to further adjust the reported basis for information not reflected on
one of these sources, including any information the broker has about
securities held by the same customer in other accounts with the broker.
The proposed regulations further provided that a broker that takes into
account additional information received from a customer or third party
is deemed to have relied upon this information in good faith in
accordance with current rules in Sec. 301.6724-1(c)(6) for purposes of
penalty relief under sections 6721 and 6722 if the broker neither knows
nor has reason to know that the information is incorrect.
Commentators expressed concern that a ``know or reason to know''
standard would require an excessive level of due diligence and asked
that brokers be subject to penalties only if they have actual knowledge
that the information is incorrect, the same standard for reliance on
transfer statements and issuer statements. The final regulations do not
adopt this suggestion. A ``know or reason to know'' standard is
consistent with the existing standard for penalty relief and better
ensures the integrity of the information reported on the return.
The proposed regulations provided that brokers and transferors must
correct their Form 1099-B or transfer statement to account for late or
corrected transfer statements or issuer reports. Commentators requested
time limits on the correction requirement. This suggestion was adopted.
The final regulations require corrected reporting only when brokers
receive corrected information within 3 years after issuing a Form 1099-
B or 18 months after issuing a transfer statement. Commentators also
suggested that corrected Forms 1099-B or transfer statements not be
required for de minimis changes or for closed accounts. The final
regulations do not adopt this suggestion.
A commentator also asked about the interaction of the basis
reporting rules with the requirements for tax return preparers under
section 6694. The commentator expressed concern that a duly diligent
preparer could be subject to penalties under section 6694 for preparing
a return or claim for refund that reports (1) information that the
preparer believes to be accurate after exercising due diligence but
that differs from the information reported on Form 1099-B or (2)
inaccurate information from Form 1099-B that the preparer does not know
(or have reason to know) is incorrect.
In many cases, basis reported on Form 1099-B may not reflect the
taxpayer's correct basis. For example, brokers need not adjust basis
for wash sales unless the transactions that trigger the wash sale occur
in the same account with respect to identical securities. Additionally,
brokers are permitted, but not required, to report basis for noncovered
securities. Taxpayers are expected to report the correct basis on
Schedule D regardless of the amount reported on Form 1099-B. The IRS is
currently revising Schedule D and the related instructions and
publications to facilitate reconciliation.
With respect to tax return preparer penalties under section 6694,
these regulations do not alter current rules governing preparer
reliance on client information. Generally, Sec. 1.6694-1(e)(1) permits
tax return preparers to rely in good faith upon information furnished
by a client taxpayer or another party so long as the preparer does not
ignore other information furnished to or actually known by the preparer
and makes reasonable inquiries if the furnished information appears to
be incorrect or incomplete. This same standard applies to information
furnished on Form 1099-B.
Effective/Applicability Dates
The regulations on broker basis reporting under section 6045(g)
apply to: (1) Any share of stock or any interest treated as stock in an
entity organized as, or treated for Federal tax purposes as, a
corporation (foreign or domestic) acquired on or after January 1, 2011,
other than RIC stock or DRP stock; and (2) any share of RIC stock or
DRP stock acquired on or after January 1, 2012. The regulations
regarding the timing for reporting short sales of securities under
section 6045 apply to short sales opened on or after January 1, 2011.
These regulations regarding the determination of basis under
section 1012 apply for taxable years beginning after October 18, 2010.
However, the rules in Sec. 1.1012-1(e)(1)(i), in part, apply to stock
acquired on or after January 1, 2011; the rules in Sec. 1.1012-1(e)(2)
apply to stock acquired on or after January 1, 2012; the rules in Sec.
1.1012-1(e)(7)(iii) apply to stock acquired before and sold, exchanged,
or disposed of on or after April 1, 2011; and the rules in Sec.
1.1012-1(e)(7)(i), in part, Sec. 1.1012-1(e)(9), in part, and in Sec.
1.1012-1(e)(10), in part, apply to sales, exchanges, or other
dispositions of stock on or after January 1, 2012.
The regulations regarding transfer statement reporting under
section 6045A apply to: (1) Transfers of stock other than RIC stock on
or after January 1, 2011; and (2) transfers of RIC stock on or after
January 1, 2012. The regulations regarding issuer reporting under
section 6045B apply to: (1) Organizational actions affecting basis of
stock in an entity organized as, or treated for Federal tax purposes
as, a corporation (foreign or domestic) other than RIC stock on or
after January 1, 2011; and (2) organizational actions affecting basis
of RIC stock on or after January 1, 2012.
Effect on Other Documents
As of October 18, 2010, Rev. Rul. 67-436 (1967-2 CB 266) is
obsoleted and Rev. Proc. 2008-52 (2008-2 CB 587), as modified,
amplified, and clarified by Rev. Proc. 2009-39 (2009-38 IRB 371), is
modified by deleting Section 30 of the Appendix. See Sec.
601.601(d)(2).
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in Executive Order 12866.
Therefore, a regulatory assessment is not required. It also has been
determined that section 553(b) of the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply.
Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it
is hereby certified that these regulations will not have a significant
economic impact on a substantial number of small entities. Any effect
on small entities by these regulations flows from 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).
Section 403(a) of the Act requires that brokers reporting the sale
of a covered security report the adjusted basis of the security and
whether any gain or loss is long-term or short-term. It is anticipated
that this statutory requirement will affect only financial services
firms with annual receipts greater than $7 million that, therefore, are
not small entities. Further, the regulations under this section impose
no reporting requirements not found in the Act.
Section 403(c) of the Act requires applicable persons to furnish a
transfer statement in connection with the
[[Page 64084]]
transfer of custody of a covered security. The regulations define
applicable person to include brokers, professional custodians of
securities, issuers of securities, and trustee and custodians of
individual retirement plans. This definition effectuates the Act by
giving the broker that receives the transfer statement the information
necessary to accurately report the sale of the security regardless of
how the owner previously held its custody. The regulations limit the
impact on small entities by limiting reporting to necessary entities
and information.
Section 403(d) of the Act requires reporting by all issuers of
specified securities regardless of size or whether the securities are
publicly traded. The regulations limit the reporting burden by
requiring only necessary information and by permitting issuers to
report actions publicly instead of by furnishing a statement to each
nominee or holder. The regulations therefore mitigate the statutory
impact on small entities.
Therefore, because this regulation 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 notice of proposed rulemaking preceding this regulation
has been submitted to the Chief Counsel for Advocacy of the Small
Business Administration for comment on its impact on small business.
Drafting Information
The principal authors of these proposed regulations are Edward C.
Schwartz, Amy J. Pfalzgraf, and William L. Candler, Office of Associate
Chief Counsel (Income Tax and Accounting), and Stephen Schaeffer,
Office of Associate Chief Counsel (Procedure and Administration).
However, other personnel from the IRS and the Treasury Department
participated in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 31
Employment taxes, Income taxes, Penalties, Pensions, Railroad
retirement, Reporting and recordkeeping requirements, Social security,
Unemployment compensation.
26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
0
Accordingly, 26 CFR parts 1, 31, 301, and 602 are amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 is amended by adding
entries in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *.
Section 1.6045A-1 also issued under 26 U.S.C. 6045A(a), (b),
(c).
Section 1.6045B-1 also issued under 26 U.S.C. 6045B(a), (c),
(e). * * *
0
Par. 2. Section 1.408-7 is amended by adding two new sentences at the
end of paragraph (d)(2) to read as follows:
Sec. 1.408-7 Reports on distributions from individual retirement
plans.
* * * * *
(d) * * *
(2) * * * However, for a distribution after December 31, 2008, the
February 15 due date under section 6045 applies to the statement if the
statement is furnished in a consolidated reporting statement under
section 6045. See Sec. Sec. 1.6045-1(k)(3), 1.6045-2(d)(2), 1.6045-
3(e)(2), 1.6045-4(m)(3), and 1.6045-5(a)(3)(ii).
* * * * *
0
Par. 3. Section 1.1012-1 is amended by:
0
1. Revising paragraphs (c)(1), (c)(4), (c)(6), (c)(7)(ii), (c)(7)(iii)
introductory text, and (c)(7)(iii)(a).
0
2. Adding new paragraphs (c)(8), (c)(9), (c)(10), and (c)(11).
0
3. Revising the heading of paragraphs (e) and (e)(5).
0
4. Revising paragraphs (e)(1), (e)(2), (e)(3), (e)(4), (e)(6), and
(e)(7).
0
5. Adding new paragraphs (e)(8), (e)(9), (e)(10), (e)(11), and (e)(12).
The additions and revisions read as follows:
Sec. 1.1012-1 Basis of property.
* * * * *
(c) Sale of stock--(1) In general. (i) Except as provided in
paragraph (e)(2) of this section (dealing with stock for which the
average basis method is permitted), if a taxpayer sells or transfers
shares of stock in a corporation that the taxpayer purchased or
acquired on different dates or at different prices and the taxpayer
does not adequately identify the lot from which the stock is sold or
transferred, the stock sold or transferred is charged against the
earliest lot the taxpayer purchased or acquired to determine the basis
and holding period of the stock. If the earliest lot purchased or
acquired is held in a stock certificate that represents multiple lots
of stock, and the taxpayer does not adequately identify the lot from
which the stock is sold or transferred, the stock sold or transferred
is charged against the earliest lot included in the certificate. See
paragraphs (c)(2), (c)(3), and (c)(4) of this section for rules on what
constitutes an adequate identification.
(ii) A taxpayer must determine the basis of identical stock (within
the meaning of paragraph (e)(4) of this section) by averaging the cost
of each share if the stock is purchased at separate times on the same
calendar day in executing a single trade order and the broker executing
the trade provides a single confirmation that reports an aggregate
total cost or an average cost per share. However, the taxpayer may
determine the basis of the stock by the actual cost per share if the
taxpayer notifies the broker in writing of this intent. The taxpayer
must notify the broker by the earlier of the date of the sale of any of
the stock for which the taxpayer received the confirmation or one year
after the date of the confirmation. A broker may extend the one-year
period but the taxpayer must notify the broker no later than the date
of sale of any of the stock.
* * * * *
(4) Stock held by a trustee, executor, or administrator. (i) A
trustee or executor or administrator of an estate holding stock (not
left in the custody of a broker) makes an adequate identification if
the trustee, executor, or administrator--
(a) Specifies in writing in the books and records of the trust or
estate the particular stock to be sold, transferred, or distributed;
(b) In the case of a distribution, furnishes the distributee with a
written document identifying the particular stock distributed; and
(c) In the case of a sale or transfer through a broker or other
agent, specifies to the broker or agent the particular stock to be sold
or transferred, and within a reasonable time thereafter the broker or
agent confirms the specification in a written document.
(ii) The stock the trust or estate identifies under paragraph
(c)(4)(i) of this section is the stock treated as sold, transferred, or
distributed, even if the trustee, executor, or administrator delivers
stock certificates from a different lot.
* * * * *
[[Page 64085]]
(6) Bonds. Paragraphs (1) through (5), (8), and (9) of this section
apply to the sale or transfer of bonds.
(7) * * *
(ii) In applying paragraph (c)(3)(i)(b) of this section to a sale
or transfer of a book-entry security pursuant to a taxpayer's written
instruction, a confirmation is made by furnishing to the taxpayer a
written advice of transaction from the Reserve Bank or other person
through whom the taxpayer sells or transfers the securities. The
confirmation document must describe the securities and specify the date
of the transaction and amount of securities sold or transferred.
(iii) For purposes of this paragraph (c)(7):
(a) The term book-entry security means a transferable Treasury
bond, note, certificate of indebtedness, or bill issued under the
Second Liberty Bond Act (31 U.S.C. 774(2)), as amended, or other
security of the United States (as defined in paragraph (c)(7)(iii)(b)
of this section) in the form of an entry made as prescribed in 31 CFR
Part 306, or other comparable Federal regulations, on the records of a
Reserve Bank.
* * * * *
(8) Time for making identification. For purposes of this paragraph
(c), an adequate identification of stock is made at the time of sale,
transfer, delivery, or distribution if the identification is made no
later than the earlier of the settlement date or the time for
settlement required by Rule 15c6-1 under the Securities Exchange Act of
1934, 17 CFR 240.15c6-1 (or its successor). A standing order or
instruction for the specific identification of stock is treated as an
adequate identification made at the time of sale, transfer, delivery,
or distribution.
(9) Method of writing. (i) A written confirmation, record,
document, instruction, notification, or advice includes a writing in
electronic format.
(ii) A broker or agent may include the written confirmation
required under this paragraph (c) in an account statement or other
document the broker or agent periodically provides to the taxpayer if
the broker or agent provides the statement or other document within a
reasonable time after the sale or transfer.
(10) Method for determining basis of stock. A method of determining
the basis of stock, including a method of identifying stock sold under
this paragraph (c) and the average basis method described in paragraph
(e) of this section, is not a method of accounting. Therefore, a change
in a method of determining the basis of stock is not a change in method
of accounting to which sections 446 and 481 apply.
(11) Effective/applicability date. Paragraphs (c)(1), (c)(4),
(c)(6), (c)(7)(ii), (c)(7)(iii)(a), (c)(8), (c)(9), and (c)(10) of this
section apply for taxable years beginning after October 18, 2010.
* * * * *
(e) Election to use average basis method--(1) In general.
Notwithstanding paragraph (c) of this section, and except as provided
in paragraph (e)(8) of this section, a taxpayer may use the average
basis method described in paragraph (e)(7) of this section to determine
the cost or other basis of identical shares of stock if--
(i) The taxpayer leaves shares of stock in a regulated investment
company (as defined in paragraph (e)(5) of this section) or shares of
stock acquired after December 31, 2010, in connection with a dividend
reinvestment plan (as defined in paragraph (e)(6) of this section) with
a custodian or agent in an account maintained for the acquisition or
redemption, sale, or other disposition of shares of the stock; and
(ii) The taxpayer acquires identical shares of stock at different
prices or bases in the account.
(2) Determination of method. (i) If a taxpayer places shares of
stock described in paragraph (e)(1)(i) of this section acquired on or
after January 1, 2012, in the custody of a broker (as defined by
section 6045(c)(1)), including by transfer from an account with another
broker, the basis of the shares is determined in accordance with the
broker's default method, unless the taxpayer notifies the broker that
the taxpayer elects another permitted method. The taxpayer must report
gain or loss using the method the taxpayer elects or, if the taxpayer
fails to make an election, the broker's default method. See paragraphs
(e)(9)(i) and (e)(9)(v), Example 2, of this section.
(ii) The provisions of this paragraph (e)(2) are illustrated by the
following example:
Example. (i) In connection with a dividend reinvestment plan,
Taxpayer B acquires 100 shares of G Company in 2012 and 100 shares
of G Company in 2013, in an account B maintains with R Broker. B
notifies R in writing that B elects to use the average basis method
to compute the basis of the shares of G Company. In 2014, B
transfers the shares of G Company to an account with S Broker. B
does not notify S of the basis determination method B chooses to use
for the shares of G Company, and S's default method is first-in,
first-out. In 2015, B purchases 200 shares of G Company in the
account with S. In 2016, B instructs S to sell 150 shares of G
Company.
(ii) Because B does not notify S of a basis determination method
for the shares of G Company, under paragraph (e)(2)(i) of this
section, the basis of the 150 shares of G Company S sells for B in
2016 must be determined under S's default method, first-in, first-
out.
(3) Shares of stock. For purposes of this paragraph (e), securities
issued by unit investment trusts described in paragraph (e)(5) of this
section are treated as shares of stock and the term share or shares
includes fractions of a share.
(4) Identical stock. For purposes of this paragraph (e), identical
shares of stock means stock with the same Committee on Uniform Security
Identification Procedures (CUSIP) number or other security identifier
number as permitted in published guidance of general applicability, see
Sec. 601.601(d)(2) of this chapter.
(5) Regulated investment company. * * *
(6) Dividend reinvestment plan--(i) In general. For purposes of
this paragraph (e), the term dividend reinvestment plan means any
written plan, arrangement, or program under which at least 10 percent
of every dividend (within the meaning of section 316) on any share of
stock is reinvested in stock identical to the stock on which the
dividend is paid. A plan is a dividend reinvestment plan if the plan
documents require that at least 10 percent of any dividend paid is
reinvested in identical stock even if the plan includes stock on which
no dividends have ever been declared or paid or on which an issuer
ceases paying dividends. A plan that holds one or more different stocks
may permit a taxpayer to reinvest a different percentage of dividends
in the stocks held. A dividend reinvestment plan may reinvest other
distributions on stock, such as capital gain distributions, non-taxable
returns of capital, and cash in lieu of fractional shares. The term
dividend reinvestment plan includes both issuer administered dividend
reinvestment plans and non-issuer administered dividend reinvestment
plans.
(ii) Acquisition of stock. Stock is acquired in connection with a
dividend reinvestment plan if the stock is acquired under that plan,
arrangement, or program, or if the dividends and other distributions
paid on the stock are subject to that plan, arrangement, or program.
Shares of stock acquired in connection with a dividend reinvestment
plan include the initial purchase of stock in the dividend reinvestment
plan, transfers of identical stock into the dividend reinvestment plan,
additional periodic purchases of
[[Page 64086]]
identical stock in the dividend reinvestment plan, and identical stock
acquired through reinvestment of the dividends or other distributions
paid on the stock held in the plan.
(iii) Dividends and other distributions paid after reorganization.
For purposes of this paragraph (e)(6), dividends and other
distributions declared or announced before or pending a corporate
action (such as a merger, consolidation, acquisition, split-off, or
spin-off) involving the issuer and subsequently paid and reinvested in
shares of stock in the successor entity or entities are treated as
reinvested in shares of stock identical to the shares of stock of the
issuer.
(iv) Withdrawal from or termination of plan. If a taxpayer
withdraws stock from a dividend reinvestment plan or the plan
administrator terminates the dividend reinvestment plan, the shares of
identical stock the taxpayer acquires after the withdrawal or
termination are not acquired in connection with a dividend reinvestment
plan. The taxpayer may not use the average basis method after the
withdrawal or termination but may use any other permissible basis
determination method. See paragraph (e)(7)(v) of this section for the
basis of the shares after withdrawal or termination.
(7) Computation of average basis--(i) In general. Average basis is
determined by averaging the basis of all shares of identical stock in
an account regardless of holding period. However, for this purpose,
shares of stock in a dividend reinvestment plan are not identical to
shares of stock with the same CUSIP number that are not in a dividend
reinvestment plan. The basis of each share of identical stock in the
account is the aggregate basis of all shares of that stock in the
account divided by the aggregate number of shares. Unless a single-
account election is in effect, see paragraph (e)(11) of this section, a
taxpayer may not average together the basis of identical stock held in
separate accounts that the taxpayer sells, exchanges, or otherwise
disposes of on or after January 1, 2012.
(ii) Order of disposition of shares sold or transferred. In the
case of the sale or transfer of shares of stock to which the average
basis method election applies, shares sold or transferred are deemed to
be the shares first acquired. Thus, the first shares sold or
transferred are those with a holding period of more than 1 year (long-
term shares) to the extent that the account contains long-term shares.
If the number of shares sold or transferred exceeds the number of long-
term shares in the account, the excess shares sold or transferred are
deemed to be shares with a holding period of 1 year or less (short-term
shares). Any gain or loss attributable to shares held for more than 1
year constitutes long-term gain or loss, and any gain or loss
attributable to shares held for 1 year or less constitutes short-term
gain or loss. For example, if a taxpayer sells 50 shares from an
account containing 100 long-term shares and 100 short-term shares, the
shares sold or transferred are all long-term shares. If, however, the
account contains 40 long-term shares and 100 short-term shares, the
taxpayer has sold 40 long-term shares and 10 short-term shares.
(iii) Transition rule from double-category method. This paragraph
(e)(7)(iii) applies to stock for which a taxpayer uses the double-
category method under Sec. 1.1012-1(e)(3) (April 1, 2010), that the
taxpayer acquired before April 1, 2011, and that the taxpayer sells,
exchanges, or otherwise disposes of on or after that date. The taxpayer
must calculate the average basis of this stock by averaging together
all identical shares of stock in the account on April 1, 2011,
regardless of holding period.
(iv) Wash sales. A taxpayer must apply section 1091 and the
associated regulations (dealing with wash sales of substantially
identical securities) in computing average basis regardless of whether
the stock or security sold or otherwise disposed of and the stock
acquired are in the same account or in different accounts.
(v) Basis after change from average basis method. Unless a taxpayer
revokes an average basis method election under paragraph (e)(9)(iii) of
this section, if a taxpayer changes from the average basis method to
another basis determination method (including a change resulting from a
withdrawal from or termination of a dividend reinvestment plan), the
basis of each share of stock immediately after the change is the same
as the basis immediately before the change. See paragraph (e)(9)(iv) of
this section for rules for changing from the average basis method.
(vi) The provisions of this paragraph (e)(7) are illustrated by the
following examples:
Example 1. (i) In 2011, Taxpayer C acquires 100 shares of H
Company and enrolls them in a dividend reinvestment plan
administered by T Custodian. C elects to use the average basis
method for the shares of H Company enrolled in the dividend
reinvestment plan. T also acquires for C's account 50 shares of H
Company and does not enroll these shares in the dividend
reinvestment plan.
(ii) Under paragraph (e)(7)(i) of this section, the 50 shares of
H Company not in the dividend reinvestment plan are not identical to
the 100 shares of H Company enrolled in the dividend reinvestment
plan, even if they have the same CUSIP number. Accordingly, under
paragraphs (e)(1) and (e)(7)(i) of this section, C may not average
the basis of the 50 shares of H Company with the basis of the 100
shares of H Company. Under paragraph (e)(1)(i) of this section, C
may not use the average basis method for the 50 shares of H Company
because the shares are not acquired in connection with a dividend
reinvestment plan.
Example 2. (i) Taxpayer D enters into an agreement with W
Custodian establishing an account for the periodic acquisition of
shares of L Company, a regulated investment company. W acquires for
D's account shares of L Company stock on the following dates and
amounts:
------------------------------------------------------------------------
Number of
Date shares Cost
------------------------------------------------------------------------
January 8, 2010................................... 25 $200
February 8, 2010.................................. 24 200
March 8, 2010..................................... 20 200
April 8, 2010..................................... 20 200
------------------------------------------------------------------------
(ii) At D's direction, W sells 40 shares from the account on
January 15, 2011, for $10 per share or a total of $400. D elects to
use the average basis method for the shares of L Company. The
average basis for the shares sold on January 15, 2011, is $8.99
(total cost of shares, $800, divided by the total number of shares,
89).
(iii) Under paragraph (e)(7)(ii) of this section, the shares
sold are the shares first acquired. Thus, D realizes $25.25 ($1.01 *
25) long-term capital gain for the 25 shares acquired on January 8,
2010, and $15.15 ($1.01 * 15) short-term capital gain for 15 of the
shares acquired on February 8, 2010.
Example 3. (i) The facts are the same as in Example 2, except
that on February 8, 2011, D changes to the first-in, first-out basis
determination method. W purchases 25 shares of L Company for D on
March 8, 2011, at $12 per share. D sells 40 shares on May 8, 2011,
and 34 shares on July 8, 2012.
(ii) Because D uses the first-in, first-out method, the 40
shares sold on May 8, 2011 are 9 shares purchased on February 8,
2010, 20 shares purchased on March 8, 2010, and 11 shares purchased
on April 8, 2010. Because, under paragraph (e)(7)(v) of this
section, the basis of the shares D owns when D changes from the
average basis method remains the same, the basis of the shares sold
on May 8, 2011, is $8.99 per share, not the original cost of $8.33
per share for the shares purchased on February 8, 2010, or $10 per
share for the shares purchased on March 8, 2010, and April 8, 2010.
The basis of the shares sold on July 8, 2012, is $8.99 per share for
9 shares purchased on April 8, 2010, and $12 per share for 25 shares
purchased on March 8, 2011.
Example 4. (i) The facts are the same as in Example 2, except
that D uses the first-in, first-out method for the 40 shares sold on
January 15, 2011. W purchases 25 shares of L Company for D on March
8, 2011, at $12 per share. D sells 40 shares on May 8, 2011, and
elects the average basis method.
(ii) Because D uses the first-in, first-out method for the sale
on January 15, 2011, the 40 shares sold are the 25 shares acquired
on
[[Page 64087]]
January 8, 2010, for $200 (basis $8 per share) and 15 of the 24
shares purchased on February 8, 2010, for $200 (basis $8.33 per
share).
(iii) Under paragraph (e)(7)(i) of this section, under the
average basis method, the basis of all of the shares of identical
stock in D's account is averaged. Thus, the basis of each share D
sells on May 8, 2011, after electing the average basis method, is
$10.47. This figure is the total cost of the shares in D's account
($74.97 for the 9 shares acquired on February 8, 2010, $200 for the
20 shares acquired on March 8, 2010, $200 for the 20 shares acquired
on April 8, 2010, and $300 for the 25 shares acquired on March 8,
2011) divided by 74, the total number of shares ($774.97/74).
(8) Limitation on use of average basis method for certain gift
shares. (i) Except as provided in paragraph (e)(8)(ii) of this section,
a taxpayer may not use the average basis method for shares of stock a
taxpayer acquires by gift after December 31, 1920, if the basis of the
shares (adjusted for the period before the date of the gift as provided
in section 1016) in the hands of the donor or the last preceding owner
by whom the shares were not acquired by gift was greater than the fair
market value of the shares at the time of the gift. This paragraph
(e)(8)(i) does not apply to shares the taxpayer acquires as a result of
a taxable dividend or capital gain distribution on the gift shares.
(ii) Notwithstanding paragraph (e)(8)(i) of this section, a
taxpayer may use the average basis method if the taxpayer states in
writing that the taxpayer will treat the basis of the gift shares as
the fair market value of the shares at the time the taxpayer acquires
the shares. The taxpayer must provide this statement when the taxpayer
makes the election under paragraph (e)(9) of this section or when
transferring the shares to an account for which the taxpayer has made
this election, whichever occurs later. The statement must be effective
for any gift shares identical to the gift shares to which the average
basis method election applies that the taxpayer acquires at any time
and must remain in effect as long as the election remains in effect.
(iii) The provisions of this paragraph (e)(8) are illustrated by
the following examples:
Example 1. (i) Taxpayer E owns an account for the periodic
acquisition of shares of M Company, a regulated investment company.
On April 15, 2010, E acquires identical shares of M Company by gift
and transfers those shares into the account. These shares had an
adjusted basis in the hands of the donor that was greater than the
fair market value of the shares on that date. On June 15, 2010, E
sells shares from the account and elects to use the average basis
method.
(ii) Under paragraph (e)(8)(ii) of this section, E may elect to
use the average basis method for shares sold or transferred from the
account if E includes a statement with E's election that E will
treat the basis of the gift shares in the account as the fair market
value of the shares at the time E acquired them. See paragraph
(e)(9)(ii) of this section.
Example 2. (i) The facts are the same as in Example 1, except E
acquires the gift shares on April 15, 2012, transfers those shares
into the account, and used the average basis method for sales of
shares of M Company before acquiring the gift shares. E sells shares
of M Company on June 15, 2012.
(ii) Under paragraph (e)(8)(ii) of this section, the basis of
the gift shares may be averaged with the basis of the other shares
of M Company in E's account if, when E transfers the gift shares to
the account, E provides a statement to E's broker that E will treat
the basis of the gift shares in the account as the fair market value
of the shares at the time E acquired them. See paragraph (e)(9)(i)
of this section.
(9) Time and manner for making the average basis method election--
(i) In general. A taxpayer makes an election to use the average basis
method for shares of stock described in paragraph (e)(1)(i) of this
section that are covered securities (within the meaning of section
6045(g)(3)) by notifying the custodian or agent in writing by any
reasonable means. For purposes of this paragraph (e), a writing may be
in electronic format. A taxpayer has not made an election within the
meaning of this section if the taxpayer fails to notify a broker of the
taxpayer's basis determination method and basis is determined by the
broker's default method under paragraph (e)(2) of this section. A
taxpayer may make the average basis method election at any time,
effective for sales or other dispositions of stock occurring after the
taxpayer notifies the custodian or agent. The election must identify
each account with that custodian or agent and each stock in that
account to which the election applies. The election may specify that it
applies to all accounts with a custodian or agent, including accounts
the taxpayer later establishes with the custodian or agent. If the
election applies to gift shares, the taxpayer must provide the
statement required by paragraph (e)(8)(ii) of this section, if
applicable, to the custodian or agent with the taxpayer's election.
(ii) Average basis method election for securities that are
noncovered securities. A taxpayer makes an election to use the average
basis method for shares of stock described in paragraph (e)(1)(i) of
this section that are noncovered securities (as described in Sec.
1.6045-1(a)(16)) on the taxpayer's income tax return for the first
taxable year for which the election applies. A taxpayer may make the
election on an amended return filed no later than the time prescribed
(including extensions) for filing the original return for the taxable
year for which the election applies. The taxpayer must indicate on the
return that the taxpayer used the average basis method in reporting
gain or loss on the sale or other disposition. A taxpayer must attach
to the return the statement described in paragraph (e)(8)(ii) of this
section, if applicable. A taxpayer making the election must maintain
records necessary to substantiate the average basis reported.
(iii) Revocation of election. A taxpayer may revoke an election
under paragraph (e)(9)(i) of this section by the earlier of one year
after the taxpayer makes the election or the date of the first sale,
transfer, or disposition of that stock following the election. A
custodian or agent may extend the one-year period but a taxpayer may
not revoke an election after the first sale, transfer, or disposition
of the stock. A revocation applies to all stock the taxpayer holds in
an account that is identical to the shares of stock for which the
taxpayer revokes the election. A revocation is effective when the
taxpayer notifies, in writing by any reasonable means, the custodian or
agent holding the stock to which the revocation applies. After
revocation, the taxpayer's basis in the shares of stock to which the
revocation applies is the basis before averaging.
(iv) Change from average basis method. A taxpayer may change basis
determination methods from the average basis method to another method
prospectively at any time. A change from the average basis method
applies to all identical stock the taxpayer sells or otherwise disposes
of before January 1, 2012, that was held in any account. A change from
the average basis method applies on an account by account basis (within
the meaning of paragraph (e)(10) of this section) to all identical
stock the taxpayer sells or otherwise disposes of on or after January
1, 2012. The taxpayer must notify, in writing by any reasonable means,
the custodian or agent holding the stock to which the change applies.
Unless paragraph (e)(9)(iii) of this section applies, the basis of each
share of stock to which the change applies remains the same as the
basis immediately before the change. See paragraph (e)(7)(v) of this
section.
(v) Examples. The provisions of this paragraph (e)(9) are
illustrated by the following examples:
Example 1. (i) Taxpayer F enters into an agreement with W
Custodian establishing an account for the periodic acquisition of
shares of N Company, a regulated investment company. W acquires for
F's account shares
[[Page 64088]]
of N Company on the following dates and amounts:
------------------------------------------------------------------------
Number of
Date shares Cost
------------------------------------------------------------------------
January 8, 2012................................... 25 $200
February 8, 2012.................................. 24 200
March 8, 2012..................................... 20 200
------------------------------------------------------------------------
(ii) F notifies W that F elects, under paragraph (e)(9)(i) of
this section, to use the average basis method for the shares of N
Company. On May 8, 2012, under paragraph (e)(9)(iii) of this
section, F notifies W that F revokes the average basis method
election. On June 1, 2012, F sells 60 shares of N Company using the
first-in, first-out basis determination method.
(iii) Under paragraph (e)(9)(iii) of this section, the basis of
the N Company shares upon revocation, and for purposes of
determining gain on the sale, is $8.00 per share for each of the 25
shares purchased on January 8, 2012, $8.34 per share for each of the
24 shares purchased on February 8, 2012, and $10 per share for the
remaining 11 shares purchased on March 8, 2012.
Example 2. (i) The facts are the same as in Example 1, except
that F does not notify W that F elects a basis determination method.
W's default basis determination method is the average basis method
and W maintains an averaged basis for F's shares of N Company on W's
books and records.
(ii) F has not elected the average basis method under paragraph
(e)(9)(i) of this section. Therefore, F's notification to W on May
8, 2012, is not an effective revocation under paragraph (e)(9)(iii)
of this section. F's attempted revocation is, instead, notification
of a change from the average basis method under paragraph (e)(9)(iv)
of this section. Accordingly, the basis of each share of stock F
sells on June 1, 2012, is the basis immediately before the change,
$8.70 (total cost of shares, $600, divided by the total number of
shares, 69).
(10) Application of average basis method account by account--(i) In
general. For sales, exchanges, or other dispositions on or after
January 1, 2012, of stock described in paragraph (e)(1)(i) of this
section, the average basis method applies on an account by account
basis. A taxpayer may use the average basis method for stock in a
regulated investment company or stock acquired in connection with a
dividend reinvestment plan in one account but use a different basis
determination method for identical stock in a different account. If a
taxpayer uses the average basis method for a stock described in
paragraph (e)(1)(i) of this section, the taxpayer must use the average
basis method for all identical stock within that account. The taxpayer
may use different basis determination methods for stock within an
account that is not identical. Except as provided in paragraph
(e)(10)(ii) of this section, a taxpayer must make separate elections to
use the average basis method for stock held in separate accounts.
(ii) Account rule for stock sold before 2012. A taxpayer's election
to use the average basis method for shares of stock described in
paragraph (e)(1)(i) of this section that a taxpayer sells, exchanges,
or otherwise disposes of before January 1, 2012, applies to all
identical shares of stock the taxpayer holds in any account.
(iii) Separate account. Unless the single-account election
described in paragraph (e)(11)(i) of this section applies, stock
described in paragraph (e)(1)(i) of this section that is a covered
security (within the meaning of section 6045(g)(3)) is treated as held
in a separate account from stock that is a noncovered security (as
described in Sec. 1.6045-1(a)(16)), regardless of when acquired.
(iv) Examples. The provisions of this paragraph (e)(10) are
illustrated by the following examples:
Example 1. (i) In 2012, Taxpayer G enters into an agreement with
Y Broker establishing three accounts (G-1, G-2, and G-3) for the
periodic acquisition of shares of P Company, a regulated investment
company. Y makes periodic purchases of P Company for each of G's
accounts. G elects to use the average basis method for account G-1.
On July 1, 2013, G sells shares of P Company from account G-1.
(ii) G is not required to use the average basis method for the
shares of P Company that G holds in accounts G-2 and G-3 because,
under paragraph (e)(10)(i) of this section, the average basis method
election applies to shares sold after 2011 on an account by account
basis.
Example 2. The facts are the same as in Example 1, except that G
also instructs Y to acquire shares of Q Company, a regulated
investment company, for account G-1. Under paragraph (e)(10)(i) of
this section, G may use any permissible basis determination method
for the shares of Q Company because, under paragraph (e)(4) of this
section, the shares of Q Company are not identical to the shares of
P Company.
Example 3. (i) The facts are the same as in Example 1, except
that G establishes the accounts in 2011 and Y sells shares of P
Company from account G-1 on July 1, 2011.
(ii) For sales before 2012, under paragraph (e)(10)(ii) of this
section, G's election applies to all accounts in which G holds
identical stock. G must average together the basis of the shares in
all accounts to determine the basis of the shares sold from account
G-1.
Example 4. (i) In 2011, Taxpayer H acquires 80 shares of R
Company and enrolls them in R Company's dividend reinvestment plan.
In 2012, H acquires 50 shares of R Company in the dividend
reinvestment plan. H elects to use the average basis method for the
shares of R Company in the dividend reinvestment plan. R Company
does not make the single-account election under paragraph (e)(11)(i)
of this section.
(ii) Under section 6045(g)(3) and Sec. 1.6045-1(a)(16), the 80
shares acquired in 2011 are noncovered securities and the 50 shares
acquired in 2012 are covered securities. Therefore, under paragraph
(e)(10)(iii) of this section, the 80 shares are treated as held in a
separate account from the 50 shares. H must make a separate average
basis method election for each account and must average the basis of
the shares in each account separately from the shares in the other
account.
Example 5. (i) B Broker maintains an account for Taxpayer J for
the periodic acquisition of shares of S Company, a regulated
investment company. In 2013, B purchases shares of S Company for J's
account that are covered securities within the meaning of section
6045(g)(3). On April 15, 2014, J inherits shares of S Company that
are noncovered securities and transfers the shares into the account
with B.
(ii) Under paragraph (e)(10)(iii) of this section, J must treat
the purchased shares and the inherited shares of S Company as held
in separate accounts. J may elect to apply the average basis method
to all the shares of S Company, but must make a separate election
for each account, and must average the basis of the shares in each
account separately from the shares in the other account.
Example 6. (i) In 2010, Taxpayer K purchases stock in T Company
in an account with C Broker. In 2012, K purchases additional T
Company stock and enrolls that stock in a dividend reinvestment plan
maintained by C. K elects the average basis method for the T Company
stock. In 2013, K transfers the T Company stock purchased in 2010
into the dividend reinvestment plan.
(ii) Under paragraphs (e)(1)(i) and (e)(6)(ii) of this section,
the stock purchased in 2010 is not stock acquired after December 31,
2010, in connection with a dividend reinvestment plan before
transfer into the dividend reinvestment plan. Therefore, the stock
is not eligible for the average basis method at that time.
(iii) Once transferred into the dividend reinvestment plan in
2013, the stock K purchased in 2010 is acquired after December 31,
2010, in connection with a dividend reinvestment plan within the
meaning of paragraph (e)(6)(ii) of this section and is eligible for
the average basis method. Because stock purchased in 2010 is a
noncovered security under Sec. 1.6045-1(a)(16), under paragraph
(e)(10)(iii) of this section, the 2010 stock and the 2012 stock must
be treated as held in separate accounts. Under paragraph (e)(7)(i)
of this section, the basis of the 2010 shares may not be averaged
with the basis of the 2012 shares.
Example 7. The facts are the same as in Example 6, except that
K purchases the initial T Company stock in January 2011. Because
this stock is a covered security under section 6045(g)(3) and Sec.
1.6045-1(a)(15)(iv)(A), the 2011 stock and the 2012 stock are not
required under paragraph (e)(10)(iii) of this section to be treated
as held in separate accounts. Under paragraph (e)(7)(i) of this
section, the basis of the 2011 shares must be averaged with the
basis of the 2012 shares.
Example 8. (i) The facts are the same as in Example 7, except
that K purchases the additional T Company stock and enrolls in
[[Page 64089]]
the dividend reinvestment plan in March 2011. In September 2011, K
transfers the T Company stock purchased in January 2011 into the
dividend reinvestment plan. K sells some of the T Company stock in
2012.
(ii) Under section 6045(g)(3) and Sec. 1.6045-1(a)(16), the
stock K purchases in January 2011 is a covered security at the time
of purchase but the stock K purchases and enrolls in the dividend
reinvestment plan in March 2011 is a noncovered security. However,
under Sec. 1.6045-1(a)(15)(iv)(A), the stock purchased in January
2011 becomes a noncovered security after it is transferred to the
dividend reinvestment plan. Because all the shares in the dividend
reinvestment plan in September 2011 are noncovered securities, when
K sells stock in 2012, the January 2011 stock and the March 2011
stock are not required under paragraph (e)(10)(iii) of this section
to be treated as held in separate accounts. Under paragraph
(e)(7)(i) of this section, the basis of the January 2011 shares must
be averaged with the basis of the March 2011 shares.
(11) Single-account election--(i) In general. Paragraph
(e)(10)(iii) of this section does not apply if a regulated investment
company or dividend reinvestment plan elects to treat all identical
shares of stock described in paragraph (e)(1)(i) of this section as
held in a single account (single-account election). The single-account
election applies only to stock for which a taxpayer elects to use the
average basis method that is held in separate accounts or treated as
held in separate accounts maintained for the taxpayer and only to
accounts with the same ownership. If a broker (as defined by section
6045(c)(1)) holds the stock as a nominee, the broker, and not the
regulated investment company or dividend reinvestment plan, makes the
election. The single-account election is irrevocable, but is void if
the taxpayer revokes the average basis election under paragraph
(e)(9)(iii) of this section.
(ii) Scope of election. A company, plan, or broker may make a
single-account election for one or more taxpayers for which it
maintains an account, and for one or more stocks it holds for a
taxpayer. The company, plan, or broker may make the election only for
the shares of stock for which it has accurate basis information. A
company, plan, or broker has accurate basis information if the company,
plan, or broker neither knows nor has reason to know that the basis
information is inaccurate. See also section 6724 and the associated
regulations regarding standards for relief from information reporting
penalties. Stock for which accurate basis information is unavailable
may not be included in the single-account election and must be treated
as held in a separate account.
(iii) Effect of single-account election. If a company, plan, or
broker makes the single-account election, the basis of all identical
shares of stock to which the election applies must be averaged together
regardless of when the taxpayer acquires the shares, and all the shares
are treated as covered securities. The single-account election applies
to all identical stock a taxpayer later acquires in the account that is
a covered security (within the meaning of section 6045(g)(3)). A
company, plan, or broker may make another single-account election if,
for example, the broker later acquires accurate basis information for a
stock, or a taxpayer acquires identical stock in the account that is a
noncovered security (as described in Sec. 1.6045-1(a)(16)) for which
the company, plan, or broker has accurate basis information.
(iv) Time and manner for making the single-account election. A
company, plan, or broker makes the single-account election by clearly
noting it on its books and records. The books and records must reflect
the date of the election; the taxpayer's name, account number, and
taxpayer identification number; the stock subject to the election; and
the taxpayer's basis in the stock. The company, plan, or broker must
provide copies of the books and records regarding the election to the
taxpayer upon request. A company, plan, or broker may make the single-
account election at any time.
(v) Notification to taxpayer. A company, plan, or broker making the
single-account election must use reasonable means to notify the
taxpayer of the election. Reasonable means include mailings, circulars,
or electronic mail sent separately to the taxpayer or included with the
taxpayer's account statement, or other means reasonably calculated to
provide actual notice to the taxpayer. The notice must identify the
securities subject to the election and advise the taxpayer that the
securities will be treated as covered securities regardless of when
acquired.
(vi) Examples. The provisions of this paragraph (e)(11) are
illustrated by the following examples:
Example 1. (i) E Broker maintains Accounts A and B for Taxpayer
M for the acquisition and disposition of shares of T Company, a
regulated investment company. In 2011, E purchases 100 shares of T
Company for M's Account A. E has accurate basis information for
these shares. In 2012, E purchases 150 shares of T Company for M's
Account A and 80 shares of T Company for M's Account B. M elects to
use the average basis method for all shares of T Company. E makes a
single-account election for M's T Company stock.
(ii) The shares of T Company in Accounts A and B are held in
separate accounts. Under section 6045(g)(3) and Sec. 1.6045-
1(a)(16), of the shares purchased in Account A, the 100 shares
purchased in 2011 are noncovered securities and the 150 shares
purchased in 2012 are covered securities. Under paragraph
(e)(10)(iii) of this section, the 100 shares are treated as held in
a separate account from the 150 shares. Under paragraph (e)(11)(i)
of this section, the single-account election applies to all 330
shares of T Company in Accounts A and B. Thus, under paragraph
(e)(11)(iii) of this section, the basis of the 330 shares of stock
is averaged together and all the shares are treated as covered
securities.
Example 2. The facts are the same as in Example 1, except that
M owns Account B jointly with Taxpayer N. E may make a single-
account election for the 250 shares of stock in M's Account A.
However, under paragraph (e)(11)(i) of this section, E may not make
a single-account election for Accounts A and B because the accounts
do not have the same ownership.
Example 3. (i) C Broker maintains an account for Taxpayer K for
the acquisition and disposition of shares of T Company, a regulated
investment company, and shares of V Company that K enrolls in C's
dividend reinvestment plan. In 2011, C purchases for K's account 100
shares of T Company in multiple lots and 80 shares of V Company in
multiple lots that are enrolled in the dividend reinvestment plan. C
has accurate basis information for all 100 shares of T Company and
80 shares of V Company. In 2012, C acquires for K's account 150
shares of T Company and 160 shares of V Company that are enrolled in
the dividend reinvestment plan. K elects to use the average basis
method for all the shares of T Company and V Company.
(ii) Under paragraphs (e)(11)(i) and (ii) of this section, C may
make a single-account election for the T Company stock or the V
Company stock, or both. After making a single-account election for
each stock, under paragraph (e)(11)(iii) of this section, the basis
of all T Company stock is averaged together and the basis of all V
Company stock is averaged together, regardless of when acquired, and
all the shares of T Company and V Company are treated as covered
securities.
Example 4. The facts are the same as in Example 3, except that
K transfers the 100 shares of T Company acquired in 2011 from an
account with another broker into K's account with C. C does not have
accurate basis information for 30 of the 100 shares of T Company,
which K had acquired in two lots. Under paragraph (e)(11)(ii) of
this section, C may make the single-account election only for the 70
shares of T Company stock for which C has accurate basis
information. C must treat the 30 shares of T Company for which C
does not have accurate basis information as held in a separate
account. K may use the average basis method for the 30 shares of T
Company, but must make a separate average basis method election for
these shares and must average the basis of these shares separately
from the 70 shares subject to C's single-account election.
[[Page 64090]]
Example 5. The facts are the same as in Example 3, except that C
has made the single-account election and in 2013 K acquires
additional shares of T Company that are covered securities in K's
account with C. Under paragraph (e)(11)(iii) of this section, these
shares of T Company are subject to C's single-account election.
Example 6. The facts are the same as in Example 3, except that
C has made the single-account election and in 2013 K inherits shares
of T Company that are noncovered securities and transfers the shares
into the account with C. C has accurate basis information for these
shares. Under paragraph (e)(11)(iii) of this section, C may make a
second single-account election to include the inherited T Company
shares.
Example 7. (i) Between 2002 and 2011, Taxpayer L acquires 1,500
shares of W Company, a regulated investment company, in an account
with D Broker, for which L uses the average basis method, and sells
500 shares. On January 5, 2012, based on accurate basis information,
the averaged basis of L's remaining 1,000 shares of W Company is $24
per share. On January 5, 2012, L acquires 100 shares of W Company
for $28 per share and makes an average basis election for those
shares under paragraph (e)(9)(i) of this section.
(ii) On February 1, 2012, D makes a single-account election that
includes all 1,100 of L's shares in W Company. Thereafter, the basis
of L's shares of W Company is $24.36 per share (($24,000 + $2,800)/
1,100). On September 12, 2012, under paragraph (e)(9)(iii) of this
section, L revokes the average basis election for the 100 shares
acquired on January 5, 2012.
(iii) Under paragraph (e)(11)(i) of this section, D's single-
account election is void. Therefore, the basis of the 1,000 shares
of W Company that L acquires before 2012 is $24 per share and the
basis of the 100 shares of W Company that L acquires in 2012 is $28
per share.
(12) Effective/applicability date. Except as otherwise provided in
paragraphs (e)(1), (e)(2), (e)(7), (e)(9), and (e)(10) of this section,
this paragraph (e) applies for taxable years beginning after October
18, 2010.
* * * * *
0
Par. 4. Section 1.6039-2 is amended by adding two new sentences at the
end of paragraph (c)(1) to read as follows:
Sec. 1.6039-2 Statements to persons with respect to whom information
is reported.
* * * * *
(c) * * *
(1) * * * However, for a statement required to be furnished after
December 31, 2008, the February 15 due date under section 6045 applies
to the statement if the statement is furnished in a consolidated
reporting statement under section 6045. See Sec. Sec. 1.6045-1(k)(3),
1.6045-2(d)(2), 1.6045-3(e)(2), 1.6045-4(m)(3), and 1.6045-5(a)(3)(ii).
* * * * *
0
Par. 5. Section 1.6042-4 is amended by adding two new sentences at the
end of paragraph (e)(1) to read as follows:
Sec. 1.6042-4 Statements to recipients of dividend payments.
* * * * *
(e) * * *
(1) * * * For a statement required to be furnished after December
31, 2008, the February 15 due date under section 6045 applies to the
statement if the statement is furnished in a consolidated reporting
statement under section 6045. See Sec. Sec. 1.6045-1(k)(3), 1.6045-
2(d)(2), 1.6045-3(e)(2), 1.6045-4(m)(3), and 1.6045-5(a)(3)(ii).
* * * * *
0
Par. 6. Section 1.6044-5 is amended by adding two new sentences at the
end of paragraph (b) to read as follows:
Sec. 1.6044-5 Statements to recipients of patronage dividends.
* * * * *
(b) * * * For a statement required to be furnished after December
31, 2008, the February 15 due date under section 6045 applies to the
statement if the statement is furnished in a consolidated reporting
statement under section 6045. See Sec. Sec. 1.6045-1(k)(3), 1.6045-
2(d)(2), 1.6045-3(e)(2), 1.6045-4(m)(3), and 1.6045-5(a)(3)(ii).
* * * * *
0
Par. 7. Section 1.6045-1 is amended by:
0
1. Revising paragraph (a)(9) and adding paragraphs (a)(14), (a)(15),
and (a)(16).
0
2. Adding Examples 9, 10, and 11 to paragraph (b).
0
3. Revising paragraphs (c)(2), (c)(3)(i)(B)(1), and (c)(3)(i)(C).
0
4. Removing paragraph (c)(3)(xii) and redesignating paragraph
(c)(3)(xi) as (c)(3)(xii) and adding a new paragraph (c)(3)(xi).
0
5. Adding Examples 7, 8, and 9 to paragraph (c)(4).
0
6. Revising paragraphs (d)(1), (d)(2), and (d)(5).
0
7. Redesignating paragraphs (d)(6) and (d)(7) as (d)(8) and (d)(9)
respectively and adding new paragraphs (d)(6) and (d)(7).
0
8. Revising newly designated paragraphs (d)(8) and (d)(9).
0
9. Revising paragraphs (e)(2)(i), (f)(2)(i), (k)(1), and (k)(2).
0
10. Redesignating paragraph (k)(3) as (k)(4) and adding a new paragraph
(k)(3).
0
11. Removing paragraphs (p) and (q) and redesignating paragraph (r) as
(p).
The additions and revisions read as follows:
Sec. 1.6045-1 Returns of information of brokers and barter exchanges.
(a) * * *
(9) The term sale means any disposition of securities, commodities,
regulated futures contracts, or forward contracts, and includes
redemptions of stock, retirements of indebtedness, and enterings into
short sales, but only to the extent any of these actions are conducted
for cash. In the case of a regulated futures contract or a forward
contract, a sale is any closing transaction. When a closing transaction
in a regulated futures contract involves making or taking delivery, the
profit or loss on the contract is a sale and the delivery is a separate
sale. When a closing transaction in a forward contract involves making
or taking delivery, the delivery is 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.
Grants or purchases of options, exercises of call options, and
enterings into contracts that require delivery of personal property or
an interest therein are not sales. For purposes of this section only, a
constructive sale under section 1259 and a mark to fair market value
under sections 475 or 1296 are not sales.
* * * * *
(14) The term specified security means any share of stock (or any
interest treated as stock, including, for example, an American
Depositary Receipt) in an entity organized as, or treated for Federal
tax purposes as, a corporation (foreign or domestic). Solely for
purposes of this paragraph (a)(14), a security classified as stock by
the issuer is treated as stock. 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 principles.
(15) The term covered security means a specified security described
in this paragraph (a)(15).
(i) In general. Except as provided in paragraph (a)(15)(iv) of this
section, the following securities are covered securities:
(A) A specified security acquired for cash in an account on or
after January 1, 2011, except stock for which the average basis method
is available under Sec. 1.1012-1(e).
(B) Stock for which the average basis method is available under
Sec. 1.1012-1(e) acquired for cash in an account on or after January
1, 2012.
(C) A specified security transferred to an account if the broker or
other custodian of the account receives a
[[Page 64091]]
transfer statement (as described in Sec. 1.6045A-1) reporting the
security as a covered security.
(ii) Acquired in an account. For purposes of this paragraph
(a)(15), a security is considered acquired in a customer's account at a
broker or custodian if the security is acquired by the customer's
broker or custodian or acquired by another broker and delivered to the
customer's broker or custodian.
(iii) Corporate actions and other events. For purposes of this
paragraph (a)(15), a security acquired due to a stock dividend, stock
split, reorganization, redemption, stock conversion, recapitalization,
corporate division, or other similar action is considered acquired for
cash in an account.
(iv) Exceptions. Notwithstanding paragraph (a)(15)(i) of this
section, the following securities are not covered securities:
(A) Stock acquired in 2011 that is transferred to a dividend
reinvestment plan (as described in Sec. 1.1012-1(e)(6)) in 2011.
However, a covered security acquired in 2011 that is transferred to a
dividend reinvestment plan after 2011 remains a covered security.
(B) A security acquired through an event described in paragraph
(a)(15)(iii) of this section if the basis of the acquired security is
determined from the basis of a noncovered security.
(C) A security that is excepted at the time of its acquisition from
reporting under paragraph (c)(3) or (g) of this section. However, a
broker cannot treat a security as acquired by an exempt foreign person
under paragraph (g)(1)(i) of this section at the time of acquisition
if, at that time, the broker knows or should have known (including by
reason of information that the broker is required to collect under
section 1471 or 1472) that the customer is not a foreign person.
(D) A security for which reporting under this section is required
by Sec. 1.6049-5(d)(3)(ii) (certain securities owned by a foreign
intermediary or flow-through entity).
(16) The term noncovered security means any security that is not a
covered security.
(b) * * *
* * * * *
Example 9. E, an individual not otherwise exempt from
reporting, maintains an account with S, a broker. On June 1, 2012, E
instructs S to purchase stock that is a specified security for cash.
S places an order to purchase the stock with T, another broker. E
does not maintain an account with T. T executes the purchase.
Custody of the purchased stock is transferred to E's account at S.
Under paragraph (a)(15)(ii) of this section, the stock is considered
acquired for cash in E's account at S. Because the stock is acquired
on or after January 1, 2012, under paragraph (a)(15)(i) of this
section, it is a covered security.
Example 10. F, an individual not otherwise exempt from
reporting, is granted 100 shares of stock in F's employer by F's
employer. Because F does not acquire the stock for cash or through a
transfer to an account with a transfer statement (as described in
Sec. 1.6045A-1), under paragraph (a)(15) of this section, the stock
is not a covered security.
Example 11. G, an individual not otherwise exempt from
reporting, owns 400 shares of stock in Q, a corporation, in an
account with U, a broker. Of the 400 shares, 100 are covered
securities and 300 are noncovered securities. Q takes a corporate
action to split its stock in a 2-for-1 split. After the stock split,
G owns 800 shares of stock. Because the adjusted basis of 600 of the
800 shares that G owns is determined from the basis of noncovered
securities, under paragraphs (a)(15)(iii) and (a)(15)(iv)(B) of this
section, these 600 shares are not covered securities and the
remaining 200 shares are covered securities.
(c) * * *
(2) Sales required to be reported. Except as provided in paragraphs
(c)(3), (c)(5), and (g) of this section, a broker is required to make a
return of information for each sale by a customer of the broker if, in
the ordinary course of a trade or business in which the broker stands
ready to effect sales to be made by others, the broker effects the sale
or closes the short position opened by the sale.
(3) * * *
(i) * * *
(B) * * *
(1) A corporation as defined in section 7701(a)(3), whether
domestic or foreign, except that this exclusion does not apply to sales
of covered securities acquired on or after January 1, 2012, by an S
corporation as defined in section 1361(a);
* * * * *
(C) Exemption certificate--(1) In general. Except as provided in
paragraph (c)(3)(i)(C)(2) of this section, a broker may treat a person
described in paragraph (c)(3)(i)(B) of this section as an exempt
recipient based on a properly completed exemption certificate (as
provided in Sec. 31.3406(h)-3 of this chapter); the broker's actual
knowledge that the customer is a person described in paragraph
(c)(3)(i)(B) of this section; or the applicable indicators described in
Sec. 1.6049-4(c)(1)(ii)(A) through (M). A broker may require an exempt
recipient to file a properly completed exemption certificate and may
treat an exempt recipient that fails to do so as a recipient that is
not exempt.
(2) Limitation for corporate customers. For sales of covered
securities acquired on or after January 1, 2012, a broker may not treat
a customer as an exempt recipient described in paragraph
(c)(3)(i)(B)(1) of this section based on the indicators of corporate
status described in Sec. 1.6049-4(c)(1)(ii)(A). However, for sales of
all securities, a broker may treat a customer as an exempt recipient if
one of the following applies:
(i) The name of the customer contains the term ``insurance
company,'' ``indemnity company,'' ``reinsurance company,'' or
``assurance company.''
(ii) The name of the customer indicates that it is an entity listed
as a per se corporation under Sec. 301.7701-2(b)(8)(i) of this
chapter.
(iii) The broker receives a properly completed exemption
certificate (as provided in Sec. 31.3406(h)-3 of this chapter) that
asserts that the customer is not an S corporation as defined in section
1361(a).
(iv) The broker 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.
* * * * *
(xi) Short sales--(A) In general. A broker may not make a return of
information under this section for a short sale of a security entered
into on or after January 1, 2011, until the year a customer delivers a
security to satisfy the short sale obligation. The return must be made
without regard to the constructive sale rule in section 1259 or to
section 1233(h). In general, the broker must report on a single return
the information required by paragraph (d)(2)(i) of this section for the
short sale except that the broker must report the date the short sale
was closed in lieu of the sale date. In applying paragraph (d)(2)(i) of
this section, the broker must report the relevant information regarding
the security sold to open the short sale and the adjusted basis of the
security delivered to close the short sale and whether any gain or loss
on the closing of the short sale is long-term or short-term (within the
meaning of section 1222).
(B) Short sale closed by delivery of a noncovered security. A
broker is not required to report adjusted basis and whether any gain or
loss on the closing of the short sale is long-term or short-term if the
short sale is closed by delivery of a noncovered security and the
return so indicates. A broker that chooses to report this information
is not subject to penalties under section 6721 or 6722 for failure to
report this information correctly if the broker indicates on the return
that the short
[[Page 64092]]
sale was closed by delivery of a noncovered security.
(C) Short sale obligation transferred to another account. If a
short sale obligation is satisfied by delivery of a security
transferred into a customer's account accompanied by a transfer
statement (as described in Sec. 1.6045A-1(b)(4)) indicating that the
security was borrowed, the broker receiving custody of the security may
not file a return of information under this section. 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 quantity of shares or units sold, and the Committee on
Uniform Security Identification Procedures (CUSIP) number of the sold
security (if applicable) or other security identifier number that the
Secretary may designate by publication in the Federal Register or in
the Internal Revenue Bulletin (see Sec. 601.601(d)(2) of this
chapter). The statement to the transferor also must include the
transfer date, the name and contact information of the receiving
broker, the name and contact information of the transferor, and
sufficient information to identify the customer. If the customer
subsequently closes the short sale obligation in the transferor's
account with non-borrowed securities, the transferor must make the
return of information required by this section. In that event, the
transferor must take into account the information furnished under this
paragraph (c)(3)(xi)(C) on the return unless the transferor knows that
the information furnished under this paragraph is incorrect or
incomplete. A failure to report correct information that arises solely
from this reliance is deemed to be due to reasonable cause for purposes
of penalties under sections 6721 and 6722. See Sec. 301.6724-1(a)(1)
of this chapter.
* * * * *
(4) * * *
* * * * *
Example 7. On June 24, 2010, H, an individual who is not an
exempt recipient, opens a short sale of stock in an account with M,
a broker. Because the short sale is entered into before January 1,
2011, paragraph (c)(3)(xi) of this section does not apply. Under
paragraphs (c)(2) and (j) of this section, M must make a return of
information for the year of the sale regardless of when the short
sale is closed.
Example 8. (i) On August 25, 2011, H opens a short sale of
stock in an account with M, a broker. H closes the short sale with M
on January 25, 2012, by purchasing stock of the same corporation in
the account in which H opened the short sale and delivering the
stock to satisfy H's short sale obligation. The stock H purchased is
a covered security.
(ii) Because the short sale is entered into on or after January
1, 2011, under paragraphs (c)(2) and (c)(3)(xi) of this section, the
broker closing the short sale must make a return of information
reporting the sale for the year in which the short sale is closed.
Thus, M is required to report the sale for 2012. M must report on a
single return the relevant information for the sold stock, the
adjusted basis of the purchased stock, and whether any gain or loss
on the closing of the short sale is long-term or short-term (within
the meaning of section 1222). Thus, M must report the information
about the short sale opening and closing transactions on a single
return for taxable year 2012.
Example 9. (i) Assume the same facts as in Example 8 except
that H also has an account with N, a broker, and satisfies the short
sale obligation with M by borrowing stock of the same corporation
from N and transferring custody of the borrowed stock from N to M. N
indicates on the transfer statement that the transferred stock was
borrowed in accordance with Sec. 1.6045A-1(b)(4).
(ii) Under paragraph (c)(3)(xi)(C) of this section, M may not
file the return of information required under this section. M must
furnish a statement to N that reports the gross proceeds from the
short sale on August 25, 2011, the date of the sale, the quantity of
shares sold, the CUSIP number or other security identifier number of
the sold stock, the transfer date, the name and contact information
of M and N, and information identifying H such as H's name and the
account number from which H transferred the borrowed stock.
(iii) N must report the gross proceeds from the short sale, the
date the short sale was closed, the adjusted basis of the stock
acquired to close the short sale, and whether any gain or loss on
the closing of the short sale is long-term or short-term (within the
meaning of section 1222) on the return of information N is required
to file under paragraph (c)(2) of this section when H closes the
short sale in the account with N.
* * * * *
(d) * * * (1) In general. A broker that is required to make a
return of information under paragraph (c) of this section during a
reporting period is required to report for each filing group on a
separate Form 1096, ``Annual Summary and Transmittal of U.S.
Information Returns,'' or any successor form, the information required
by the form in the manner and number of copies required by the form.
(2) Transactional reporting--(i) Required information. Except as
provided in paragraph (c)(5) of this section, for each sale for which a
broker is required to make a return of information under this section,
the broker must report on Form 1099-B, ``Proceeds From Broker and
Barter Exchange Transactions,'' or any successor form the name,
address, and taxpayer identification number of the customer, the
property sold, the CUSIP number of the security sold (if applicable) or
other security identifier number that the Secretary may designate by
publication in the Federal Register or in the Internal Revenue Bulletin
(see Sec. 601.601(d)(2) of this chapter), the adjusted basis of the
security sold, whether any gain or loss with respect to the security
sold is long-term or short-term (within the meaning of section 1222),
the gross proceeds of the sale, the sale date, and other information
required by the form in the manner and number of copies required by the
form.
(ii) Specific identification of securities. Except as provided in
Sec. 1.1012-1(e)(7)(ii), a broker must report a sale on or after
January 1, 2011, of less than the entire position in an account of a
specified security that was acquired on different dates or at different
prices consistently with a customer's adequate and timely
identification of the security to be sold. See Sec. 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 any shares or units
in the account for which the broker does not know the acquisition or
purchase date followed by the earliest shares or units purchased or
acquired, whether covered securities or noncovered securities.
(iii) Sales of noncovered securities. A broker is not required to
report adjusted basis and whether any gain or loss on the sale is long-
term or short-term for the sale of a noncovered security if the return
identifies the sale as a sale of a noncovered security. A broker that
chooses to report this information for a noncovered security is not
subject to penalties under section 6721 or 6722 for failure to report
this information correctly if the return identifies the sale as a sale
of a noncovered security. For purposes of this paragraph (d)(2)(iii), a
broker must treat a security for which a broker makes the single-
account election described in Sec. 1.1012-1(e)(11)(i) as a covered
security.
(iv) Information from other parties and other accounts--(A)
Transfer and issuer statements. When reporting a sale of a covered
security, a broker must take into account all information, other than
the classification of the security (such as stock), furnished on a
transfer statement (as described in Sec. 1.6045A-1) and all
information furnished or deemed furnished on an issuer statement (as
described in Sec. 1.6045B-1), unless the statement is incomplete or
the broker has actual knowledge that it is incorrect. A broker may
treat a customer as a minority shareholder when taking the information
on an issuer statement into account unless the broker knows that
[[Page 64093]]
the customer is a majority shareholder and the issuer statement reports
the action's effect on the basis of majority shareholders. A failure to
report correct information that arises solely from reliance on
information furnished on a transfer statement or issuer statement is
deemed to be due to reasonable cause for purposes of penalties under
sections 6721 and 6722. See Sec. 301.6724-1(a)(1) of this chapter.
(B) Other information. A broker is permitted, but not required, to
take into account information about a covered security other than what
is furnished on a transfer statement or issuer statement, including any
information the broker has about securities held by the same customer
in other accounts with the broker. For purposes of penalties under
sections 6721 and 6722, a broker that takes into account information
received from a customer or third party other than information
furnished on a transfer statement or issuer statement is deemed to have
relied upon this information in good faith if the broker neither knows
nor has reason to know that the information is incorrect. See Sec.
301.6724-1(c)(6) of this chapter.
(v) Failure to receive a complete transfer statement. A broker that
has not received a complete transfer statement as required under Sec.
1.6045A-1(a)(3) for a transfer of a specified security must request a
complete statement from the applicable person effecting the transfer
unless, under Sec. 1.6045A-1(a), the transferor has no duty to furnish
a transfer statement for the transfer. The broker is only required to
make this request once. If the broker does not receive a complete
transfer statement after requesting it, the broker may treat the
security as a noncovered security upon its subsequent sale or transfer.
A transfer statement for a covered security is complete if, in the view
of the receiving broker, it provides sufficient information to comply
with this section when reporting the sale of the security. A transfer
statement for a noncovered security is complete if it indicates that
the security is a noncovered security.
(vi) Reporting by other parties after a sale--(A) Transfer
statements. If a broker receives a transfer statement indicating that a
security is a covered security after the broker reports the sale of the
security, the broker must file a corrected return within thirty days of
receiving the statement unless the broker reported the required
information on the original return consistently with the transfer
statement.
(B) Issuer statements. If a broker receives or is deemed to receive
an issuer statement after the broker reports the sale of a covered
security, the broker must file a corrected return within thirty days of
receiving the issuer statement unless the broker reported the required
information on the original return consistently with the issuer
statement.
(C) Exception. A broker is not required to file a corrected return
under this paragraph (d)(2)(vi) if the broker receives the transfer
statement or issuer statement more than three years after the broker
filed the return.
(vii) Examples. The following examples illustrate the rules of this
paragraph (d)(2):
Example 1. (i) On February 22, 2012, K sells 100 shares of
stock of C, a corporation, at a loss in an account held with F, a
broker. On March 15, 2012, K purchases 100 shares of C stock for
cash in an account with G, a different broker. Because K acquires
the stock purchased on March 15, 2012, for cash in an account after
January 1, 2012, under paragraph (a)(15) of this section, the stock
is a covered security. K asks G to increase K's adjusted basis in
the stock to account for the application of the wash sale rules
under section 1091 to the loss transaction in the account held with
F.
(ii) Under paragraph (d)(2)(iv)(B) of this section, G is not
required to take into account the information provided by K when
subsequently reporting the adjusted basis and whether any gain or
loss on the sale is long-term or short-term. If G chooses to take
this information into account, under paragraph (d)(2)(iv)(B) of this
section, G is deemed to have relied upon the information received
from K in good faith for purposes of penalties under sections 6721
and 6722 if G neither knows nor has reason to know that the
information provided by K is incorrect.
Example 2. (i) L purchases shares of stock of a single
corporation in an account with F, a broker, on April 17, 1969, April
17, 2012, April 17, 2013, and April 17, 2014. In January 2015, L
sells all the stock.
(ii) Under paragraph (d)(2)(i) of this section, F must
separately report the gross proceeds and adjusted basis attributable
to the stock purchased in 2014, for which the gain or loss on the
sale is short-term, and the combined gross proceeds and adjusted
basis attributable to the stock purchased in 2012 and 2013, for
which the gain or loss on the sale is long-term. Under paragraph
(d)(2)(iii) of this section, F must also separately report the gross
proceeds attributable to the stock purchased in 1969 as the sale of
noncovered securities in order to avoid treatment of this sale as
the sale of covered securities.
* * * * *
(5) Gross proceeds. For purposes of this section, gross proceeds on
a sale are the total amount paid to the customer or credited to the
customer's account as a result of the sale reduced by the amount of any
interest reported under paragraph (d)(3) of this section and increased
by any amount not paid or credited by reason of repayment of margin
loans. In the case of a closing transaction that results in a loss,
gross proceeds are the amount debited from the customer's account. A
broker may, but is not required to, reduce gross proceeds by the amount
of commissions and transfer taxes, provided the treatment chosen is
consistent with the books of the broker. For securities sold pursuant
to the exercise of an option granted or acquired before January 1,
2013, a broker may, but is not required to, take the option premiums
into account in determining the gross proceeds of the securities sold,
provided the treatment chosen is consistent with the books of the
broker. A broker must report the gross proceeds of identical stock
(within the meaning of Sec. 1.1012-1(e)(4)) by averaging the proceeds
of each share if the stock is sold at separate times on the same
calendar day in executing a single trade order and the broker executing
the trade provides a single confirmation to the customer that reports
an aggregate total price or an average price per share. However, a
broker may not average the proceeds if the customer notifies the broker
in writing of an intent to determine the proceeds of the stock by the
actual proceeds per share and the broker receives the notification by
January 15 of the calendar year following the year of the sale. A
broker may extend the January 15 deadline but not beyond the due date
for filing the return required under this section.
(6) Adjusted basis--(i) In general. For purposes of this section,
the adjusted basis of a security is determined from the initial basis
under paragraph (d)(6)(ii) of this section as of the date the security
is acquired in an account, increased by the commissions and transfer
taxes related to its sale to the extent not accounted for in gross
proceeds as described in paragraph (d)(5) of this section. A broker is
not required to consider transactions, elections, or events occurring
outside the account except for an organizational action taken by an
issuer during the period the broker holds custody of the security (not
including the transfer settlement date if the security was transferred)
reported on an issuer statement (as described in Sec. 1.6045B-1)
furnished or deemed furnished to the broker.
(ii) Initial basis--(A) Cost basis. For a security acquired for
cash, the initial basis is the total amount of cash paid by the
customer or credited against the customer's account for the security,
increased by the commissions and transfer taxes related to its
acquisition. A broker may, but is not required to, take option premiums
into account in determining the initial basis of securities purchased
or acquired pursuant to the exercise of an option granted or acquired
before January 1,
[[Page 64094]]
2013. 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 exercise of other equity-based compensation arrangements,
granted or acquired before January 1, 2013. A broker must report the
basis of identical stock (within the meaning of Sec. 1.1012-1(e)(4))
by averaging the basis of each share if the stock is purchased at
separate times on the same calendar day in executing a single trade
order and the broker executing the trade provides a single confirmation
to the customer that reports an aggregate total price or an average
price per share. However, a broker may not average the basis if the
customer timely notifies the broker in writing of an intent to
determine the basis of the stock by the actual cost per share in
accordance with Sec. 1.1012-1(c)(1)(ii).
(B) Transferred basis--(1) In general. The initial basis of a
security transferred to an account is generally the basis reported on
the transfer statement (as described in Sec. 1.6045A-1).
(2) Securities acquired by gift. If a transfer statement indicates
that the security is acquired as a gift, a broker must apply the
relevant basis rules for property acquired by gift in determining the
initial basis, but is not required to adjust basis for gift tax. A
broker must treat the initial basis as equal to the gross proceeds from
the sale determined under paragraph (d)(5) of this section if the
relevant basis rules for property acquired by gift prevent recognizing
both gain and loss, or if the relevant basis rules treat the initial
basis of the security as its fair market value as of the date of the
gift and the broker neither knows nor can readily ascertain this value.
If the transfer statement did not report a date for the gift, the
broker must treat the settlement date for the transfer as the date of
the gift.
(iii) Adjustments for wash sales--(A) In general. A broker must
apply the wash sale rules under section 1091 if both the sale and
purchase transactions are of covered securities with the same CUSIP
number or other security identifier number that the Secretary may
designate by publication in the Federal Register or in the Internal
Revenue Bulletin (see Sec. 601.601(d)(2) of this chapter). When
reporting the sale transaction that triggered the wash sale, the broker
must report the amount of loss that is disallowed by section 1091 in
addition to gross proceeds and adjusted basis. The broker must increase
the adjusted basis of the purchased security by the amount of loss
disallowed on the sale transaction.
(B) Securities in different accounts. A broker is not required to
apply paragraph (d)(6)(iii)(A) of this section if the securities are
purchased and sold from different accounts, if the purchased security
is transferred to another account before the wash sale, or if the
securities are treated as held in separate accounts under Sec. 1.1012-
1(e). A security is not purchased in an account if it is purchased in
another account and transferred into the account.
(C) Effect of election under section 475(f)(1). A broker is not
required to apply paragraph (d)(6)(iii)(A) of this section to
securities in an account if a customer has in writing both informed the
broker that the customer has made a valid and timely election under
section 475(f)(1) and identified the account as solely containing
securities subject to the election. For purposes of this paragraph
(d)(6)(iii)(C), a writing may be in electronic format. If a customer
subsequently informs a broker that the election no longer applies to
the customer or the account, the broker must prospectively apply
paragraph (d)(6)(iii)(A) of this section but is not required to apply
paragraph (d)(6)(iii)(A) of this section for the period covered by the
customer's prior instruction to the broker. A taxpayer that is not a
trader in securities within the meaning of section 475(f)(1) does not
become a trader in securities, or create an inference that it is a
trader in securities, by notifying a broker that it has made a valid
and timely election under section 475(f)(1).
(D) Reporting at or near the time of sale. If a wash sale occurs
after a broker has completed a return or statement reporting a sale of
a covered security, the broker must redetermine adjusted basis under
this paragraph (d)(6)(iii) and, if the return or statement included
information inconsistent with this redetermination, correct the return
or statement by the applicable original due date set forth in this
section for the return or statement.
(iv) Constructive sale and mark-to-market adjustments. A broker is
not required to apply section 1259 (regarding constructive sales),
section 475 (regarding the mark-to-market method of accounting), or
section 1296 (regarding the mark-to-market method of accounting for
marketable stock in a passive foreign investment company) when
reporting adjusted basis.
(v) Average basis method adjustments. For a covered security for
which basis may be determined by the average basis method, a broker
must compute basis using the average basis method if a customer validly
elects that method for the securities sold or, in the absence of any
instruction from the customer, if the broker chooses that method as its
default basis determination method. See Sec. 1.1012-1(e).
(vi) Regulated investment company and real estate investment trust
adjustments. A broker must adjust the basis of a covered security
issued by a regulated investment company or real estate investment
trust for the effects of undistributed capital gains reported to or by
the broker under section 852(b)(3)(D) or section 857(b)(3)(D).
(vii) Examples. The following examples, in which all the securities
are covered securities, illustrate the rules of this paragraph (d)(6):
Example 1. (i) On September 21, 2012, P purchases 100 shares of
stock in an account with J, a broker. On December 14, 2012, P
purchases 100 shares of stock with the same CUSIP number in the same
account. On January 4, 2013, P sells the 100 shares purchased on
September 21, 2012, at a loss.
(ii) Because the sale of stock on January 4, 2013, and the
purchase of stock on December 14, 2012, are of covered securities
with the same CUSIP number, under paragraph (d)(6)(iii)(A) of this
section, J must report the amount of loss disallowed by section 1091
in addition to the gross proceeds of the sale and the adjusted basis
of the September 21, 2012, stock.
(iii) P later sells the stock acquired on December 14, 2012.
When reporting the sale of the stock, under paragraph (d)(6)(iii)(A)
of this section, J must increase the adjusted basis of the stock
acquired on December 14, 2012, by the amount of loss disallowed on
the January 4, 2013, sale.
Example 2. Assume the same facts as in Example 1 except that
the December 14, 2012, purchase occurs in another account P
maintains with J. Because the December 14, 2012, purchase does not
occur in the same account as the sale of the September 21, 2012,
stock, under paragraph (d)(6)(iii)(B) of this section, J is not
required to apply the wash sale rules in reporting the sale of stock
acquired on September 21, 2012, or December 14, 2012. Under
paragraphs (d)(2)(iii) and (d)(2)(iv)(B) of this section, J may
choose to apply the wash sale rules as if the transactions occurred
in the same account. The result is the same whether P keeps the
stock purchased on December 14, 2012, in the other account or
transfers the stock into the account from which P sells the stock
sold on January 4, 2013.
Example 3. (i) K, a regulated investment company, offers two
funds for sale, Fund D and Fund E. On April 22, 2012, Q purchases
shares of Fund D and pays a separate load charge. By paying the load
charge, Q acquires a reinvestment right in shares of Fund E. On
April 23, 2012, at the request of Q, Fund D redeems the shares. Q
uses the proceeds to purchase shares of Fund E in a separate
account. As a result of the reinvestment right, Q pays no load
charge in purchasing the Fund E shares.
[[Page 64095]]
(ii) Under paragraph (d)(6)(i) of this section, when reporting
adjusted basis of the Fund D and Fund E shares at the time of their
redemption, K is not required to adjust basis for any deferral of
the load charge under section 852(f), because the transactions
concerning Fund D and Fund E occur in separate accounts. Under
paragraph (d)(2)(iv)(B) of this section, K may choose to apply the
provisions of section 852(f).
Example 4. R, an employee of C, a corporation, participates in
C's stock option plan. On April 2, 2012, C grants R a nonstatutory
option under the plan to buy 100 shares of stock. The option becomes
substantially vested on April 2, 2013. On October 2, 2013, R
exercises the option and purchases 100 shares. On December 2, 2013,
R sells the 100 shares. Under paragraph (d)(6)(ii)(A) of this
section, C is required to determine adjusted basis from the amount R
pays under the terms of the option. Because C grants the option to R
before January 1, 2013, under paragraph (d)(6)(ii)(A) of this
section, C is not required to adjust basis for any amount R must
include as wage income with respect to the October 2, 2013, stock
purchase. The result is the same if C grants R a statutory option.
(7) Long-term or short-term gain or loss--(i) In general. In
determining whether any gain or loss on the sale of a security is long-
term or short-term within the meaning of section 1222 for purposes of
this section, a broker must consider the information reported on a
transfer statement (as described in Sec. 1.6045A-1) and apply the
relevant rules for property acquired from a decedent or by gift. A
broker is not required to consider transactions, elections, or events
occurring outside the account except for an organizational action taken
by an issuer during the period the broker holds custody of the security
(not including the transfer settlement date if the security was
transferred) reported on an issuer statement (as described in Sec.
1.6045B-1) furnished or deemed furnished to the broker.
(ii) Adjustments for wash sales--(A) In general. A broker must
apply the wash sale rules under section 1091 if both the sale and
purchase transactions are of covered securities with the same CUSIP
number or other security identifier number that the Secretary may
designate by publication in the Federal Register or in the Internal
Revenue Bulletin (see Sec. 601.601(d)(2) of this chapter).
(B) Securities in different accounts. A broker is not required to
apply paragraph (d)(7)(ii)(A) of this section if the securities are
purchased and sold from different accounts, if the purchased security
is transferred to another account before the wash sale, or if the
securities are treated as held in separate accounts under Sec. 1.1012-
1(e). A security is not purchased in an account if it is purchased in
another account and transferred into the account.
(C) Effect of election under section 475(f)(1). A broker is not
required to apply paragraph (d)(7)(ii)(A) of this section to securities
in an account if a customer has in writing both informed the broker
that the customer has made a valid and timely election under section
475(f)(1) and identified the account as solely containing securities
subject to the election. For purposes of this paragraph (d)(7)(ii)(C),
a writing may be in electronic format. If a customer subsequently
informs a broker that the election no longer applies to the customer or
the account, the broker must prospectively apply paragraph
(d)(7)(ii)(A) of this section but is not required to apply paragraph
(d)(7)(ii)(A) of this section for the period covered by the customer's
prior instruction to the broker. A taxpayer that is not a trader in
securities within the meaning of section 475(f)(1) does not become a
trader in securities, or create an inference that it is a trader in
securities, by notifying a broker that it has made a valid and timely
election under section 475(f)(1).
(D) Reporting at or near the time of sale. If a wash sale occurs
after a broker has completed a return or statement reporting a sale of
a covered security, the broker must redetermine whether gain or loss on
the sale is long-term or short-term under this paragraph (d)(7)(ii)
and, if the return or statement included information inconsistent with
this redetermination, correct the return or statement by the applicable
original due date set forth in this section for the return or
statement.
(iii) Constructive sale and mark-to-market adjustments. A broker is
not required to apply section 1259 (regarding constructive sales),
section 475 (regarding the mark-to-market method of accounting), or
section 1296 (regarding the mark-to-market method of accounting for
marketable stock in a passive foreign investment company) when
determining whether any gain or loss on the sale of a security is long-
term or short-term.
(iv) Regulated investment company and real estate investment trust
adjustments. A broker is not required to apply sections 852(b)(4)(A)
and 857(b)(8) (regarding effect of distributed and undistributed
capital gain dividends on a loss on sale of regulated investment
company or real estate investment trust shares held six months or less)
or section 852(b)(4)(B) (regarding loss disallowance on sale of
regulated investment company shares held six months or less due to
receipt of tax-exempt dividends) when determining whether any gain or
loss on the sale of a security is long-term or short-term.
(v) No adjustments for hedging transactions or offsetting
positions. A broker is not required to apply section 1092 (regarding
straddles), section 1233(b)(2) (regarding effect of short sale on
holding period of substantially identical property), or Sec. 1.1221-
2(b) (regarding hedging transactions) when determining whether any gain
or loss on the sale of a security is long-term or short-term.
(8) Conversion into United States dollars of amounts paid or
received in foreign currency--(i) Conversion rules. (A) When a payment
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 payment, as
applicable, at the spot rate (as defined in Sec. 1.988-1(d)(1)) or
pursuant to a reasonable spot rate convention. When reporting the sale
of a security traded on an established securities market, however, a
broker must determine the U.S. dollar amounts at the spot rate or
pursuant to a reasonable spot rate convention as of the settlement date
of the purchase or sale, as applicable.
(B) A reasonable spot rate convention includes a month-end spot
rate or a monthly average spot rate. A spot rate convention must be
used consistently for all non-dollar amounts reported and from year to
year. The convention may not be changed without the consent of the
Commissioner or his or her delegate.
(ii) Effect of identification under Sec. 1.988-5(a), (b), or (c)
when the taxpayer effects a sale and a hedge through the same broker.
In lieu of the amounts reportable under paragraph (d)(8)(i) of this
section, the gross proceeds and adjusted basis must each be the
integrated amount computed under Sec. 1.988-5(a), (b) or (c) if--
(A) A taxpayer effects through a broker a sale or exchange of
nonfunctional currency (as defined in Sec. 1.988-1(c)) and hedges all
or a part of the sale as provided in Sec. 1.988-5(a), (b) or (c) with
the same broker; and
(B) The taxpayer complies with the requirements of Sec. 1.988-
5(a), (b) or (c) and so notifies the broker prior to the end of the
calendar year in which the sale occurs.
(iii) Example. The following example illustrates the rules of this
paragraph (d)(8):
Example. (i) Z, an individual, is a U.S. citizen. On July 4,
2012, Z purchases stock
[[Page 64096]]
of C, SA, a French corporation traded on an established securities
market, in an account with Q, a broker. Q uses a daily spot rate for
converting euro and U.S. dollars. Z pays [euro]1,200 for the stock.
On the settlement date for the purchase, the spot rate is [euro]1 =
$1.30. On October 4, 2012, Z sells the stock for [euro]1,000. On the
settlement date for the sale, the spot rate is [euro]1 = $1.35. On
October 5, 2012, Z purchases additional shares of C, SA, that cause
the [euro]200 loss on the stock sold on October 4, 2012, to be
disallowed under section 1091.
(ii) Under paragraph (d)(8)(i)(A) of this section, Q must
determine adjusted basis by converting the [euro]1,200 paid on
behalf of Z into U.S. dollars using the [euro]1 = $1.30 spot rate on
the settlement date of the purchase. Q must convert the [euro]1,000
gross proceeds into U.S. dollars using the [euro]1 = $1.35 spot rate
on the settlement date for the sale. Thus, Q must report adjusted
basis equal to $1,560, gross proceeds equal to $1,350, and $210 in
loss disallowed by section 1091.
(9) Coordination with the reporting rules for widely held fixed
investment trusts under Sec. 1.671-5. Information required to be
reported under section 6045(a) for a sale of a security in a widely
held fixed investment trust (WHFIT) (as defined under Sec. 1.671-5)
and the sale of an interest in a WHFIT must be reported as provided by
this section unless the information is also required to be reported
under Sec. 1.671-5. To the extent that this section requires
additional information under section 6045(g), those requirements are
deemed to be met through compliance with the rules in Sec. 1.671-5.
(e) * * *
(2) * * * (i) In general. Except as provided in paragraphs
(e)(2)(ii) and (g) of this section, a barter exchange must make a
return of information for exchanges of personal property or services
through the barter exchange during the calendar year among its members
or clients or between these persons and the barter exchange. For this
purpose, property or services are exchanged through a barter exchange
if payment for property or services is made by means of a credit on the
books of the barter exchange or scrip issued by the barter exchange or
if the barter exchange arranges a direct exchange of property or
services among its members or clients or exchanges property or services
with a member or client.
* * * * *
(f) * * *
(2) * * * (i) In general. As to each exchange for which a barter
exchange is required to make a return of information under this
section, the barter exchange must show on Form 1099-B, ``Proceeds From
Broker and Barter Exchange Transactions,'' or any successor form the
name, address, and taxpayer identification number of each member or
client providing property or services in the exchange, the property or
services provided, the amount received by the member or client for the
property or services, the date on which the exchange occurred, and
other information required by the form in the manner and number of
copies required by the form.
* * * * *
(k) * * * (1) General requirements. A broker or barter exchange
making a return of information under this section must furnish to the
person whose identifying number is (or is required to be) shown on the
return a written statement showing the information required by
paragraph (c)(5), (d), or (f) of this section and containing a legend
stating that the information is being reported to the Internal Revenue
Service. If the return of information is not made on magnetic media,
this requirement may be satisfied by furnishing to the person a copy of
all Forms 1099 or any successor form for the person filed with the
Internal Revenue Service Center. A statement is considered to be
furnished to a person to whom a statement is required to be made under
this paragraph (k) if it is mailed to the person at the last address of
the person known to the broker or barter exchange.
(2) Time for furnishing statements. A broker or barter exchange may
furnish the statements required under this paragraph (k) yearly,
quarterly, monthly, or on any other basis, without regard to the
reporting period the broker or barter exchange elects; however, all
statements required to be furnished under this paragraph (k) for a
calendar year must be furnished on or before February 15 of the
following calendar year.
(3) Consolidated reporting. (i) The term consolidated reporting
statement means a grouping of statements the same broker or barter
exchange furnishes to the same customer or group of customers on the
same date for the same reporting year that includes a statement
required under this section. A consolidated reporting statement is
limited to statements based on the same relationship of broker or
barter exchange to customer as the statement required to be furnished
under this section. For purposes of this paragraph (k)(3)(i), a broker
may treat a shareholder of a broker as a customer of the broker and may
treat a grouping of statements for a customer as including a statement
required to be furnished under this section if the customer has an
account with the broker for which a statement would be required to be
furnished under this section if the customer purchased and sold stock
in a corporation in the account during the year.
(ii) A consolidated reporting statement must be furnished on or
before February 15 of the year following the calendar year reported.
Any statement that otherwise must be furnished on or before January 31
must be furnished on or before February 15 if it is furnished in the
consolidated reporting statement.
(iii) Examples. The following examples illustrate the rules of this
paragraph (k)(3):
Example 1. D has a taxable account with B, a broker, consisting
solely of stock in a single corporation. In 2010, D receives
reportable dividends from this stock and sells the stock. Under this
section and Sec. 1.6042-4, B must furnish a Form 1099-B, ``Proceeds
From Broker and Barter Exchange Transactions,'' and Form 1099-DIV,
``Dividends and Distributions,'' to D in 2011 for the sale and the
dividends. Under paragraph (k)(2) of this section, B is required to
furnish the required statement under this section to D by February
15, 2011. B must furnish the statement reporting the dividends by
the January 31, 2011, due date provided in Sec. 1.6042-4. However,
under paragraph (k)(3)(ii) of this section, B must furnish the
statement reporting the dividends by February 15, 2011, if furnished
in a consolidated reporting statement as defined in paragraph
(k)(3)(i) of this section.
Example 2. Assume the same facts as in Example 1 except that D
has invested solely in a money market fund for which sales are
excepted from the reporting required under this section. B therefore
is not required to issue a statement under this section if D sells
an interest in the money market fund. Under paragraph (k)(3)(i) of
this section, B may treat a grouping of statements for D as
including a required statement under this section because D has an
account for which a statement would be required under this section
if D purchased and sold stock in a corporation in the account during
the year. Therefore, under paragraph (k)(3)(ii) of this section, B
must furnish the statement reporting the dividends by February 15,
2011.
Example 3. E has a nontaxable IRA account with B, a broker.
This account is the only account E holds with B. E sells stock in
2010 in this account. E also receives a cash distribution from the
account in 2010. The cash distribution from the IRA is reportable on
Form 1099-R, ``Distributions From Pensions, Annuities, Retirement or
Profit-Sharing Plans, IRAs, Insurance Contracts, etc.,'' under Sec.
1.408-7. Because the account is not taxable, sales in the account
are not subject to reporting under this section. Therefore, because
no statement is required under this section, under paragraph (k)(3)
of this section, B may not furnish any statements to E in a
consolidated reporting statement. B must furnish the Form 1099-R by
the date required under Sec. 1.408-7.
Example 4. Assume the same facts as in Example 3 except that E
and F have a joint
[[Page 64097]]
taxable account with B. Because sales in the joint taxable account
are subject to reporting under this section, under paragraph (k)(3)
of this section, B must furnish by February 15, 2011, all customer
statements for 2010 that B otherwise must furnish jointly to E and F
on or before January 31, 2011, if furnished on the same date in a
consolidated reporting statement with the required statements under
this section for any sales in the joint taxable account. However, B
may not include any statement for E's IRA account in the
consolidated reporting statement furnished jointly to E and F
because the statements are not furnished to the same customer or
group of customers.
* * * * *
0
Par. 8. Section 1.6045-2 is amended by revising paragraph (d) to read
as follows:
Sec. 1.6045-2 Furnishing statement required with respect to certain
substitute payments.
* * * * *
(d) Time for furnishing statements--(1) General requirements. A
broker must furnish the statements required by paragraph (a) of this
section for each calendar year. The statements must be furnished after
April 30th of the calendar year but in no case before the final
substitute payment for the calendar year is made, and on or before
February 15 of the following calendar year.
(2) Consolidated reporting. (i) The term consolidated reporting
statement means a grouping of statements the same broker furnishes to
the same customer or group of customers on the same date for the same
reporting year that includes a statement required under this section. A
consolidated reporting statement is limited to statements based on the
same relationship of broker to customer as the statement required to be
furnished under this section.
(ii) A consolidated reporting statement must be furnished on or
before February 15 of the year following the calendar year reported.
Any statement that otherwise must be furnished on or before January 31
must be furnished on or before February 15 if it is furnished in the
consolidated reporting statement.
* * * * *
0
Par. 9. Section 1.6045-3 is amended by revising paragraph (e) to read
as follows:
Sec. 1.6045-3 Information reporting for an acquisition of control or
a substantial change in capital structure.
* * * * *
(e) Furnishing of forms to customers--(1) General requirements. A
broker must furnish Form 1099-B to the customer on or before February
15 of the year following the calendar year in which the customer
receives stock, cash or other property.
(2) Consolidated reporting. (i) The term consolidated reporting
statement means a grouping of statements the same broker furnishes to
the same customer or group of customers on the same date for the same
reporting year that includes a statement required under this section. A
consolidated reporting statement is limited to statements based on the
same relationship of broker to customer as the statement required to be
furnished under this section.
(ii) A consolidated reporting statement must be furnished on or
before February 15 of the year following the calendar year reported.
Any statement that otherwise must be furnished on or before January 31
must be furnished on or before February 15 if it is furnished in the
consolidated reporting statement.
* * * * *
0
Par. 10. Section 1.6045-4 is amended by revising paragraph (m)(2) and
adding paragraph (m)(3) to read as follows:
Sec. 1.6045-4 Information reporting on real estate transactions with
dates of closing on or after January 1, 1991.
* * * * *
(m) * * *
(2) Time for furnishing statement. The statement required under
this paragraph (m) must be furnished to the transferor on or after the
date of closing and on or before February 15 of the following calendar
year.
(3) Consolidated reporting. (i) The term consolidated reporting
statement means a grouping of statements the same reporting person
furnishes to the same transferor or group of transferors on the same
date for the same reporting year that includes a statement required
under this section. A consolidated reporting statement is limited to
statements based on the same relationship of reporting person to
transferor as the statement required to be furnished under this
section.
(ii) A consolidated reporting statement must be furnished on or
before February 15 of the year following the calendar year reported.
Any statement that otherwise must be furnished on or before January 31
must be furnished on or before February 15 if it is furnished in the
consolidated reporting statement.
* * * * *
0
Par. 11. Section 1.6045-5 is amended by revising paragraph (a)(3) to
read as follows:
Sec. 1.6045-5 Information reporting on payments to attorneys.
(a) * * *
(3) Requirement to furnish statement--(i) General requirements. A
person required to file an information return under paragraph (a)(1) of
this section must furnish to the attorney a written statement of the
information required to be shown on the return. This requirement may be
met by furnishing a copy of the return to the attorney. The written
statement must be furnished to the attorney on or before February 15 of
the year following the calendar year in which the payment was made.
(ii) Consolidated reporting. (A) The term consolidated reporting
statement means a grouping of statements the same payor furnishes to
the same payee or group of payees on the same date for the same
reporting year that includes a statement required under this section. A
consolidated reporting statement is limited to statements based on the
same relationship of payor to payee as the statement required to be
furnished under this section.
(B) A consolidated reporting statement must be furnished on or
before February 15 of the year following the calendar year reported.
Any statement that otherwise must be furnished on or before January 31
must be furnished on or before February 15 if it is furnished in the
consolidated reporting statement.
* * * * *
0
Par. 12. Section 1.6045A-1 is added to read as follows:
Sec. 1.6045A-1 Statements of information required in connection with
transfers of securities.
(a) Duty to furnish transfer statement--(1) In general--(i)
Transfers between accounts. Except as provided in paragraphs (a)(1)(ii)
through (v) of this section, every applicable person (transferor) (as
described in paragraph (a)(4) of this section) that transfers custody
of a specified security to a broker (as described in paragraph (a)(5)
of this section) must furnish to the receiving broker a transfer
statement that includes the information described in paragraph (b) of
this section with respect to the transferred security. Except as
provided in paragraphs (b)(1)(vii) and (b)(3) of this section (relating
to noncovered securities and certain securities for which basis is
determined under an average basis method), a transferor must furnish a
separate statement for each security and, if transferring custody of
the same security acquired on different dates or at different prices,
for each acquisition.
(ii) Cash on delivery accounts and multiple broker arrangements--
(A) Sales. A custodian or other transferor that transfers custody of a
security to a broker solely to effect a sale must furnish a transfer
statement only to the
[[Page 64098]]
broker that effects the sale. However, no transfer statement is
required if the transferor itself either effects the sale or is
required to report the sale of the security under Sec. 1.6045-1.
(B) Purchases. A broker that effects a purchase but does not
receive custody of the security must furnish a transfer statement to
the broker receiving custody. However, no transfer statement is
required if the broker effects the purchase solely at the instruction
of the broker receiving custody.
(iii) Exempt recipients and exempt foreign payees. A transferor is
not required to furnish a transfer statement for a security that, after
the transfer, is held for a customer that is an exempt recipient under
Sec. 1.6045-1(c)(3)(i) or an exempt foreign person under Sec. 1.6045-
1(g)(1)(i).
(iv) Securities lending transactions--transferor as principal. A
transferor that lends or borrows securities as a principal is not
required to furnish a transfer statement for a security that is
transferred pursuant to such lending or borrowing arrangement (for
example, when a customer opens or closes a short sale). This exception
does not apply when a transferor transfers a security under a lending
or borrowing arrangement of the customer. This exception also does not
apply when a transferor transfers a previously borrowed security to
another account of the same customer (for example, to satisfy an
existing short sale obligation). See paragraph (b)(4) of this section.
(v) Certain money market funds. A transferor of stock in a
regulated investment company described in Sec. 1.6045-1(c)(3)(vi) is
not required to furnish a transfer statement.
(2) Format of transfer statement. The transfer statement must be
furnished in writing unless both the transferor and the receiving
broker agree to a different format or method before the transfer. If a
transfer occurs between accounts at the same or affiliated entities, a
transfer statement is deemed to have been furnished and received if the
required information, including any required adjustments, is
incorporated into the records for the recipient account.
(3) Time for furnishing statement. A transferor must furnish a
transfer statement within fifteen days after the date of settlement for
the transfer.
(4) Applicable person effecting transfer. Applicable person means
any transferor who is a person described in Sec. 1.6045-1(a)(1), a
person that acts as a custodian of securities in the ordinary course of
a trade or business, an issuer of securities, a trustee or custodian of
an individual retirement plan, or any agent of these persons.
Applicable person does not include the beneficial owner of a security
or any agent substituted for an undisclosed beneficial owner, any
governmental unit or agency or instrumentality of a governmental unit
holding escheated securities, or any organization that holds and
transfers obligations among members of the organization as a service to
its members.
(5) Broker receiving custody. Solely for purposes of this section,
broker means any person described in Sec. 1.6045-1(a)(1), any person
that acts as a custodian of securities in the ordinary course of a
trade or business, any issuer of securities, and any agent of these
persons. Broker does not include the beneficial owner of a security or
any agent substituted for an undisclosed beneficial owner, any
governmental unit or agency or instrumentality of a governmental unit
holding escheated securities, or any organization that holds and
transfers obligations among members of the organization as a service to
its members.
(6) Other terms. For purposes of this section, the terms sale,
specified security, covered security, noncovered security, and customer
have the same meaning as in Sec. 1.6045-1(a)(9), (a)(14), (a)(15),
(a)(16), and (h)(1).
(7) Examples. The following examples illustrate the rules of this
paragraph (a). Unless otherwise stated, in each example the customer is
not treated as an exempt recipient under Sec. 1.6045-1(c)(3)(i) or an
exempt foreign person under Sec. 1.6045-1(g)(1)(i). The examples are
as follows:
Example 1. V, an entity treated as an exempt recipient under
Sec. 1.6045-1(c)(3)(i), owns a security in an account with E, a
broker. On February 1, 2012, V instructs E to transfer custody of
the security to an account V maintains with F, another broker.
Because E may treat V as an exempt recipient under Sec. 1.6045-
1(c)(3)(i), under paragraph (a)(1)(iii) of this section, E is not
required to furnish a transfer statement.
Example 2. W maintains an account with G, a custodial broker.
On August 1, 2012, W instructs G to purchase a security. G places an
order to purchase the security with H, a broker with which G has a
clearing agreement. W does not maintain a direct account with H. H
executes the purchase and has the security delivered to G. Under
paragraph (a)(1)(ii)(B) of this section, H is not required to
furnish a transfer statement because G received custody of the
security and H purchased the security solely at the instruction of
G.
Example 3. Assume the same facts as in Example 2 except that W
later instructs G to sell the security. G places an order with H to
sell the security. H executes the sale. G delivers the security to
settle the sale. G is required to report the sale of the security
under Sec. 1.6045-1. Therefore, under paragraph (a)(1)(ii)(A) of
this section, G is not required to furnish a transfer statement.
Example 4. (i) X maintains an account with J, an introducing
broker. J contracts with K, a clearing broker, to allow K to execute
trades on J's behalf under a clearing agreement. K uses L, a
custodian of securities in the ordinary course of a trade or
business, to hold custody of the securities of K's customers. K
maintains a separate disclosed account for X as a clearing broker
with custody at L. On May 1, 2012, X instructs J to purchase a
security for X as the beneficial owner. J instructs K to purchase
the security. K effects the purchase and has the security delivered
to L.
(ii) K is a broker and therefore is an applicable person that is
a transferor within the meaning of paragraph (a)(4) of this section.
L acts as a custodian of securities in the ordinary course of a
trade or business and therefore is a broker within the meaning of
paragraph (a)(5) of this section. Because K effects the purchase of
the security but does not receive custody of the security, under
paragraphs (a)(1)(i) and (a)(1)(ii)(B) of this section, K must
furnish a transfer statement to L.
Example 5. (i) Assume the same facts as in Example 4 except
that X later instructs J to sell the security. J instructs K to sell
the security. K sells the security. L transfers custody of the
security to settle X's sale in accordance with its custody
arrangement with K by delivering the security to the purchasing
broker. K deposits the sale proceeds in X's account with K. K is
required to report the sale of the security under Sec. 1.6045-1.
(ii) L acts as a custodian of securities in the ordinary course
of a trade or business and therefore is an applicable person that is
a transferor within the meaning of paragraph (a)(4) of this section.
Because L transfers custody of the security to the purchaser's
broker solely to effect the sale, under paragraphs (a)(1)(i) and
(a)(1)(ii)(A) of this section, L must furnish a transfer statement
to K.
(iii) If the terms of their custody arrangement so provide, K
may furnish the transfer statement as L's agent and satisfy L's duty
to furnish the transfer statement under paragraphs (a)(1)(i) and
(a)(1)(ii)(A) of this section. Under paragraph (a)(2) of this
section, K may satisfy this duty by maintaining the information
required on the transfer statement, including all required
adjustments, in its records for X's account.
Example 6. (i) Y, an investment advisor, wants to purchase
shares of stock in C, a corporation, for several of Y's customers. Y
establishes a delivery-on-payment account with M, a broker, and
provides M a standing instruction to deliver stock purchased in the
account to Y's account at N, a custodian of securities in the
ordinary course of a trade or business. On November 1, 2012, Y
enters into a cash-on-delivery transaction by instructing M to
purchase shares of C stock. M executes the purchase and effects
delivery of the C stock to N.
(ii) M is a broker and therefore is an applicable person that is
a transferor within the meaning of paragraph (a)(4) of this section.
N acts as a custodian of securities in the ordinary course of a
trade or business and therefore is a broker within the meaning of
[[Page 64099]]
paragraph (a)(5) of this section. Because M effects the purchase of
the stock and N receives custody of the stock, under paragraphs
(a)(1)(i) and (a)(1)(ii)(B) of this section, M must furnish a
transfer statement to N.
Example 7. (i) Z owns shares of stock in C, a corporation, in an
account with O, a broker. On February 1, 2013, Z instructs O to
transfer the C stock to C so that ownership is held on the books of
the issuer. C has an arrangement with D, a transfer agent, to keep
records of ownership of the company's stock, how that stock is held,
and how many shares each investor owns. O transfers the stock to D.
(ii) O is a broker and therefore is an applicable person that is
a transferor within the meaning of paragraph (a)(4) of this section.
D is an agent of C, the issuer of the stock, and therefore is a
broker within the meaning of paragraph (a)(5) of this section.
Because O transfers custody of the stock to D, under paragraph
(a)(1)(i) of this section, O must furnish a transfer statement to D.
Example 8. Assume the same facts as in Example 7 except that Z
later instructs D to transfer the stock to an account Z maintains
with P, another broker. D transfers the stock to P. D is an agent of
C, the issuer of the stock, and therefore is an applicable person
that is a transferor within the meaning of paragraph (a)(4) of this
section. Because P is a broker and D transfers custody of the stock
to P, under paragraph (a)(1)(i) of this section, D must furnish a
transfer statement to P.
(b) Information required--(1) In general. Each transfer statement
must include the information described in this paragraph (b)(1).
(i) Statement date. The date the statement is furnished.
(ii) Applicable person effecting transfer. The name, address, and
telephone number of the applicable person furnishing the statement.
(iii) Broker receiving custody. The name, address, and telephone
number of the broker receiving custody of the security.
(iv) Customers. The name and account number of the customer or
customers for the account from which the security is transferred and,
if different, the name and account number of the customer or customers
for the account to which the security is transferred.
(v) Security identifiers. The Committee on Uniform Security
Identification Procedures (CUSIP) number of the security transferred
(if applicable) or other security identifier number that the Secretary
may designate by publication in the Federal Register or in the Internal
Revenue Bulletin (see Sec. 601.601(d)(2) of this chapter), quantity of
shares or units, and classification of the security (such as stock).
(vi) Transfer dates. The date the transfer was initiated and the
settlement date of the transfer (if known when furnishing the
statement).
(vii) Adjusted basis and acquisition date. The total adjusted basis
of the security, the original acquisition date of the security, and, if
applicable, the holding period adjustment required by section 1091. The
transferor must determine this information as provided under Sec.
1.6045-1(d) including reporting the adjusted basis of the security in
U.S. dollars. If the basis of the transferred security is determined
using an average basis method (as described in Sec. 1.1012-1(e)), the
transferor may report any securities acquired more than five years
before the transfer on a single statement on which the original
acquisition date is reported as ``VARIOUS'' if the other information
reported on the statement applies to all of the securities.
(viii) Examples. The following examples illustrate the rules of
this paragraph (b)(1):
Example 1. (i) In a single account with P, a broker, Q
purchases three lots of 100 shares of stock each in C, a
corporation, at different prices on April 2, 2012, July 2, 2012, and
October 2, 2012. Q instructs P to enroll the shares of the C stock
in P's dividend reinvestment plan and to average the basis of the
shares of the C stock. All of the C stock purchased by P has the
same CUSIP number. On September 13, 2013, less than five years after
the acquisition dates for all three lots, Q transfers all 300 shares
of the C stock to an account with another broker.
(ii) Under paragraph (a)(1)(i) of this section, P must furnish
three transfer statements. Under paragraph (b)(1) of this section,
one statement must report the transfer of 100 shares with an
original acquisition date of April 2, 2012, one statement must
report the transfer of 100 shares with an original acquisition date
of July 2, 2012, and one statement must report the transfer of 100
shares with an original acquisition date of October 2, 2012.
Example 2. Assume the same facts as in Example 1 except that Q
transfers the shares to the account with the other broker on
September 13, 2017. For the 100 shares purchased on April 2, 2012,
and the 100 shares purchased on July 2, 2012, under paragraph
(b)(1)(vii) of this section, P may furnish a single transfer
statement reporting the transfer of 200 shares with the original
acquisition date as ``VARIOUS'' instead of furnishing two separate
transfer statements.
Example 3. (i) Assume the same facts as in Example 1 except
that, on June 15, 2012, Q sells the 100 shares purchased on April 2,
2012, at a loss.
(ii) Under paragraph (a)(1)(i) of this section, P must furnish
two transfer statements. Under paragraph (b)(1)(vii) of this section
and Sec. 1.6045-1(d)(6)(iii) and (d)(7)(ii), P must determine the
average basis for the 200 transferred shares and the date for
computing whether any gain or loss with respect to the stock
purchased on July 2, 2012, is long-term or short-term by applying
the rules for broker reporting of wash sales to the stock purchased
on July 2, 2012. Therefore, on both transfer statements, P must
increase the average basis of the stock by the amount of loss
disallowed under section 1091 on the sale of the 100 shares
purchased on April 2, 2012. On the transfer statement reporting the
transfer of the 100 shares purchased on July 2, 2012, P must adjust
the holding period of the July 2, 2012, shares in accordance with
section 1091.
Example 4. (i) R, an employee of C, a corporation, participates
in C's employee stock purchase program that satisfies the
requirements of section 423. D administers the plan. R purchases
stock in the plan at a 15 percent discount to the fair market value
of the stock determined on the date of purchase. R purchases stock
through the plan during 2012 until R terminates employment on
October 15, 2012. R later instructs D to transfer the plan shares to
S, a broker.
(ii) D is the agent of C, the issuer of the securities, and
therefore is an applicable person within the meaning of paragraph
(a)(4) of this section. Because S is a broker and D transfers
custody of the stock to S, under paragraph (a)(1)(i) of this
section, D must furnish a transfer statement to S.
(iii) Under paragraph (b)(1)(vii) of this section and Sec.
1.6045-1(d)(6)(ii)(A), D must report adjusted basis on the transfer
statement based on the amount paid by R. Under paragraph (b)(1)(vii)
of this section and Sec. 1.6045-1(d)(6)(ii)(A), D is permitted, but
is not required, to increase the adjusted basis for the amount (if
any) includible as wage income by R for R's purchases of the stock.
(2) Format of identification. An applicable person furnishing a
transfer statement and a broker receiving the transfer statement may
agree to combine the information required in paragraph (b)(1) of this
section in any format or to use a code in place of one or more required
items. For example, a transferor and a receiving broker may agree to
use a single code to represent the broker instead of the broker's name,
address, and telephone number, or may use a security symbol or other
identification number or scheme instead of the security identifier
required by paragraph (b)(1) of this section.
(3) Transfers of noncovered securities. The information described
in paragraphs (b)(1)(vii), (b)(5), and (b)(6) of this section is not
required for a transfer of a noncovered security if the transfer
statement identifies the security as a noncovered security. A
transferor that chooses to report nonrequired information is not
subject to penalties under section 6722 for failure to report this
information correctly if the transfer statement identifies the security
as a noncovered security. A single transfer statement may report the
transfer of multiple noncovered securities if the transfer statement
clearly conveys, either specifically or generally, the information
described in paragraph
[[Page 64100]]
(b)(1)(v) of this section to identify each security. For purposes of
this paragraph (b)(3), a transferor must treat a security for which a
broker makes a single-account election described in Sec. 1.1012-
1(e)(11)(i) as a covered security.
(4) Transfers of borrowed securities. The transfer statement must
indicate that a transferred security is borrowed if the transferor
knows that the security is transferred pursuant to a lending or
borrowing arrangement. The transfer statement must not report an
adjusted basis If the transferor knows that the transferred security is
lent or borrowed pursuant to a short sale. The receiving broker may be
subject to special transfer reporting rules upon receipt of a borrowed
security if the security is used to satisfy an existing short sale
obligation. See Sec. 1.6045-1(c)(3)(xi)(C).
(5) Transfers pursuant to an inheritance--(i) In general. A
transfer statement for a transfer of a security from a decedent or
decedent's estate must indicate that the security is inherited. The
transfer statement must report the date of death as the original
acquisition date and must report adjusted basis according to the
instructions or valuations furnished by an authorized representative of
the estate, including any required adjustments to basis for property
acquired from a decedent. If a transferor has not received instructions
or valuations from an authorized representative, the transferor must
report basis as the fair market value of the security on the date of
death.
However, if the transferor neither knows nor can readily ascertain
the fair market value of the security on the date of death at the time
the transfer statement is prepared, the transfer statement must
indicate that the transfer consists of an inherited security but may
otherwise report the security as if it were a noncovered security. If
the transferor cannot identify which securities in a joint account have
been transferred from the decedent, the transferor must treat each
security in the account as if it were a noncovered security but must
not indicate that any security is an inherited security.
(ii) Transfers of shares to satisfy a cash legacy. If a security is
transferred from a decedent or a decedent's estate to satisfy a cash
legacy, paragraph (b)(1) of this section applies and paragraph
(b)(5)(i) of this section does not apply.
(iii) Subsequent transfers of inherited securities. A transfer
statement must indicate that the transfer consists of an inherited
security if a prior transfer statement reported the security as
inherited.
(6) Gift or deemed gift transfers--(i) In general. A transfer
statement for a security transferred to a different owner (other than a
transfer that the transferor knows is pursuant to a lending or
borrowing arrangement or is from a decedent or decedent's estate) must
indicate that the security is a gift and must report the date of the
gift (if known when furnishing the statement) and the fair market value
of the gift on that date (if known or readily ascertainable at the time
the transfer statement is prepared). The transfer statement must report
the adjusted basis and original acquisition date of the security in the
hands of the donor. However, if the transfer is between persons for
whom gift-related basis adjustments are inapplicable or between
accounts that share at least one common customer, the transferor must
apply paragraph (b)(1) of this section as if the security were not a
gift or deemed gift.
(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 transferor must include on the transfer statement the information
described in paragraph (b)(6)(i) of this section for the date of the
gift to the customer. If the prior transfer statement did not report a
date for the gift, the transferor must treat the settlement date for
the prior transfer as the date of the gift.
(iii) Examples. The following examples illustrate the rules of this
paragraph (b)(6):
Example 1. X instructs S, a broker, to give to Y stock in a
publicly traded company that X holds in an account with S. The stock
is a covered security. On X's instruction, S transfers custody of
the stock to T, Y's broker. The transfer settles on August 15, 2013.
Under paragraph (b)(6)(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. If S
knows the settlement date, the transfer statement must also indicate
that the date of the gift was August 15, 2013, and, because S can
readily ascertain the fair market value of the stock on August 15,
2013, the fair market value of the stock on that date.
Example 2. Assume the same facts as in Example 1 except that,
one year later, Y transfers the stock to an account in his name with
U, another broker. Under paragraph (b)(6)(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. The transfer statement must
also indicate the date of the gift, August 15, 2013, and the fair
market value of the stock on that date either by reporting the value
that S reported to T or, because T can readily ascertain the fair
market value of the stock on August 15, 2013, by determining the
fair market value of the stock on that date.
(7) Specific identification of securities. Except as provided in
Sec. 1.1012-1(e)(7)(ii), a transfer statement must report a transfer
of less than the entire position in an account of a security that was
acquired on different dates or at different prices consistently with a
customer's adequate and timely identification of the security to be
transferred. See Sec. 1.1012-1(c). If the customer does not provide an
adequate and timely identification for the transfer, a transferor must
first report the transfer of any shares or units in the account for
which the transferor does not know the acquisition or purchase date
followed by the earliest shares or units purchased or acquired, whether
covered securities or noncovered securities.
(8) Information from other parties and other accounts--(i) Transfer
and issuer statements and transfers pursuant to an inheritance. When
reporting a transfer of a covered security, a transferor must take into
account all information, other than the classification of the security
(such as stock), furnished on a transfer statement, all information
furnished or deemed furnished on an issuer statement (as described in
Sec. 1.6045B-1), and all instructions and valuations furnished by an
authorized representative of the estate of a decedent, unless the
statement or instructions are incomplete or the broker has actual
knowledge that they are incorrect. A transferor may treat a customer as
a minority shareholder when taking the information on an issuer
statement into account unless the transferor knows that the customer is
a majority shareholder and the issuer statement reports the action's
effect on the basis of majority shareholders. Any failure to report
correct information that arises solely from reliance on information
furnished on a transfer statement or issuer statement or by an
authorized representative of the estate is deemed to be due to
reasonable cause for purposes of penalties under section 6722. See
Sec. 301.6724-1(a)(1) of this chapter.
(ii) Other information. A transferor is permitted, but not
required, to take into account information about a covered security
other than what is furnished on a transfer statement or issuer
statement or by an authorized representative of the estate of a
decedent, including any information the transferor has about securities
held by the same customer in other accounts with the transferor. For
purposes of penalties under section 6722, a transferor that takes into
account
[[Page 64101]]
information received from a customer or third party other than
information furnished on a transfer statement or issuer statement or by
an authorized representative of the estate of a decedent is deemed to
have relied upon this information in good faith if the transferor
neither knows nor has reason to know that the information is incorrect.
See Sec. 301.6724-1(c)(6) of this chapter.
(9) Failure to receive a complete transfer statement. A receiving
broker that has not received a complete transfer statement as required
under paragraph (a)(3) of this section for the transfer must request a
complete statement from the transferor unless, under paragraph (a) of
this section, the transferor has no duty to furnish a transfer
statement for the transfer. The receiving broker is only required to
make this request once. If the receiving broker does not receive a
complete transfer statement after requesting it, the receiving broker
may treat the security as a noncovered security upon its subsequent
sale or transfer. A transfer statement for a covered security is
complete if, in the view of the receiving broker, it provides
sufficient information to comply with Sec. 1.6045-1 when reporting the
sale of the security. A transfer statement for a noncovered security is
complete if it indicates that the security is a noncovered security.
(c) Reporting by other parties after a transfer--(1) In general. A
transferor that has furnished a transfer statement must furnish a
corrected statement for a covered security within fifteen days of
receiving a transfer statement, an issuer statement (as described in
Sec. 1.6045B-1), or instructions or valuations from an authorized
representative of an estate, that provides information under paragraph
(b) of this section that was not reported on the initial transfer
statement.
(2) Exception. A transferor is not required to furnish a corrected
transfer statement for a covered security under this paragraph (c) if
the transferor receives the transfer statement or issuer statement or
receives the instructions or valuations from an authorized
representative of an estate more than eighteen months after the
transferor furnished the transfer statement.
(d) Effective/applicability dates. This section applies to
transfers on or after January 1, 2011, of specified securities other
than stock in a regulated investment company within the meaning of
Sec. 1.1012-1(e)(5) and to transfers on or after January 1, 2012, of
stock in a regulated investment company.
0
Par. 13. Section 1.6045B-1 is added to read as follows:
Sec. 1.6045B-1 Returns relating to actions affecting basis of
securities.
(a) In general--(1) Information required. An issuer of a specified
security (within the meaning of Sec. 1.6045-1(a)(14)) that takes an
organizational action that affects the basis of the security must file
an issuer return setting forth the following information and any other
information specified in the return form and instructions:
(i) Reporting issuer. The name and taxpayer identification number
of the reporting issuer.
(ii) Security identifiers. The identifiers of each security
involved in the organizational action including, as applicable, the
Committee on Uniform Security Identification Procedures (CUSIP) number
or other security identifier number that the Secretary may designate by
publication in the Federal Register or in the Internal Revenue Bulletin
(see Sec. 601.601(d)(2) of this chapter), classification of the
security (such as stock), account number, serial number, and ticker
symbol, as well as any descriptions about the class of security
affected.
(iii) Contact at reporting issuer. The name, address, e-mail
address, and telephone number of a contact person at the issuer.
(iv) Information about action. The type or nature of the
organizational action including, as applicable, the date of the action
or the date against which shareholders' ownership is measured for the
action.
(v) Effect of the action. The quantitative effect of the
organizational action on the basis of the security in the hands of a
U.S. taxpayer as an adjustment per share or as a percentage of old
basis, including a description of the calculation, the applicable
Internal Revenue Code section and subsection upon which the tax
treatment is based, the data supporting the calculation such as the
market values of securities and valuation dates, any other information
necessary to implement the adjustment including the reportable taxable
year, and whether any resulting loss may be recognized.
(2) Time for filing the return--(i) In general. An issuer must file
an issuer return with the IRS pursuant to the prescribed form and
instructions on or before the 45th day following the organizational
action, or, if earlier, January 15 of the year following the calendar
year of the organizational action. For purposes of this paragraph
(a)(2), a redemption occurs on the last day a holder may redeem a
security. The issuer may file the return before the organizational
action if the quantitative effect on basis is determinable beforehand.
(ii) Reasonable assumptions. To report the quantitative effect on
basis by the due date in paragraph (a)(2)(i) of this section, an issuer
may make reasonable assumptions about facts that cannot be determined
before the due date. An issuer must file a corrected return within
forty-five days of determining facts that result in a different
quantitative effect on basis from what the issuer previously reported.
However, for purposes of this paragraph (a)(2)(ii), an issuer must
treat a payment that may be a dividend consistently with its treatment
of the payment under section 6042(b)(3) and Sec. 1.6042-3(c).
(3) Exception for public reporting. An issuer is not required to
file a return with the IRS under this paragraph (a) if, by the due date
described in paragraph (a)(2)(i) of this section, the issuer posts the
return with the required information in a readily accessible format in
an area of its primary public Web site dedicated to this purpose and
keeps the return accessible for ten years to the public on its primary
public Web site or the primary public Web site of any successor
organization.
(4) Exception when holders are exempt recipients. No reporting is
required under this paragraph (a) if the issuer reasonably determines
that all of the holders of the security are exempt recipients under
paragraph (b)(5) of this section.
(5) Exception for certain money market funds. No reporting is
required under this paragraph (a) by a regulated investment company
described in Sec. 1.6045-1(c)(3)(vi).
(b) Statements to nominees and certificate holders--(1) In general.
An issuer required to file an information return under this section
must furnish a written statement with the same information to each
holder of record of the security or to the holder's nominee. This
issuer statement must indicate that the information is being reported
to the IRS. An issuer may satisfy this requirement by furnishing a copy
of the information return.
(2) Time for furnishing statements. An issuer must furnish each
issuer statement on or before January 15 of the year following the
calendar year of the organizational action. For purposes of this
paragraph (b)(2), a redemption occurs on the last day a holder may
redeem a security. An issuer may furnish the statement before the
organizational action if the quantitative effect on basis is
determinable
[[Page 64102]]
beforehand. An issuer must furnish a statement that corresponds to a
corrected return described in paragraph (a)(2)(ii) of this section by
the later of the due date described in this paragraph (b)(2) or forty-
five days after determining the facts that result in a different
quantitative effect on basis from what the issuer previously reported
on the return.
(3) Recipients of statements. An issuer must furnish a separate
statement to each holder of record of the security as of the date of
the organizational action and all subsequent holders of record up to
the date the issuer furnishes the statement required under this
section. If the issuer records the security on its books in the name of
a nominee, the issuer must furnish the statement to the nominee in lieu
of the holder. However, if the nominee is the issuer, an agent of the
issuer, or a plan operated by the issuer, the issuer must furnish the
statement to the holder.
(4) Exception for public reporting. An issuer is deemed to furnish
an issuer statement under this paragraph (b) to all holders and
nominees if the issuer satisfies the public reporting requirements of
paragraph (a)(3) of this section.
(5) Exempt recipients--(i) In general. An issuer is not required to
furnish an issuer statement to a holder or its nominee if the holder is
an exempt recipient under Sec. 1.6045-1(c)(3)(i)(B), provided the
issuer has actual knowledge that the holder is described in that
section or has a properly completed exemption certificate from the
holder asserting that the holder is an exempt recipient (as provided in
Sec. 31.3406(h)-3 of this chapter). An issuer may treat a holder as an
exempt recipient based on the applicable indicators described in Sec.
1.6049-4(c)(1)(ii)(A) through (M).
(ii) Limitation for corporate holders. For an organizational action
occurring on or after January 1, 2012, an issuer may treat a holder as
an exempt recipient based on the indicator described in Sec. 1.6049-
4(c)(1)(ii)(A) only if one of the following applies:
(A) The name of the holder contains the term ``insurance company,''
``indemnity company,'' ``reinsurance company,'' or ``assurance
company.''
(B) The name of the holder indicates that it is an entity listed as
a per se corporation under Sec. 301.7701-2(b)(8)(i) of this chapter.
(C) The issuer receives a properly completed exemption certificate
(as provided in Sec. 31.3406(h)-3 of this chapter) that asserts that
the holder is not an S corporation as defined in section 1361(a).
(D) The issuer 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.
(iii) Foreign holders. An issuer may treat a holder as an exempt
recipient if the issuer, prior to the transaction, associates the
holder with documentation upon which the issuer may rely in order to
treat payments to the holder as made to a foreign beneficial owner in
accordance with Sec. 1.1441-1(e)(1)(ii) or as made to a foreign payee
in accordance with Sec. 1.6049-5(d)(1) or presumed to be made to a
foreign payee under Sec. 1.6049-5(d)(2) or (3). For purposes of this
paragraph (b)(5)(iii), the provisions in Sec. 1.6049-5(c) (regarding
rules applicable to documentation of foreign status and definition of
U.S. payor and non-U.S. payor) apply. Rules similar to the rules of
Sec. 1.1441-1 apply by substituting the terms ``issuer'' and
``holder'' in place of the terms ``withholding agent'' and ``payee''
and without regard to the limitation to amounts subject to withholding
under chapter 3 of the Internal Revenue Code. Rules similar to the
rules of Sec. 1.6049-5(d) apply by substituting the terms ``issuer''
and ``holder'' in place of the terms ``payor'' and ``payee.''
(c) Special rule for S corporations. An S corporation (as defined
in section 1361(a)) is deemed to satisfy the requirements of paragraphs
(a) and (b) of this section for any organizational action affecting the
basis of its stock if the corporation reports the effect of the
organizational action on a timely filed Schedule K-1 (Form 1120S),
``Shareholder's Share of Income, Deductions, Credits, etc.,'' for each
shareholder and timely furnishes copies of these schedules to all
proper parties.
(d) Special rule for certain regulated investment companies and
real estate investment trusts. A regulated investment company (RIC)
that reports undistributed capital gains to shareholders under section
852(b)(3)(D) or a real estate investment trust (REIT) that reports
undistributed capital gains to shareholders under section 857(b)(3)(D)
is deemed to have satisfied the requirements of paragraphs (a) and (b)
of this section for undistributed capital gains affecting the basis of
its stock if the RIC or REIT timely files and furnishes the information
returns required under section 852(b)(3)(D) or section 857(b)(3)(D) to
all proper parties for the organizational action.
(e) Acquiring and successor entities. An acquiring or successor
entity of an issuer that fails to satisfy the reporting obligations of
paragraphs (a) or (b) of this section must satisfy these reporting
obligations. If neither the issuer nor the acquiring or successor
entity satisfies these reporting obligations, both parties are jointly
and severally liable for any applicable penalties.
(f) Penalties. An issuer may use an agent to satisfy the
requirements of this section for the issuer. Nonetheless, the issuer
remains liable for penalty for any failure to comply unless it is shown
that the failure is due to reasonable cause and not willful neglect.
See sections 6721 through 6724.
(g) Examples. The following examples illustrate the rules of this
section:
Example 1. (i) C, a corporation, distributes stock to
shareholders on March 31, 2013.
(ii) Under paragraph (a)(2)(i) of this section, C must file an
issuer return with the IRS on or before May 15, 2013 (45 days after
the distribution date), reporting the quantitative effect of this
distribution on the basis of C's stock. Under paragraph (b)(2) of
this section, C must furnish issuer statements to its nominees and
certificate holders on or before January 15, 2014.
(iii) Alternatively, under paragraphs (a)(3) and (b)(4) of this
section, C may post by May 15, 2013, and maintain for ten years, the
return with the required information in a readily accessible format
in an area of its primary public Web site dedicated to this purpose.
Example 2. (i) D, a corporation, makes a cash distribution to
shareholders on December 10, 2013.
(ii) Under paragraphs (a)(2)(i) and (b)(2) of this section, D is
required to file an issuer return with the IRS and furnish issuer
statements to its nominees and certificate holders on or before
January 15, 2014.
(iii) On January 15, 2014, D is unsure whether the distribution
will exceed its earnings and profits for the fiscal year. For
purposes of section 6042(b)(3) and Sec. 1.6042-3(c), D must treat
the distribution as a dividend. Therefore, under paragraph
(a)(2)(ii) of this section, D is not required to file an issuer
return. If D later determines that dividend treatment was incorrect,
D must file an issuer return reporting the correct quantitative
effect on basis.
Example 3. E, a corporation, undertakes a stock split as of
April 1, 2014. E furnishes issuer statements under paragraph (b) of
this section on April 1, 2014, at which time the books and records
of E show that 90 percent of its outstanding stock is owned by
shareholders through a clearing organization as their nominee, 7
percent is owned by 5,000 individuals, and the remaining 3 percent
is owned by a dividend reinvestment plan operated by E that has
1,000 members. Under paragraph (b)(3) of this section, E must
furnish statements to the clearing organization, the 5,000
individuals, and the 1,000 members of the dividend reinvestment
plan.
(h) Effective/applicability dates. This section applies to
organizational actions occurring on or after January 1, 2011, that
affect the basis of specified
[[Page 64103]]
securities within the meaning of Sec. 1.6045-1(a)(14) other than stock
in a regulated investment company within the meaning of Sec. 1.1012-
1(e)(5) and to organizational actions occurring on or after January 1,
2012, that affect stock in a regulated investment company.
0
Par. 14. Section 1.6049-6 is amended by adding two new sentences to the
end of paragraphs (c) and (e)(2) to read as follows:
Sec. 1.6049-6 Statements to recipients of interest payments and
holders of obligations for attributed original issue discount.
* * * * *
(c) * * * However, for a statement required to be furnished after
December 31, 2008, the February 15 due date under section 6045 applies
to the statement if the statement is furnished in a consolidated
reporting statement under section 6045. See Sec. Sec. 1.6045-1(k)(3),
1.6045-2(d)(2), 1.6045-3(e)(2), 1.6045-4(m)(3), and 1.6045-5(a)(3)(ii).
* * * * *
(e) * * *
(2) * * * However, for a statement required to be furnished after
December 31, 2008, the February 15 due date under section 6045 applies
to the statement if the statement is furnished in a consolidated
reporting statement under section 6045. See Sec. Sec. 1.6045-1(k)(3),
1.6045-2(d)(2), 1.6045-3(e)(2), 1.6045-4(m)(3), and 1.6045-5(a)(3)(ii).
* * * * *
PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT THE
SOURCE
0
Par. 15. The authority citation for part 31 continues to read in part
as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 16. Section 31.6051-4 is amended by revising paragraph (c)(2) and
adding two new sentences at the end of paragraph (d) to read as
follows:
Sec. 31.6051-4 Statement required in case of backup withholding.
* * * * *
(c) * * *
(2) Except as provided in the prescribed form or instructions, the
amount subject to reporting under section 6041, 6041A(a), 6042, 6044,
6045, 6049, 6050A, 6050N, or 6050W whether or not the amount of the
reportable payment is less than the amount for which an information
return is required or, if tax is withheld under section 3406, the
amount of the payment withheld upon;
* * * * *
(d) * * * However, for a statement required to be furnished after
December 31, 2008, the February 15 due date under section 6045 applies
to the statement if the statement reports tax withheld from a payment
reportable under section 6045 or is furnished in a consolidated
reporting statement under section 6045. See Sec. Sec. 1.6045-1(k)(3),
1.6045-2(d)(2), 1.6045-3(e)(2), 1.6045-4(m)(3), and 1.6045-5(a)(3)(ii)
of this chapter.
* * * * *
PART 301--PROCEDURE AND ADMINISTRATION
0
Par. 17. The authority citation for part 301 continues to read in part
as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 18. Section 301.6721-1 is amended by revising paragraphs (g)(2)
and (g)(3) to read as follows:
Sec. 301.6721-1 Failure to file correct information returns.
* * * * *
(g) * * *
(2) Statements. The statements subject to this section are the
statements required by--
(i) Section 6041(a) or (b) (relating to certain information at
source, generally reported on Form 1099-MISC, ``Miscellaneous Income'';
Form W-2, ``Wage and Tax Statement''; Form W-2G, ``Certain Gambling
Winnings''; and Form 1099-INT, ``Interest Income'');
(ii) Section 6042(a)(1) (relating to payments of dividends,
generally reported on Form 1099-DIV, ``Dividends and Distributions'');
(iii) Section 6044(a)(1) (relating to payments of patronage
dividends, generally reported on Form 1099-PATR, ``Taxable
Distributions Received From Cooperatives'');
(iv) Section 6049(a) (relating to payments of interest, generally
reported on Form 1099-INT or Form 1099-OID, ``Original Issue
Discount'');
(v) Section 6050A(a) (relating to reporting requirements of certain
fishing boat operators, generally reported on Form 1099-MISC);
(vi) Section 6050N(a) (relating to payments of royalties, generally
reported on Form 1099-MISC);
(vii) Section 6051(d) (relating to information returns with respect
to income tax withheld, generally reported on Form W-2);
(viii) Section 6050R (relating to returns relating to certain
purchases of fish, generally reported on Form 1099-MISC);
(ix) Section 110(d) (relating to qualified lessee construction
allowances for short-term leases, generally reported by attaching a
statement to an income tax return);
(x) Section 408(i) (relating to reports with respect to individual
retirement accounts or annuities on Form 1099-R, ``Distributions From
Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs,
Insurance Contracts, etc.''); or
(xi) Section 6047(d) (relating to reports by employers, plan
administrators, etc., on Form 1099-R).
(3) Returns. The returns subject to this section are the returns
required by--
(i) Section 6041A(a) or (b) (relating to returns of direct sellers,
generally reported on Form 1099-MISC);
(ii) Section 6043A(a) (relating to returns relating to taxable
mergers and acquisitions);
(iii) Section 6045(a) or (d) (relating to returns of brokers,
generally reported on Form 1099-B, ``Proceeds From Broker and Barter
Exchange Transactions,'' for broker transactions; Form 1099-S,
``Proceeds From Real Estate Transactions,'' for gross proceeds from the
sale or exchange of real estate; and Form 1099-MISC for certain
substitute payments and payments to attorneys);
(iv) Section 6045B(a) (relating to returns relating to actions
affecting basis of specified securities);
(v) Section 6050H(a) or (h)(1) (relating to mortgage interest
received in trade or business from individuals, generally reported on
Form 1098, ``Mortgage Interest Statement'');
(vi) Section 6050I(a) or (g)(1) (relating to cash received in trade
or business, etc., generally reported on Form 8300, ``Report of Cash
Payments Over $10,000 Received In a Trade or Business'');
(vii) Section 6050J(a) (relating to foreclosures and abandonments
of security, generally reported on Form 1099-A, ``Acquisition or
Abandonment of Secured Property'');
(viii) Section 6050K(a) (relating to exchanges of certain
partnership interests, generally reported on Form 8308, ``Report of a
Sale or Exchange of Certain Partnership Interests'');
(ix) Section 6050L(a) (relating to returns relating to certain
dispositions of donated property, generally reported on Form 8282,
``Donee Information Return'');
(x) Section 6050P (relating to returns relating to the cancellation
of indebtedness by certain financial entities, generally reported on
Form 1099-C, ``Cancellation of Debt'');
(xi) Section 6050Q (relating to certain long-term care benefits,
generally reported on Form 1099-LTC, ``Long-Term Care and Accelerated
Death Benefits'');
(xii) Section 6050S (relating to returns relating to payments for
qualified tuition and related expenses, generally
[[Page 64104]]
reported on Form 1098-E, ``Student Loan Interest Statement,'' or Form
1098-T, ``Tuition Statement'');
(xiii) Section 6050T (relating to returns relating to credit for
health insurance costs of eligible individuals, generally reported on
Form 1099-H, ``Health Coverage Tax Credit (HCTC) Advance Payments'');
(xiv) Section 6052(a) (relating to reporting payment of wages in
the form of group-life insurance, generally reported on Form W-2);
(xv) Section 6050V (relating to returns relating to applicable
insurance contracts in which certain exempt organizations hold
interests, generally reported on Form 8921, ``Applicable Insurance
Contract Information Return'');
(xvi) Section 6053(c)(1) (relating to reporting with respect to
certain tips, generally reported on Form 8027, ``Employer's Annual
Information Return of Tip Income and Allocated Tips'');
(xvii) Section 1060(b) (relating to reporting requirements of
transferors and transferees in certain asset acquisitions, generally
reported on Form 8594, ``Asset Acquisition Statement''), or section
1060(e) (relating to information required in the case of certain
transfers of interests in entities (effective for acquisitions after
October 9, 1990, except any acquisition pursuant to a written binding
contract in effect on October 9, 1990, and at all times thereafter
before such acquisition));
(xviii) Section 4101(d) (relating to information reporting with
respect to fuel oils (effective for information returns required to be
filed after November 30, 1990));
(xix) Section 338(h)(10)(C) (relating to information required to be
furnished to the Secretary in case of elective recognition of gain or
loss (effective for acquisitions after October 9, 1990, except any
acquisition pursuant to a written binding contract in effect on October
9, 1990, and at all times thereafter before such acquisition));
(xx) Section 264(f)(5)(A)(iv) (relating to reporting with respect
to certain life insurance and annuity contracts);
(xxi) Section 6050U (relating to charges or payments for qualified
long-term care insurance contracts under combined arrangements,
generally reported on Form 1099-R);
(xxii) Section 6039(a) (relating to returns required with respect
to certain options); or
(xxiii) Section 6050W (relating to information returns with respect
to payments made in settlement of payment card and third party network
transactions).
* * * * *
0
Par. 19. Section 301.6722-1 is amended by revising paragraph (d)(2) to
read as follows:
Sec. 301.6722-1 Failure to furnish correct payee statements.
* * * * *
(d) * * *
(2) Payee statement. The term payee statement means any statement
required to be furnished under--
(i) Section 6031(b) or (c), 6034A, or 6037(b) (relating to
statements furnished by certain pass-thru entities, generally a
Schedule K-1 (Form 1065), ``Partner's Share of Income, Deductions,
Credits, etc.,'' for section 6031(b) or (c), a copy of the Schedule K-1
(Form 1041), ``Beneficiary's Share of Income, Deductions, Credits,
etc.,'' for section 6034A, and a copy of Schedule K-1 (Form 1120S),
``Shareholder's Share of Income, Deductions, Credits, etc.,'' for
section 6037(b));
(ii) Section 6039(b) (relating to information required in
connection with certain options);
(iii) Section 6041(d) (relating to information at source, generally
the recipient copy of Form 1099-MISC, ``Miscellaneous Income''; Form W-
2, ``Wage and Tax Statement''; Form 1099-INT, ``Interest Income''; and
the winner's copies of Form W-2G, ``Certain Gambling Winnings'');
(iv) Section 6041A(e) (relating to returns regarding payments of
remuneration for services and direct sales, generally the recipient
copy of Form 1099-MISC);
(v) Section 6042(c) (relating to returns regarding payments of
dividends and corporate earnings and profits, generally the recipient
copy of Form 1099-DIV, ``Dividends and Distributions'');
(vi) Section 6043A(b) or (d) (relating to returns relating to
taxable mergers and acquisitions);
(vii) Section 6044(e) (relating to returns regarding payments of
patronage dividends, generally the recipient copy of Form 1099-PATR,
``Taxable Distributions Received From Cooperatives'');
(viii) Section 6045(b) or (d) (relating to returns of brokers,
generally the recipient copy of Form 1099-B, ``Proceeds From Broker and
Barter Exchange Transactions,'' for broker transactions; the transferor
copy of Form 1099-S, ``Proceeds From Real Estate Transactions,'' for
reporting proceeds from real estate transactions; and the recipient
copy of Form 1099-MISC for certain substitute payments and payments to
attorneys);
(ix) Section 6045A (relating to information required in connection
with transfers of covered securities to brokers);
(x) Section 6045B(c) or (e) (relating to returns relating to
actions affecting basis of specified securities);
(xi) Section 6049(c) (relating to returns regarding payments of
interest, generally the recipient copy of Form 1099-INT or Form 1099-
OID, ``Original Issue Discount'');
(xii) Section 6050A(b) (relating to reporting requirements of
certain fishing boat operators, generally the recipient copy of Form
1099-MISC);
(xiii) Section 6050H(d) or (h)(2) (relating to returns relating to
mortgage interest received in trade or business from individuals,
generally the payor copy of Form 1098, ``Mortgage Interest
Statement'');
(xiv) Section 6050I(e), (g)(4), or (g)(5) (relating to returns
relating to cash received in trade or business, etc., generally a copy
of Form 8300, ``Report of Cash Payments Over $10,000 Received In a
Trade or Business'');
(xv) Section 6050J(e) (relating to returns relating to foreclosures
and abandonments of security, generally the borrower copy of Form 1099-
A, ``Acquisition or Abandonment of Secured Property'');
(xvi) Section 6050K(b) (relating to returns relating to exchanges
of certain partnership interests, generally a copy of Form 8308,
``Report of a Sale or Exchange of Certain Partnership Interests'');
(xvii) Section 6050L(c) (relating to returns relating to certain
dispositions of donated property, generally a copy of Form 8282,
``Donee Information Return'');
(xviii) Section 6050N(b) (relating to returns regarding payments of
royalties, generally the recipient copy of Form 1099-MISC);
(xix) Section 6050P(d) (relating to returns relating to the
cancellation of indebtedness by certain financial entities, generally
the recipient copy of Form 1099-C, ``Cancellation of Debt'');
(xx) Section 6050Q(b) (relating to certain long-term care benefits,
generally the policyholder and insured copies of Form 1099-LTC, ``Long-
Term Care and Accelerated Death Benefits'');
(xxi) Section 6050R(c) (relating to returns relating to certain
purchases of fish, generally the recipient copy of Form 1099-MISC);
(xxii) Section 6051 (relating to receipts for employees, generally
the employee copy of Form W-2);
(xxiii) Section 6052(b) (relating to returns regarding payment of
wages in the form of group-term life insurance, generally the employee
copy of Form W-2);
[[Page 64105]]
(xxiv) Section 6053(b) or (c) (relating to reports of tips,
generally the employee copy of Form W-2);
(xxv) Section 6048(b)(1)(B) (relating to foreign trust reporting
requirements, generally copies of the owner and beneficiary statements
of Form 3520-A, ``Annual Information Return of Foreign Trust With a
U.S. Owner'');
(xxvi) Section 408(i) (relating to reports with respect to
individual retirement plans on the recipient copies of Form 1099-R,
``Distributions From Pensions, Annuities, Retirement or Profit-Sharing
Plans, IRAs, Insurance Contracts, etc.'');
(xxvii) Section 6047(d) (relating to reports by plan administrators
on the recipient copies of Form 1099-R);
(xxviii) Section 6050S(d) (relating to returns relating to
qualified tuition and related expenses, generally the borrower copy of
Form 1098-E, ``Student Loan Interest Statement,'' or the student copy
of Form 1098-T, ``Tuition Statement'');
(xxix) Section 264(f)(5)(A)(iv) (relating to reporting with respect
to certain life insurance and annuity contracts);
(xxx) Section 6050T (relating to returns relating to credit for
health insurance costs of eligible individuals, generally the recipient
copy of Form 1099-H, ``Health Coverage Tax Credit (HCTC) Advance
Payments'');
(xxxi) Section 6050U (relating to charges or payments for qualified
long-term care insurance contracts under combined arrangements,
generally the recipient copy of Form 1099-R); or
(xxxii) Section 6050W (relating to information returns with respect
to payments made in settlement of payment card and third party network
transactions).
* * * * *
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
0
Par. 20. The authority citation for part 602 continues to read in part
as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 21. In Sec. 602.101, paragraph (b) is amended by adding the
following entries to the table in numerical order to read in part as
follows:
Sec. 602.101 OMB Control numbers.
* * * * *
(b) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described control No.
------------------------------------------------------------------------
* * * * *
1.6045-1(c)(3)(xi)(C)...................................... 1545-2186
1.6045A-1.................................................. 1545-2186
* * * * *
------------------------------------------------------------------------
Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
Approved: October 1, 2010.
Michael Mundaca,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2010-25504 Filed 10-12-10; 4:15 pm]
BILLING CODE 4830-01-P